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When an entrepreneur fails, the business fails too. There are internal and external causes of business failure. The result of business failure for a company to cease operations. Businesses can fail because of lack of profit, insufficient revenue, lack of funding, bad management, not enough revenue, bad business model, and incompetent management. Entrepreneurs can take specific steps to avoid failure.

What can you do to avoid failure as an entrepreneur?

To be an entrepreneur is to fail. Failure is just another step toward business success. Let me explain. All entrepreneurs fail. Yes. All of them. It is the harsh reality of entrepreneurship. Entrepreneurs might fail before they even begin. The task of starting a business is just too enormous. Other entrepreneurs might fail within the first few weeks or months. Some entrepreneurs fail within the first couple of years.

Are you thinking about opening a new business? Have you been dreaming about owning your own small business?

Owning a business is about dealing with some unpredictable challenges. Whether you succeed or fail in business has a lot to do with how you deal with the unexpected. In fact, about 20 percent of businesses fail in the first year of trading. This is the reason many people feel uncomfortable with the idea of owning a business. Countless external and internal factors hugely affect your business.

As an entrepreneur, you are traveling on a path you haven’t traveled before. And the road to success is one that you are building while moving forward. Perhaps the most challenging part of entrepreneurship is that you rely on a set of skills you haven’t learned yet. Unfortunately, it is this limited experience that often leads to widespread business failure. And when a business fails, everyone loses, including employees, customers, investors, and suppliers.

Types of Business Failure

There are different kinds of business failures. Some failures are preventable, others are unavoidable, and there are strategic business failures.

Preventable failures are the saddest. They are sad because these business failures could have been prevented. Preventable business failures happen when entrepreneurs ignore the warning signs. This type of business failure is entirely avoidable if the entrepreneur follows best practices. You can easily avoid preventable failures if you pay attention to the details of the business and hire the best people.

If you’ve suffered a preventable business failure, it’s time to assess your weaknesses honestly. Then, change your approach in future ventures based on what you have learned.

Unavoidable failures are much rarer in business. These business failures involve a unique set of factors like changing technology, new laws and regulations, macroeconomic changes, or global crises. This failure is plaguing travel businesses beset by the Covid-19 crisis that almost no one saw coming.

The lesson from this type of business failure is that sometimes no amount of success or preparation can help you prevent failure. However, you can create systems to spot unavoidable problems and take corrective action before destroying your company.

Strategic business failures are the best kind. Some of the most successful entrepreneurs try new ventures and allow them to fail fast. This type of business failure is smart because it doesn’t consume too many resources.

When you fail like this, you walk away with useful information. Instead of something to be ashamed of, you have data you can build on. It’s nothing more than a learning experiment. It allows you to find a new business model that works.

What is the failure rate of all entrepreneurs?

Entrepreneurs start many different types of businesses. Some businesses have higher failure rates than others. According to a study that was done by Harvard Business School, 75% of venture-backed businesses fail. The failure rate of companies after five years in business is about 50%, and more than 70% after 10-years in business.

Why do most entrepreneurs fail?

There are many causes of entrepreneur failure. One of the biggest reasons people fail as entrepreneurs is because they were never able to think like entrepreneurs. To succeed as an entrepreneur is to think differently.

Business Failure and Poor Leadership

Poor leadership skills can hurt a business in many ways. Entrepreneurs can avoid failing in business by working on their leadership skills. For example, you will struggle as a business leader if you fail to communicate the direction of the business to your team members.

Perhaps your leadership is not in agreement on how to run the business. You and your leaders may contradict each other or even argue about company goals and objectives. Business challenges require strong leadership. Individual issues can snowball into unmanageable problems without effective leadership, pushing the company toward failure.

How to avoid leadership failure?

Dysfunctional leadership is a common reason for business failure. The results of bad leadership will trickle down and negatively affect every segment of your operation, from productivity to employee morale.

If you want to avoid failing in business, learn, study, improve your leadership skills. Do whatever it takes to become a stronger leader. Learn from other entrepreneurs and see what you can to become a better leader.

What happens when entrepreneurs fail?

Unfortunately, the reality of entrepreneurship is often failure. What do entrepreneurs do if they fail? Many failed entrepreneurs have been burned so badly that they give up on entrepreneurship for good. Others are ready to start again not long after they shut down their failed business. The most resilient entrepreneurs are able to recover after a failure.  They recover financially and emotionally and ready to start a new business. They accept failure and learn from the experience. Many of them seek out mentors as they search for answers. They take one step at a time. The experience of failing makes entrepreneurs wiser, many of them learn from the experience and try again.

How can a failed entrepreneur survive?

There is life after entrepreneurship. Eliminating failure from their vocabulary is step number one. Entrepreneurs who recover after failure build on their support network. They reach out to friends and family for support. Many entrepreneurs become employees. Some of them take a job only as a temporary measure. They work until they have time to figure out the future.

How to think like an entrepreneur?

  • Take Responsibility – It’s on you. Entrepreneurial thinking starts with taking responsibility for everything that happens in your business. That means taking responsibility for the good and the bad.
  • Visualize Success – Entrepreneurs think about what success looks like. They take time to analyze their business and look carefully at their vision and mission. The spend time on creating mental images of success. Entrepreneurs can connect their dreams with the required skills to succeed.
  • Think Strategically – Entrepreneurs take strategic risks and adjust as necessary. They make decisions based on measured feedback. They don’t allow emotions to drive their decisions.
  • Take Action – Entrepreneurs think about their goals and take action when necessary. Dreamers dream, but entrepreneurs roll up their sleeves and take the necessary steps to succeed.
  • Learn from Failure – Entrepreneurs think about failure differently. While many people consider failure a personal failing, entrepreneurs look at failure as a learning opportunity. They think of failure as feedback. It is just another opportunity to learn.

The risk of starting a business leads most people to quit before giving their million-dollar idea a shot. Obstacles and road bumps constantly arise to deter an entrepreneur’s success. Life savings, years of dedication, and close relationships can be lost over a failed a venture. I recommend that you read Simplify: How the Best Businesses in the World Succeed.

To learn how to avoid failure as an entrepreneur, follow these practices:

1. Focus your efforts.

With an endless supply of information and technology available, achieving your entrepreneurial goals and providing a service to customers won’t be your issue. Instead, learning to focus your business objective may prove more difficult. If you want to avoid failure as an entrepreneur, determine which tasks and projects pose the greatest threat for wasting your time and energy.

Determine tasks that fall outside the focus of your business strategy and outsource those to create a lean company structure. Knowing when to delegate provides entrepreneurs with the ability to refine and specialize their own service. Outsourcing tools, such as Amberly or Zapier, can be great resources to help you maintain your focus.

Here are a few tips that will help you stay focused on what matters:

  • Minimize email time. Only check your email once or twice a day. You could easily give yourself an extra couple of hours of time by reducing the time spent reading emails.
  • Resist the urge to work on a project until it is “perfect.” If you are 95% happy with the outcome, move on to the next task. No matter how much more time you dedicate to a project it might never be 100%. In the end, all you did was that you have wasted another three hours.
  • Prune your to-do list. Not everything on your to-do list is worthy of your attention. Delegate most everything and only focus on what really drives your business forward.
  • Stop the research. There is such a thing as too much analysis. Make a decision fast and move on to the next task.
  • Don’t hide behind busyness. If you are overloaded with projects, you are either working on projects that should have been delegated or you are not the best person for the task.

2. Know who to surround yourself with.

The people in your day-to-day circle have more influence than you might think. Friends, family, and colleagues have the power to change your mood, decisions, and habits. Spending even a little time with someone can change your attitude and later actions. Be careful who you choose as a mentor or sounding board.

Most people carry an optimistic or pessimistic outlook. Optimists often support creative idea generation and think big. They may increase your momentum, but are not always practical. Pessimists can threaten your confidence for success, but they may predict problems that you wouldn’t have seen.

The people in your network bring different experiences and skills to help you in different situations. Think about the kind of person and energy you want to have around. Being smart about who you place in your inner circle will help you learn how to avoid failure as an entrepreneur.

3. Create a company culture.

Eric Ries encourages startups to create a culture of learning and innovation in his book, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. As the leader of an organization, you can set the stage for your employees. Reward your employees’ ingenuity by allowing them the time and achieve freedom to pursue relevant interests.

Your actions and behaviors set the norm for a small organization. ‘Do as I say and not as I do’ doesn’t apply to entrepreneurs. Know your best practices and set processes throughout the company to achieve optimal performance in all avenues.

4. Designate your MVP.

Every company needs a leader, but it doesn’t have to be a person. Your company should offer a product or service that competes on the market by offering great value to the customer. Knowing how to avoid failure as an entrepreneur means maximizing this value and your profit.

Invest your time and money into a key product and service to turn it into your bread and butter. Minimize your costs in development, and target your energy towards adding value to your product or service.

5. Only build what is needed.

If you want to be a successful entrepreneur, you have to create what people want. The world is full of products nobody wants. Entrepreneurs who fail are makers of things. Entrepreneurs who succeed only make products people are willing to pay for. They create their products working with the customer. There is a symbiotic relationship between the product creator and the market.

How to create something people want to build a successful business?

  • Talk to your (future) customers. Most entrepreneurs fail because they are too lazy to talk to their customers. Unsuccessful entrepreneurs make assumptions and fail. You will not, let me repeat, you will not create a winning product without consulting your customers. It is so simple, yet most entrepreneurs ignore this critical fact.
  • Build a great product. Does your product or service solve real problems? Can you fundamentally improve peoples’ lives? Can you help businesses in a big way? You can’t settle for mildly improving for what’s out there? Does your product save money? Does it help people make more money? Does it help people save time? You get the idea. I hope.

6. Sell before you build.

Never assume that your idea is so good that people will pay for it. Ideas are cheap. The only way you can really know that you have something valuable is when you pre-sell it. You should be able to meet with a prospect and pre-sell your product to him. If you can’t you are either talking to the wrong person or you have the wrong product or wrong price.

The best thing about pre-selling your product is that you don’t need a lot of money. Most people understand that when you are pre-selling you are not selling smoke and mirrors. You are not pre-selling to deceive your customers. You will be upfront with your customers. You will share that you are in the process of developing a product and that you can only do it with their support. As early customers, they will be able to shape your product and have a real influence on the final product.

The main reason customers would support you this way is that your product solves a real problem they have. If you have the promise of a truly great product, customers will support it.

Why should you pre-sell your product?

  • Build better customer relationships. Selling is building relationships with your customers. If your idea resonates with the market, you will be able to pre-sell your idea. Customers will provide early feedback which is going to help you as you develop your product.
  • Market validation. If people are willing to pre-pay for your product, they are validating your idea. This is a great way to prove product viability.
  • Test pricing. Pre-selling allows you to test your pricing. This is a low-risk method to test your pricing model.

7. Create systems.

You can’t effectively scale your business without systems. If you can’t create systems, you won’t be able to grow your team. If you want to grow your sales, you need a sales and marketing system. If you want to service more customers, you need a customer service system. If you want to grow your team, you need a system to train and retain them. The best businesses are built on systems.

Entrepreneurs should implement the following systems to succeed:

  • Talent Management System – Talent management is an integrated software solution designed to help entrepreneurs find, attract, recruit, and retain talent.
  • Marketing Management System – Accurate and insightful marketing management is a critical component of business success. A marketing management system (MMS) drives marketing strategies and encourages continuous improvement. The MMS incorporates both internal and external data to ensure that decisions are based on real insight instead of assumptions.
  • Sales Management System – A sales management system (SMS) is necessary for managing and analyzing all sales activity on a single scalable platform. It is designed to help sales teams work faster and with greater efficiency.
  • Financial Management System – Entrepreneurs use financial management system (FMS) to oversee and govern company income, expenses, and assets. The objective of the FMS is to maximize profitability and ensure sustainability. An effective FMS will improve business performance by reducing record-keeping redundancies, streamlining accounts receivables,  ensuring tax and regulatory compliance, and eliminating accounting errors.
  • Legal Management System –
  • Operational Management System – Operational complexity is one of the biggest battles entrepreneurs face. An operational management system (OMS) enables entrepreneurs to minimize the complexity of their business.
  • Client Management System – It is often referred to as customer relationship management (CRM) system. The client management system or CRM is helping organizations manage and keep track of clients or customers. The CRM is designed to manage past, present, and future customers. Too often entrepreneurs gloss over the need for a CRM.

8. Don’t run out of cash.

You can avoid failing as an entrepreneur if you don’t run out of money. Lack of money is one of the most common reasons for a business to fail. Most businesses fail before they even get started because they mismanaged their finances. Understand the capital requirements of business before you start. Study similar businesses to understand what it takes to start and successfully manage a business. Great entrepreneurs understand the last dime, where the money is coming from, and where it’s going. Money should be part of your contingency plan. Think about the COVID-19 crisis. Many businesses didn’t have sufficient capital to call upon when needed.

9. Loss of interest.

Let’s face it, entrepreneurship is incredibly difficult. Entrepreneurs are required to pay a huge price for success. For every entrepreneurial success, there are hundreds of failures. The constant pressures of entrepreneurship can take its toll on even the most motivated entrepreneur. It is a stressful job. Entrepreneurs are required to juggle many roles, facing countless setbacks, hiring challenges, and market downturns. For many entrepreneurs, neglecting their health and well being is too huge of a price to pay to continue.

10. The crisis of a lifetime.

The life of an entrepreneur is difficult. Add a global crisis such as the Covid-19 epidemic, and failure might be the only option for millions of entrepreneurs. Unfortunately, there are some things no one can prepare for. Because most entrepreneurs are small business owners, they have greater credit constraints than large corporations. Small businesses are also more sensitive to weak consumer demand. They are the hardest hit segment of the business landscape.

Sadly, many entrepreneurs were simply overwhelmed by the realities of the Covid-19 global crisis and were forced to shut down their business.

Let’s face it – no one becomes an entrepreneur hoping to fail, but many do so. Use the experience of entrepreneurs before you to maximize your chance for success. Don’t let the fear of failure stop you from trying. Success is possible.

How to stop my business from failing?

The best way to stop your business from failing is to refuse to give up.
That’s why to stop your business from failing; it is an absolute must to assess the current situation. The only way forward is to understand the changes you must make and execute your plan. To make it happen, the willingness to succeed must be there. If you lose the passion for your business, you will most likely fail.

Think of business challenges as opportunities to learn. Tough times are normal, but they are necessary for business success. You must face challenges in order to succeed in business. It’s one of the hardest aspects of entrepreneurship.

Struggle is common for businesses of all sizes. But, almost all challenges can be resolved by taking a realistic assessment of the issue. With the right approach, every problem has a solution. But, if the constant struggles overwhelm you, you might be unable to stop your business from failing.

That’s why you cannot hide from the challenges. And you should never ignore them because the longer you avoid them, the biggest problems they create. So, take a step back, evaluate your business, and after identifying the root cause of the issues, take the necessary steps. If you quickly resolve the problem, it may help you prevent business failure.

If my business fails what happens?

For many entrepreneurs, there is a hard question to answer after a business fails: “What to do after my business fails?”

The most important thing to realize when your business fails is that you are not a failure. Yes, your business failed, but that doesn’t mean you failed as a person.

Failure is a learning opportunity for entrepreneurs. It’s your chance to take soak up everything you’ve learned and apply it to a new venture or job. But then, you have to get back up and start moving forward.

Realistically, entrepreneurs should expect failure more than success. But, unfortunately, statistically, many successful business people had failed more before they started to succeed.

Remember that you can never completely eliminate risk from a business. So when you fail, it’s time to shift your perspective, make adjustments, and start your next path toward success.

How to recover from a business failure?

To recover from a business failure, you must accept the failure and move on in a constructive manner.

Take a break

To recover from business failure, you must give yourself a break. Failing in business is a huge life change. Business failure can be humiliating, intimidating, and create the wrong mindset. Don’t rush to the next opportunity without processing what happened in your failed company. Rushing into the next thing is just another form of avoiding the inevitable. Don’t avoid facing the tough issues. Face them, learn from them and build on the experience.