Do you ever wonder why most businesses fail?

When you start a business there are many things you don’t know. Screwing up is part of the fun. OK, so it’s not always fun, but it’s going to happen anyway.

You might hear a failed entrepreneur say “We ran out of money”. Others will tell you “We were crushed by the competition“, or “My business partner cheated me out of all my money”.

The fact is that by the time a business fails entrepreneurs have made several mistakes.

The sad thing is most entrepreneurs have no clue of the magnitude of their mistakes until it is too late.

A business almost never fails for one single reason.

Even successful entrepreneurs make mistakes. Mistakes are not the problem. Being unaware of your mistakes is what really hurts your business.

If you are going to succeed in business you have to develop an awareness of mistakes.

Successful entrepreneurs learn from mistakes.

Too many “trials and errors” lead to failure.

Entrepreneurs make costly mistakes at all phases in business from pre-startup to well-established.

Early Business Mistakes

Insufficient planning – Does this mean that you have to have a 50-page business plan? No. At the very least, your business plan or business strategy should include:

  • Clear description of your business,
  • Your measurable goals for the business,
  • Analysis of your competition,
  • Your marketing plan,
  • Budget and cash flow projections.

Not seeking legal advice – Difficulties could quickly turn into impossibilities when coupled with legal mistakes. The following are some of the more common legal mistakes entrepreneurs make:

  • You might take pride in being a DIY entrepreneur, but it can come back and bite you. Customizing documents you download could be insufficient without the help of a legal professional. A good lawyer can understand the unique needs of your business. It’s OK to combine DIY in conjunction with professional help to save money.
  • Nobody wants to think about death, divorce, disability when starting a business. Either of them can ruin your business without a buy-sell agreement.
  • How can you forget the famous Zuckerberg/Winklevoss Facebook litigation? With a written founder agreement list the details of your partnership such as; what are the roles and responsibilities of the founders, who gets what percentage of the business, how much time commitment is expected of each founder, what salaries are the founders entitled to, how will the sale of the business decided, and more.
  • Determine the right business entity. You have multiple options from a sole proprietorship to LLC to S or C corporation. The wrong entity could end up hurting your business multiple ways.
  • Not protecting your intellectual property is a common mistake. If you are developing a product, technology, or service, consider the appropriate steps to protect the intellectual property you have developed.

Not knowing yourself – You might be the wrong person for your own business.

I once started a networking business that was growing nicely. People were paying us. We had an excellent reputation in the business community. We had groups in three states. We were growing.

The problem was that I hated the business. There was nothing wrong with the business, but I was the wrong person for the business. I sold my business and it continued to grow.

Your business is like a glove it has to fit you.

Just because a business works for one entrepreneur it doesn’t mean it works for all.


Borrowing too much

The reason for borrowing money is to take your business to the next level. If you take on too much you are creating more possibilities for failure than success. The excess money will enable you to invest things your business is not yet ready.

Spending too much

There are an infinite ways to spend too much on your business from too large of an office space to too much inventory to hiring too many people. Employee wages, rent, and inventories are the biggest expenses in business.

Insufficient capital

Too much money can hurt your business, but the lack of capital will kill your business. Insufficient capital is mostly the result of miscalculating the operating expenses of your business.

Inadequate pricing

Pricing is more of an art than science. Don't allow your fear of competition to sell yourself short and offer your services below market.

Selecting the wrong partner – It’s impossible to build something great alone. The right partner will help you succeed. Your ideal business partner will compliment your skills. If you are an introvert with no sales experience and your business can’t succeed without strong sales skills find a partner with the necessary skills.

The greatest challenge with partnerships is that they can kill your business.

No amount of passion will repair the damage bad partnerships cause.

Business partners don’t have to be friends. Neither will they agree on everything. Larry Page and Sergey Brin quarreled all the time as they were starting Google.

Evan Williams and Biz Stone started out as rivals, but in 2006 they started Twitter.

You don’t have to be, but it helps to be friends. Bill Hewlett and Dave Packard were best friends with similar strengths and management styles, they complemented each other.

Lack of financial intelligence – You don’t have to be a CPA to understand your financials. If you don’t understand your P & L, your balance sheet, or your cash flow statement, sit down with your accountant and ask.

Understanding your financials helps you keep your finger on the pulse of your company’s fiscal health.

Fooling yourself with vanity metricsVanity metrics will feed your ego and destroy your business. Vanity metrics are meaningless because they don’t help you make good decisions.

Wanting to be the smartest person on the team – If you are serious about building a successful business you must have the help of people smarter than you.

Entrepreneurs who fail have all the answers.

They want to be the superhero of the company. They want to solve all problems.

They want people around, but only as long as they fall in line with the others and are willing to follow the leader.

Micromanagers never build valuable teams.

Solving problems that don’t need to be solved – Entrepreneurs who fail come up with solutions for problems that don’t need to be solved.

If you develop software because you “know” it will do great things you will fail.

You could spend two years coding something nobody will want.

Solving problems that don’t need to be solved is just another form of cowardice.

You don’t know what other people want. The only way to find out is by asking.

Lack of sales – No amount of enthusiasm will make up for too little sales.

Well-Established Business Mistakes

Employing the wrong people for too long – It’s difficult to fire people. Entrepreneurs who fail to fire the wrong people will fail. Small businesses especially can’t afford to carry the wrong people. They will bring down the performance of the entire company. The most successful entrepreneurs hire slowly and fire quickly.

Taking customers for granted – I love it when I call a business and the auto attendant recording lies to me about how important my call is to the company, just to keep me on hold for 10 more minutes.

Getting fat and lazy – Business is cyclical. When times are good it’s easy to be complacent. The companies that allow themselves to become complacent will be the first ones to fail as the economy slows down.

Executives would prefer to not changeResisting business trends – There are few bigger missed opportunities in business than Kodak’s. It wasn’t an overnight failure.

Kodak had decades to transition from film to digital photography.

Kodak made a series of choices (mistakes) that set them on course for bankruptcy.

Steve Sasson, a Kodak engineer, invented the first digital camera in 1975. You would think Kodak management would jump up and down, celebrating Sasson’s invention.

Kodak management dismissed  the digital camera as “that’s cute – but don’t tell anyone about it”. For decades, Kodak management failed to see digital photography as a disruptive technology.

Please share your thoughts about the costliest mistakes entrepreneurs make in the comments section.


[adrotate group=”2″]