Every business owner can learn valuable lessons from studying how successful businesses are born and grow. Looking out for, and replicating, key drivers of success in other businesses, can help to drive our own business forward.
However, vital insight can also be gained from business failures. In many cases, what we can learn from terminal business mistakes can prove even more illuminating than what we can glean by following the high-flyers.
Here, Robin Booth shares his experience of going bust, and highlights lessons we can all learn from a business failure.
The first real business I joined was a startup. It had been running for only a few months when I started working there.
A year and a half later, the business had closed its doors and I was looking for another job!
In this article, I’m going to lay out what I learned from going bust. Working in startups has been a baptism of fire for me, and has highlighted a lot of problems faced by young businesses. By recognising these problems and planning well you will increase your chances of succeeding where other businesses do not.
There is no magic formula, but…
There is no magic formula, or golden rule to ensure a business succeeds (except perhaps the combination of a lot of money and a lot of time).
Businesses are all different and operate in different conditions, with different competitors, either global or local. But there are common factors which affect businesses, and by mitigating the negative effect of these factors you can give your business the best chance of success.
Factor 1: Plan and build your business realistically
First a disclaimer – It’s great to build a business that’s scalable. If your business can’t handle success, that’s going to be a problem. Forethought and preparation here are essential. But what’s more important is building a business that works in the first place.
Don’t build something world class for your 10 customers
Over-planning and overspending to creating a ‘world-class’ business isn’t going to help you get your first ten customers (and maybe not your first thousand, depending on your business).
Spend time and money to build a business for today, before you spend time and money on building the business you hope to have in 5 years time. You won’t get there if you don’t have a viable business in the first place – and you will learn a lot along the way about what you need to run your business effectively.
Over-optimistic sales projections
Maybe the cardinal sin of business planning is assuming you’ll get far more sales than you can give evidence for.
‘Build it and they will come’ (a misquote from Field of Dreams, but I’ve heard it more than once in a business setting) is a not a practical approach to developing a sales pipeline. Keep your expectations realistic and your business plan assumptions pessimistic.
The biggest danger a new business can face is cash flow problems in the first years of operation – if your sales cannot support the business you will need to find other ways of financing the business. Unless you planned for this from the start it is not a position you want to find yourself in.
Factor 2: Avoid overspending
The costs of running a business can quickly swallow any income the business makes, especially in the early stages.
Keep running costs low
Ensure that you are not paying too much for the goods and services your business requires.
Think hard about what you really need to run the business and what costs you could cut if you need to. It sounds pessimistic, but it’s realistic – and it’s the way that successful businesses succeed.
Don’t throw (too much) money away on experimentation
If you have money to spend don’t just throw it away. This particularly goes for marketing.
It’s tempting to say ‘experiment’, as this is a hands-on, practical way for you and your team to learn. But keep a strict limit on this.
If you are experimenting then your goal is to learn something. It is not to spend thousands on a form of advertising you do not know how to get a good return from. There are often lower cost alternatives you can consider, before dedicating money to experiments.
Paying too much for badly optimised marketing
Similar to the last point, if what you are paying money for does not generate the return you need, you should consider stopping or changing your activities. Two good examples are paid online advertising and expensive events like trade shows.
Paid ads can be powerful tools, but to generate a good return you need to understand how to target them and how to analyse the results of your campaigns.
Shows can be a great way to get your business in front of the right people and meet your customers face-to-face – but you need to be confident that this large cost is worth it in the early stages of a business.
Factor 3: Understand your customers
A lack of proper market research can lead to disappointing performance.
Research your market so you always get a good return on investment
The main reason research is avoided is that it is time-consuming and often costly in-itself. But without understanding your market you cannot understand what you are likely to achieve.
A big part of this research is understanding how best to advertise to your potential customers.
Delivering exceptional customer service is incredibly important
So far this list has been fairly negative. But it’s not the whole story. One amazing thing I learned from startups is that when you are building a business every customer interaction really matters.
Any new business will have teething problems. Customers will have issues, or be annoyed at your service in some way. How you deal with these customers will set the tone for the business.
In the startups I have worked in there is one word which sums up their attitude to dealing with customers – and this is generosity. Always do the right thing by your customers, and then do some more. The good feeling this generates cannot be bought.
Small though it may sound, word-of-mouth can be a great factor in growing a business. And if those words end up online with a link pointing to your website, so much the better.
This article has been written exclusively for ByteStart by Robin Booth of Brixx.com the financial forecasting app that turns your ideas into numbers.
Last updated - 28th December, 2018