Home Advice For The Young At Heart Tips To Avoid Business Failure

Tips To Avoid Business Failure


by Deborah Sweeney, CEO of MyCorporation.com

Over 50 percent of small businesses fail within the first five years of existence.  Close to half of those who failed could have foreseen their failure.  What this means beyond externalities, is there were factors these businesses could have worked on to prevent failure.  Although there is never a guarantee a business will be successful after taking so and so steps, a business can always reduce its risks and give it the best opportunity to succeed.

Implement these tools to keep your business from failing:

Understand your customer better than anyone else

According to Philip Greenspun in his “Tips for Startup Companies”, the most secure way to garner “supranormal profits” is to know one kind of customer better than the large companies.  It is nearly impossible to compete with a large company for the general public, and so a small business’ best chance to outperform a large company is by catering to a particular customer type.  The small business must know this customer better than anyone else if it wants its’ targets business.  Often times, previous experience with other companies will help a potential entrepreneur know how that company, or that industry in general, failed to meet the needs of a particular customer.  These are the customers that will be willing to find another company to provide a certain service or product.

However, personal experience and/or a friend’s experience must always be taken with skepticism.  Just because you experienced something, or a friend, or a friend’s friend heard someone experience something does not mean there is a market for that something.  Personal knowledge is very valuable and will help an entrepreneur know something more intimately than others, but this personal knowledge, like croutons on a salad, should be a complement and not the basis of your business strategy—which leads us to the next point to consider.

Business planning/strategy

Paul Carroll, co-author of “Billion Dollar Lessons“, concluded that the number one cause of business failure was misguided strategy.  Some people advise entrepreneurs that it is more important to do than to plan.  However, Paul Carroll, in his research, found far more businesses failing due to poor strategy than poor execution.

The mantra, “go with the flow,” is not conducive for business success.  Don’t wait to figure things out.  Plan ahead, make contingencies, and stay disciplined to your strategy.  Often times, businesses that get off the ground find new opportunities, new directions, and new possibilities that are tempting to take.  This is where many businesses end up crashing.  Taking on new risks without planning for that risk is a formula for failure.  If a new opportunity is not part of the original business plan or a contingency plan, taking on that extra risk is probably not worth it.  Note that a good business plan will also include possible opportunities in the future and the process to assess these opportunities.  Planning isn’t everything, but it sure helps to know where you’re going.

Stay within your expertise

Similar to the above point, stay with what you’re good at.  Any good business plan will identify the things you are an expert in.  Sticking to your expertise and not over-extending yourself into areas where you’re unfamiliar with will help your business continue to move forward.

When faced with the prospect of expanding, your expertise will help you know where to expand.  Fries with a burger make sense.  A manicure within a hair salon makes sense.  Even ice cream and donuts within a fast food Chinese restaurant kind of makes sense.  But medical supplies in a snack shop won’t make sense no matter where the snack shop is located and no matter how lucrative the medical supply industry becomes.  Stay within your expertise.

Listen to the naysayers

People can get too consumed with our own ideas.  Sometimes, it’s good to have someone close telling why your idea is bad.  For any business decision, knowing the risks and the potential pitfalls are a valuable asset in any plan to move forward.  Having an awareness of the dangers will help filter out the ideas that are not good, but it also gives a valuable psychological effect if an idea should fail.  It prevents the “if I only knew” game and helps the entrepreneur continue to move forward.  Also, businesses that do well tend to have a culture that fosters discouragement.  But be warned.

Although it is good to have someone telling you why an idea is bad, rarely does anyone want to be the bad guy all the time.  Have different people at different times be responsible for the negatives of any idea or proposal.  This will help create a more open environment for people to voice their disagreements and to accept them.

Don’t ignore technology

Technology is moving incredibly fast.  What may have been at the cutting edge of technology five years ago is now obsolete.  What may have been in demand yesterday may no longer have any demand (when was the last time you’ve been to a one-hour photo store? Or used a pay phone? Or listened to a Walkman?).  Look at Blockbuster and other rental stores.  Blockbuster pretty much led the rental media industry for a couple of decades and now its stores are near extinction.  With the advent of mail-order rentals, instant streaming, and rental kiosks, any demand Blockbuster demanded is now non-existent.  Blockbuster was too slow to adapt to technology even though the signs were ever-present.  To see how technology can kill a business, compare Blockbuster stock (high of $29 ten years ago and now worth less than 5 cents) with Netflix stock (less than $9 ten years ago and now worth over $250).

Technology is difficult for most of us to understand, but never under-estimate its power.  Always adjust your business plan as competitors begin implementing new technology.  Make contingencies and see where your customers are going.  Don’t underestimate your competition.  They may have something that you will need too.

Don’t underestimate the value of branding

Novel ideas are great.  Creating a product or service or even a business plan that is new and innovative will help your business compete against others.  But there’s a truism with any novel idea.  They never stay novel.  Eventually, someone else will copy a good novel product or service or business plan and so the only thing separating your business from a competitor will be the brand.  Don’t under-estimate the importance of a business name, the business persona, the business identity.  Continually tweak and improve the brand and make sure your customers are aware of your brand.  When possible, make PR investments and keep an active and relevant social network (e.g., blogs, Facebook, Twitter, etc.).  Do what it takes to make your product and/or service synonymous with your brand.

Don’t be in a rush to hire “top” managers

Startups are limited in their pool of potential managers.  The best managers work for the best businesses.  Startups are not good businesses, they’re risky.  Why would a good manager choose to work for a startup rather than an established corporation?  Often, the “top” managers that a startup can garner are the ones who were rejected by other established businesses and so it may not be a good idea to hire a so-called “top” manager.  Rather than looking for someone from a prestigious business school and spending lavishly to get him or her, find people who are like you and who share the same vision as you and who you work well with.  When the company grows and has had some success and actually needs a new manager, then start looking for a top manager.


As CEO of MyCorporation Business Services, Inc. (“ MyCorporation.com”),  Deborah Sweeney is an advocate for protecting personal and business assets for all consumers. With her experience in the field of corporate and intellectual property law, Deborah can provide insightful commentary on the benefits, barriers and who should consider incorporation and trademark registration.  She also has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of MyCorporation.com’s customers.




  1. I think so many of us rush into just finding ANY client out there to hire us but if we actually take the time to plan and strategize our business outlook we can be more successful. Incorporating a business is the easier part, the execution of service, finding quality clients and learning to say no to the wrong ones is the tough part.. good article

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