Last time we discussed importance of performing an autopsy on a dead business. No, I haven't been watching too many of those wonderfully graphic, TV forensic investigation shows. The reason I recommend you do a business autopsy is to uncover exact reasons why business died. This is valuable information that can not only heal feelings of personal failure, but also better prepare you for pitfalls of business should you ever take plunge again.
Starting a business is never easy and odds of your success or failure are about even money. The fact is, approximately half of all small businesses fail within first four years. And a large percentage of those failures occur within first year. These are statistics that keep many entrepreneurs awake at night. Like Sisyphus, always pushing that boulder to top of hill only to have it tumble back to bottom each time, you never know when you're going to lose your grip on your business and have it tumble back over you.
OK, so far in this column I have managed to squeeze in references to modern American television and ancient Greek mythology. Enough highbrow beating around bush. Perform autopsy and learn from it. Only by knowing real reasons your business died can you identify and hopefully stave off those maladies before they take you down next time, if there is a next time. And if you're a true entrepreneur there will be a next time, trust me on this.
There are many reasons why businesses fail, but according to a recent survey by U.S. Bank, majority of business failures can be attributed to three reasons: bad management, bad financial planning, and bad marketing.
Bad management comes in many forms. The survey showed that seventy-eight percent of business failures examined were due in part to lack of a well-developed business plan and a business owner who had no business being in business he was in. In other words, business owner did not have an adequate knowledge or a thorough understanding of business he had chosen to start. This is why software entrepreneurs like me don't start shoe stores. I have feet, I wear shoes. That's not enough to qualify me to go into shoe business.
Next, seventy-three percent of business failures in survey were also manned by owners with rose colored calculators. These business owners over-estimated revenue projections (the number of expected sales) and under-estimated burn rate (the amount of money required to sustain business per month).
It gets better. Seventy percent of failed businesses in study were led by entrepreneurs who were in denial regarding their own competence, or more to point, their own incompetence. These business owners either didn't recognize or chose to ignore their own entrepreneurial shortcomings. These entrepreneurs also did not seek assistance from others who might have made up for their inadequacies. It's sometimes hard to ask for help when you are supposed to be one with all answers.