It is fashionable these days to glamourise entrepreneurial failure. Indeed, you’re considered a failure if you haven’t failed yet.
But any small business owner who has survived the devastation of business collapse and who has dragged themselves out of the financial quagmire, knows full well how dreadful this is. To motivate yourself to get up and start again when you have just jeopardised the lives of those who depend on you for a living, is one of the hardest things on earth to do. If you have lost your business, your income, your home or car, even friends or family through a business failure, you can relate to this tragedy.
Those who live in a fantasy world where serial entrepreneurs celebrate failure are frequently well-off kids who can afford to amuse themselves with tech projects that don’t take off. But, a very large proportion of South African micro-businesses are started through necessity. They, their communities and our economy really can’t afford such a disaster.
The reality is, as Prof Christian Friedrich of UWC recently noted “approximately 70% to 80 % of the small businesses are failing within 5 years.”
But it doesn’t have to be this way.
If we know what the causes of small business failure are, we can do something about it.
Surveys show that by far the top cause is trying to sell something that nobody wants. In fact, ‘no market need’ is the primary reason for five out of seven South African startups failing in their first year.
It’s not always that easy to know what the customer wants. Indeed, quite often, even the customer doesn’t know. As Henry Ford famously put it:
“If I had asked people what they wanted, they would have said faster horses.”
The Lean Startup
Twenty years ago, Eric Ries and his partner started a business. They had a “great product, a brilliant team, amazing technology, and the right idea at the right time.” Their company failed – spectacularly.
Three years later, Ries and a team tried again, using a
“radical new approach …, one characterized by an extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions.”
They made assumptions and then tested them to see if they were correct. For example: Would South Africans buy ethnic haircare products online? Most businesses would rent a storeroom, buy a lot of stock, hire staff, build an e-commerce site, advertise and wait for the orders to come in. Expensive and potentially disastrous.
Testing your assumption only requires a basic e-commerce site and an advertisement. If you get orders, you can purchase the product and deliver it to your client. If there is an overwhelming response, apologise for the delay while you make arrangements to get stock. If there is negligible response, you can change (pivot) your strategy without having wasted valuable resources.
Continue validating your assumptions using the Minimum Viable Product (MVP) technique to better understand and satisfy your market’s needs.
Ries outlined this successful process in his book: The Lean Startup.
I have a few additional practical suggestions:
- Start your new business part-time while you hold down your full-time job. (No, that’s not cheating.) That way you extend your ‘runway’ by ensuring a reliable continuous income while getting off the ground. Runways typically need to be 18 months to three years long.
- Studies show that people with family or friends in business are more likely to succeed. Get them to mentor you. You can learn not to make the same costly mistakes – ‘school fees’ – that they had to learn from.
- You need to make sure that your future customers know that you have what they need, and how to find you. Draw up and implement a good marketing plan.
- And you do still have to know that you will have enough cash to pay your accounts. You must manage your finances properly.
Two out of every seven South African startups succeed. Make sure that yours is one of them.
Mentor, trainer and business advisor at DoBetter.Business
Revised: 2022/10/17 First published: 2018/01/17
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