Why So Many Small Businesses Fail: 3 Missing Links
If you own a small business, you’re in great company with 27.5 million other business owners. If you are the only employee at your business, then you are one in 21.4 million, at least according to the Small Business Association, that is. And, if you have been in operation for more than 18 months, you’ve reached a milestone that fewer than 20% of entrepreneurs ever reach, based on a frequently spread statistic.
Congratulations!
I searched high and low to find the report that supports the statistic ‘8 out of 10 businesses fail within 18 months’, to no avail. But even without the source, it only takes a drive down Main Street to see that many small businesses do fail.
When an entrepreneur launches a business they take one of three roads, and unfortunately two of the roads lead to failure. The first road is the Small Business Autobahn, where there is a desire to hurry up and launch, and try to figure out how to be successful ‘post launch’.
The second is the Perpetual Small Business Highway Under Construction, where there is research and research and more research and building, and a little more research… someday we are going to launch… hope no one steals our idea in the mean time.
The third road, and the road that leads to success, is the Road less Traveled, where there is a well-planned business launch.
So, what does the road less traveled look like? It’s constructed in three important steps and we share about each of them below.
Product / Market Fit
If an engineer developed a system that could convert DVDs to VHS video tapes in 17 seconds, would this product be successful?
No, because there is no market for this technology, no matter how fantastic it is or how well it performs. Even if it’s backed by more than sufficient capital, it won’t be successful. This is a clear example of the need for Product/Market fit, and it’s a primary reason many small businesses fail. In 2007, Marc Andreessen, a highly successful entrepreneur and software engineer, wrote a still very relevant post about the importance of Product/Market fit. In the post, Andreessen cites ‘market’ as the most important factor for business success.
He said, “Product/Market fit means being in a good market with a product that can satisfy that market.”
Andreessen tells business owners to do whatever it takes to reach Product/Market fit, whether changing out people, redesigning the product, moving into a different market, saying no to customers when you don’t want to, saying yes to customers when you don’t want to, raising capital — do whatever is required to reach product/market fit. (For more on the journey to Product/Market fit, read this post by ConsumerBell CEO, Ellie Cachette.)
If you want a perfect example of Product/Market fit, take a look at this product called “coolest”.
Target Market
I was having a discussion with a contact last week and when I asked who his target market was, he answered, “earth.” For many entrepreneurs who are desperate for success, this unrealistic approach becomes the company mission. It echoes the sentiment, “we will sell to anyone,” and while many businesses will line the shelves with their product and sell to anyone who pays, it’s still imperative to identify who is the best client for your product. For businesses in the service industry, it’s even more critical.
In business, just like in dating, you have a type. There is someone, or groups of people, who are ideally suited for your product or service. There are certain aspects of their personality that make them the ideal candidate. In some cases, their age, lifestyle, gender, education, occupation, and other demographics will make them likely to use your product and choose your business. If you want to be successful in business, you have to identify this perfect client, or segments of clients, and get to know them really, really well. (Dig into your target market with this article from Inc.com.)
The Marketing Message
To reach Product/Market fit requires identifying the ideal market, developing the product to meet the market’s needs, and sharing about the product with the market. But what should our message be to our market?
The marketing message answers two questions. First, it answers how your product meets the market’s need. Second, it answers why you are different (better) than your competition. This statement becomes the foundation for every customer communication such as the company website, company digital channels, marketing collateral, sales presentations, and marketing campaigns.
Now, where are you on this road less traveled? If your battery could use a jump start, it’s time to schedule a free 30-minute consultation.