MBA2416 5 Things That Cause Businesses to Fail and How to Avoid Them

0:09Heyo! Welcome to the$100 MBA show, giving you the skills, the knowledge, the insights that help you build a better business. I'm your host, your coach, your teacher, Omar Zinhome. And in today's lesson, you will learn five things that cause businesses to fail and how to avoid them. I've literally helped thousands and thousands of entrepreneurs build successful businesses. I've also have tried to help thousands of people that have failed at it. Now, failure is a part of success. You have to fail it to learn so you can move forward. But if you can avoid some failures, some costly failures, big failures that stop your business from growing, stop your business from actually being a success, then we want to do that.

0:53So I'm going to share with you the five reasons, the five things that cause businesses to fail that I've learned from working with other entrepreneurs in the last 10 years and as an entrepreneur myself the last 20 years. But more importantly, I'm going to give you the instructions on how to avoid these mistakes. Some of this is much harder than it seems, and I'll explain why in today's lesson. So let's get into it. Let's get down to business. As I go through these five reasons why businesses fail, I want you to have an open mind. I don't want you to judge. I don't want you to think about how this applies to your situation right now, because it may apply to you in the future.

1:32It's easier for us to dismiss and say, this is not for me. I'm not in this situation. I'm much smarter than this. That won't possibly happen to me. No. Hubris is the precursor to failure and falling on your face and being embarrassed. So let's have an open mind and let's get started. The first reason why businesses fail is very simple. They simply don't start. I cannot tell you how many people I know will think of a business idea, will plan it out, research, will do so much legwork, and then never actually get it off the ground, never actually start it, and then just move on to the next idea. I'm sure many of us know somebody like this.

2:14In my book, starting a business has to mean making a dollar. So that's my definition. You got to make your first dollar. You actually have to exchange value for money in order for this to be a business. Otherwise, you're just playing business. And there's so many people out there who want to play business over and over and over. And there's a reason why this happens. It's not that they're quitters. It's not that their ideas are not good enough so they don't take off. It's because it's safe. Because if you never actually put yourself out there and ask somebody, hey, would you like to buy this thing?

2:51It costs X amount of dollars. If you never have to do that, then you never get rejected. You never actually get a no. And to avoid that feeling of rejection, many people never start. And that's really deep down inside. That's a big fear. Now, you might have made your first dollar. You're probably listening to this and you've made money. But this fear still exists for making bigger asks, for raising your prices, for launching something that's more expensive than you ever offered before, for demanding more of yourself and your team. So this is a real fear. So many people just fail right off the gate because they never actually start.

3:28And the best way to avoid this is something that I recommend is to ask 10 people to buy your thing. Even if your thing is not ready yet, they can pre-order it. They can put some money down as a deposit. I know this sounds scary, but you've got to get over this fear. And you've got to be okay with people saying, no, this is not something I want. Thanks, but no thanks. Not for me. That's okay. Keep asking. Even if all 10 people say no, that's fine. But after 10 rejections, you're going to start to realize it's not that bad. I'm still alive. All right. Nothing has changed except maybe your pitch.

4:00Maybe you have refined the way you sell your product or service or offer your product or service so that the 11th person you ask will be a yes. I know Noah Kagan has a great challenge. Noah Kagan is the founder of AppSumo. And actually, we have a great extended interview coming up very soon with him. but one of the challenges he has in his upcoming book Million Dollar Weekend is asking for a dollar investment in your business and getting your first dollar. Getting a dollar from anybody. The point of this exercise is not being afraid of being rejected. And most people fail because they're afraid to be rejected.

4:34Guess what? Business is a contact sport. The reason why they say contact sport is because the more contacts they make, the more interactions you have, the more likely you're going to be successful. If you make a thousand phone calls in a week, a thousand phone calls, you're going to make some sales just by sheer numbers. It doesn't matter how poor of a salesperson you are or how unrefined your pitches. You're going to do it because of the volume. So you got to get used to getting reps in and asking people for the sale. And now with technology and the Internet and email marketing and ads and social media, it's so easy.

5:09You're not even actually asking somebody in person in real life. So there's no excuse. You've got to avoid this likely plague. You've got to get started, and you've got to make your first dollar. Reason number five, businesses fail, and this is a big one, and it's a serious one, and it's running out of capital. I've said this at least 40, 50, 60 times on the show. Cash is oxygen to your business. Having capital, having funds is how your business is able to sustain itself, whether it's to pay the costs of doing business or to pay yourself so you can do the work and spend your time on the business or paying others.

5:45The point here is that if you don't make a profit, if you don't make money, if you're not in a profitable position, it's very hard for you to have a sustainable business. You can lose and lose and lose, but even well-funded businesses like WeWork who just went bankrupt despite the billions of dollars they received in funding, they couldn't manage to be profitable. And that just all caught up to them and they were able to do it. So they went out of business. So what makes you think your independent, self-funded business is immune to this if a huge business with billions in funding, like WeWork, wasn't able to sustain itself without being profitable?

6:24I'm all for fulfilling a mission, fulfilling a goal, adding value to the world. That's how you become successful in a business. But the purpose of a business is to make money. You cannot convince me otherwise. You have to make money so you can live, so you can live another day to do another day of business. Don't fall in love with your idea. Don't fall in love with your cause to the point where you're just spending without making. This is why I'm always preaching how important a P &L sheet is. And this is number one way to avoid this problem is to have a profit and loss sheet. This is a simple sheet, Google sheet, Excel sheet that lists all your profits and all your expenses.

7:06And as long as your profits are more than your expenses, And when we say expenses, we're talking about also your salary. If you are working on the business full time and you need to sustain yourself, then you're good if you are profitable. Now, the name of the game is to be as profitable as possible. You don't want to just be a dollar profitable every month. You want to be hundreds and thousands of dollars in profitability, if not more, if you can. But a more reasonable goal is a higher percentage of profitability. So maybe you start out being 10 % profitable. Then you move up to 15 to 20 to 30.

7:40Why is it so important to do that? Well, because business doesn't stay the same. We're going to talk more about this later. There's going to be ups and downs. There's going to be peaks and valleys. And you need to weather all the storms that come ahead. And if you are not saving your acorns for those stormy days, then you're asking for trouble. You're asking to go out of business. And if it sounds like I'm being really stern here, it's because this is so important. You have to, have to have your numbers right. So many entrepreneurs I know lose their baby, lose their business, don't do well, are crushed, and sometimes never recover because they kept their eye off the ball.

8:18They didn't focus on the finances. They didn't focus on the numbers. And guess what? I learned over the years, sometimes the hard way, that this is not hard. It's actually not hard to have a simple P &L sheet. It's not hard to be financially sound. The hardest part about it is just owning up to it and just being like, okay, I have to be responsible. I can't just pawn this off to somebody else. By the way, I am talking about regardless if you have an accountant, you have a bookkeeper, I have both. But I still have a P &L sheet that I look at weekly, if not daily, so that I can make sure that I am on track to increase my profit.

8:55Otherwise, I'm setting myself up for failure. And this should be the guiding light to making all decisions. Because if you are profitable, if you are making good margins, you can do a lot of incredible things in your business. You can reinvest in your business. You can do creative marketing. You can hire the best talent because you are making good profits. So when I say it's the guiding light, you should always reference this. You should always think about this whenever you're making decisions in your business. Whether it's doing a promotion. Are you making enough profit with this promotion? doing a launch, releasing a new product, whatever it might be.

9:30So the number one reason why businesses fail, they don't start. Number two, lack of capital. They don't make sure that they're always profitable. Reason number three, the founder loses interest. Now, hear me out. This is what they say. They say, oh, I lost interest in that business. Yeah, I was making money. It was okay, but it got boring, and I just decided to move on to something else that really I was passionate about. And I see founders, I see entrepreneurs do this over and over and over. And they keep saying the same thing. I lost interest. I got bored. My heart wasn't into it anymore. Now, that's what they say.

10:04But that's just code for something else. What it really means is that they didn't push themselves. They didn't challenge themselves. They didn't actually put themselves out there enough. They didn't take enough risks with their brand, with their business. And what I mean by that is people get bored when they just do the same thing over and over and over and they don't innovate. They don't change. They don't push the envelope. They don't realize that in order for the business to grow, they're going to have to do that. And usually the reason why they get bored is because they're really scared. They're actually scared of growing, of having to hire more people or having to hire people, period.

10:43and are afraid what that growth will come with, different challenges, different demands. And therefore, they just keep it safe and they just keep doing the same thing. And it might be making the money and they're just trucking along. But then they say, oh, this is boring. I'll move on to something new and start something fresh where it's exciting. And they take it to a certain point and they realize, oh, I'm bored again, because they're not pushing beyond that point. And this is actually something I learned from Dan Martell, who was my SaaS coach for a very long time. He's the author of Buy Back Your Time.

11:12And he has this thing called the pain line, where most entrepreneurs will not go past their pain line. Something's happening here where they just don't grow past that point because there's something painful on the other end. Whether it's dealing with more people on their team, taking on challenges they're unfamiliar with, maybe having to put themselves out there in marketing and branding and they're not really comfortable with that. There's some sort of pain they can't get past and therefore they just stay where they are, they get bored, they quit. So what do you do? Well, like everything else in life, you got to face those things head on.

11:45Now, the good news is that a lot of the stuff that you're maybe avoiding to do, because maybe you feel like it's going to be painful or maybe just monotonous or hard, you can get somebody else to do. You don't have to do it. That's the beauty of entrepreneurship. You can get somebody else to do the things that you're avoiding. But you got to recognize the fact that you are avoiding them and you need to get them done by somebody else. This is quite subtle and takes a little bit of soul searching, just a little bit of time for you to reflect. Why am I quitting things? Why am I not finishing things up?

12:13Why am I not growing things and just scaling as I go? And it's probably there's one or two things you just are trying to avoid and you just don't go past that pain line as Dan Martell talks about. So it's not that you're bored. It's not that things are not exciting anymore. It's that you just got boring because the exciting stuff is risky, is hard, it's a bit scary. And one of the best exercises I can recommend, and I've recommended this recently in a recent episode is to evaluate your business as if you were to buy your business. Let's say you bought your business tomorrow. What are the changes you would make to this business, to the management, to the team?

12:49These are the hard decisions you would make. It's easier to think objectively that way. And those are the things that are holding you back and keeping you from getting beyond this point and working on more exciting, challenging things. All right, we have covered the first reason why businesses fail. They don't start. The second, which is lack of capital. And third is, of course, losing interest. Number four, and it's a big one. And a lot of creators, innovators, writers, artists suffer from this and fail because of this. And that is poor marketing. This is the truth that I've learned over the last 20 years of doing business.

13:31you need to market, period. You have to market your business, your products, your services. You've got to find a way that allows you to get new customers, get new awareness, get new followers, get new attention every single day, whether that's content marketing, videos, podcasts, paid ads, sponsorships, whatever you do, you've got to invest in marketing. When I say invest, you've got to invest time, you've got to invest money, you've got to invest attention. it's got to be on the top of your list because otherwise you will not sustain yourself. You will not get the money you need to be profitable.

14:08Like we talked to number two, you're not be able to go past that pain line that we talked about in number three. It's just going to stop you from doing what you need to do to have a successful business. Marketing needs to be a top priority in your business. Just as much as you focus on your products and services, you need to focus on telling other people about that. I know so many authors, speakers, artists, creators that are great at their craft. They're great at what they do, but people don't know about it because they don't market. They just feel awkward to market. For some reason, they think it's sleazy or scammy, even though they're happy to be marketed to all the time.

14:49They love the innovative ads that Apple and Virgin does. They love all these great companies that are clever with their commercials. but when it comes to their own business, they don't want to invest. And this is why I recommend as a solution, as you're starting to make money in your business, is to have a number one line item in your P &L, in your profit loss sheet, is marketing. How much money are you spending on marketing? Now, how you spend that money might differ depending on your strategy. You might hire somebody to create creative content. You might be spending that money on ads on Facebook and Instagram, or you might be spending that money to sponsor a newsletter, whatever.

15:25However, the point here is that you got to spend some money. You got to invest just like you invest in delivering your product, creating your product and serving your customers because there will be no customers if you don't market. Some of the best companies I know spend more than 50 % of their whole expenditure on marketing. Meaning, let's say they spend$10 ,000 a month to run their business. They spend$5 ,000 on marketing. This is just a very simple example. But the point here is that marketing helps your business grow without you needing to work so hard. I recently did a business breakdowns episode on True Classic where I talk about the story of True Classic, a giant e-commerce right now in men's clothing.

16:08And they spend$100 ,000 on ads every single day. That's how they're able to grow to$250 million in revenue over the last three, four years. Marketing, marketing, marketing. You've got to make it a priority. Every time I've seen my business slip or not make as much money as I would like to, or not actually have the same level of growth as I predicted, it's because I put my foot off the gas of marketing. You have to be flooring the gas on marketing constantly. Keep that pedal to the metal because this is going to help you get new customers, new awareness, new referrals, and make things a whole lot easier for you.

16:46All right, let's get into number five, fifth reason why businesses fail. And here it is. They don't adapt. A lot of businesses start with an idea, a solution to a problem, and they do well. They solve a problem for a customer and the customers are happy. A year goes on, two, three, four. And then all of a sudden, their solution is not as compelling anymore because people have new problems. And actually, they start to take your solution for granted. And this is why it's so important as a business to adapt. You can't just continue to do the same thing over and over and consider yourself done. No, you have to keep adapting.

17:21You got to keep your ear to the ground and understand that customers will start to have new needs. A very simple example is Coca-Cola. Coca-Cola came out with one product, Coca-Cola, the drink, and it was a great solution. People love this refreshing drink, but they had to adapt to stay relevant, to keep customers happy. They had to use different ingredients and different methods of marketing. So they introduced Diet Coke for people that don't want calories in their Coke. And then they came out with Caffeine Free Coke for people that don't want caffeine. And then they started doing flavors, vanilla and cherry Coke.

17:53They even missed around with their branding a few times. The point here is even something as simple as a simple, refreshing drink, that is a winner. It's a winner. People love it. They're selling hotcakes. They had to be ahead of the curve. They had to adapt in order for them to stay relevant and stay in the minds of their customers. Customers will change. Their needs will change. And you need to think about that in your own business, in your own products, in your own services. So how do you avoid this? Do what I call a 1-3-5-10. A 1-3-5-10 is one year, three year, five year, 10 year. What is the solution to the problems of your ideal customer in one year?

18:37And that could be the product you have right now. But what about in three years? You're going to start, you know, opening up your mind, start looking at your crystal ball and start thinking, what are some things that they're going to start to need as the climate changes, as the world changes, as innovation starts to grow? What are the trends that are happening in your market? What about in five years? What about in 10 years? I'll give you an example. A good friend of mine, George, here in Sydney, he ran a chain of dry cleaning services. But 10 years ago, he saw the writing on the wall. He started to do some predictions, started thinking, hey, the cost of fashion is getting less and less.

19:15People are not going to spend$20 and$25 to dry clean a fancy dress. When they can go to H &M, they can go to Zara and get a brand new one for $40 or$50. So people's needs for dry cleaning is changing. What are some needs that are evolving, meaning that are coming up now that weren't there before? Well, people are getting busier and busier. The average person right now doesn't want to waste time doing laundry at home. So he actually changed his dry cleaning services, dry cleaning stores to wash and fold laundry mats or laundry services. So you drop it off, they wash it, they fold it, and they deliver it to your house.

19:54People save two, three hours on the weekend. Instead of doing laundry, they go to the beach and they're willing to pay for that over dry cleaning services. So start to think and anticipate where your business and the needs of your customers will be one year, three year, five year, 10 years from now. Well, there you have it, guys. Let's recap the five reasons why businesses fail and how to avoid them. One, they never start. Get started. Make your first dollar. Ask 10 people. Don't worry about the rejection. You got to get through that. Number two, lack of capital. Have a P &L sheet. Make sure you're profitable and increase your profit margins every month.

20:29Number three, loss of interest. And that basically means you're not challenging yourself, not pushing the envelope. Find out what's stopping you. Get somebody else to do that work if you don't want to do it yourself or just face it head on. Number four, poor marketing. Invest in marketing. Make it a top line item. Make a decision today to spend money on marketing to grow your business. And number five, businesses that don't adapt, okay? You got to think of what's going to come around the corner so that you are ready for it, that you are ready to adapt, that you are ready to change and you are changing so that you can grow with the trends, grow with the climate, grow with your audience.

21:04Thanks so much for listening to the$100 Aviation. Hope you enjoyed today's lesson. If you did, let us know in a rating and review on Apple Podcasts or Spotify. Give us a star rating on Spotify. We'd appreciate that so much. And while you're at it, make sure you follow our show so you get our next episodes automatically. Before I go, I want to leave you with this. One of the things I learned in the last 20 years is that it doesn't actually matter how hard you work and how much time you put into your business if you don't face these five challenges. Okay? You have to address these. These things matter because you can't just outwork yourself and out hustle these challenges.

21:39No, these will bring you down. In fact, there's a lot of people I know that really do well with these five things and work very little. And therefore, they're still successful because they do what's most important. Thanks so much for listening. And I'll check you in Wednesday's episode. Q &A Wednesday. I'll see you then. Take care.

22:03Thank you.