Most people think that running out of money is the main reason for failure among startups. This is somewhat of a fallacy. The collective fate for the majority of early-stage companies going bust was sealed long before they spent or lost their last nickel. I attribute their downfall to the “Five Poors.”
1. Poor Vision: As someone who’s worn glasses for most of my life, I appreciate the value of 20/20 vision. All I have to do is remove my glasses and suddenly everything is a blur. What was once 20/20 is now 20/100. I can’t imagine trying to navigate in a world where I couldn’t see more than a few feet in front of me—yet hundreds of thousands of startups do just that every year. Eventually, they hit something that they should have seen coming and it causes major damage. It could be a client representing 70 percent of your revenue suddenly pulls the business, or a star salesperson jumps to a competitor and takes several big accounts with them. Poor vision comes from working “in the weeds” of your business. You never see more than two or three feet in front of you.
Solution: Get 20/20 vision by regularly working “in the clouds” of your business. Take a 20,000-foot view and ask yourself where are the opportunities and obstacles to growth in the next three, six, and 12 months.
2. Poor Execution: A great strategy without proper execution is nothing more than a dream. Many people start companies because they are passionate about something and/or they want to control their own destiny. These same people are also horrible at sales. They tend to focus on the product-development side of the business and put their heads in the sand when it comes time to sell their innovative products or services. Somehow, these wonderfully brilliant business owners think their product will magically sell itself.
Solution: Recognize your weaknesses and face your fears. If you hate selling, outsource it to a person or company that can sell for you. One caveat: Choose your partners wisely.
3. Poor Market Information: Picture hundreds of boats, in all different shapes and sizes, sailing effortlessly in the ocean on a beautiful summer day. Suddenly, many of the larger boats start their engines and head toward the shore. It seems odd, but most of the smaller boats pay no attention. Without warning, the skies turn gray and the ocean changes from serene to angry. As one of the boat's captains, you realize why the bigger boats left the area. Their Doppler radar systems alerted them to the coming storm. You and the other boats, all without similar systems, are left to navigate the choppy waters without bumping into each other or capsizing your boats.
Solution: In business, your Doppler warning systems are the specific economic indicators that affect your market and company. For example, would another government shutdown have any effect on your business? What about the debt-ceiling issue? Both of these issues have massive ripple effects that reach almost every segment of business—from the military to mortgages. You need to build your own radar detection system with warning signals to alert you when changes occur that will have a direct impact on your company. There are few things worse in business than getting hit in the back of your head with a surprise that you could have seen coming.
4. Poor Timing: Sometimes, it’s just a case of bad luck. You have a great idea for a product or service. Your execution plan looks flawless. You have a plan and a contingency plan. Then, the Great Recession hits! I saw it happen to thousands of companies where an entrepreneur started a business at the end of 2007 or the beginning of 2008. At that point in time, the odds for failing jumped exponentially as vendors, customers, and partners all ducked for cover to avoid becoming a casualty of the pull back.
Solution: This is an addendum to looking at specific economic indicators. What does 2014 hold for you? With the recent government shutdown and debt ceiling crisis, is it possible that our country is facing another lapse into an extended recessionary period? If that happens, how would you alter your business plan or goals? The best way to combat poor timing is to get out in front of it and make proactive decisions.
5. Poor Reflexes: Business never goes according to the original plan. Even if you have 20/20 vision, great execution, the best economic indicators, and perfect timing, you still need great reflexes. Is your business in the right position to respond to the warning signs of a changing economy? Do you have the proper resources to avoid getting knocked over by another “great recession?”
Solution: Run practice drills with your company. Create “what if” scenarios and see how your company and employees respond. What will another government shutdown mean to you and your customers or clients? How will you respond? Ask the same question about the debt ceiling crisis. What would happen if hadn't been averted and what action would you take? Look at your cash flow (receivables and expenses) and start an emergency cash fund now if you don’t already have one.
Starting a business, at any time, is both exhilarating and frustrating. Today, there is much less room for error than in years past. Take the necessary time to position your company for whatever the future holds and don’t allow it to succumb to any of the “Five Poors.”
As the founder and CEO of Brian Moran & Associates, Brian helps entrepreneurs run better businesses. He was formerly the executive director at The Wall Street Journal, overseeing the financial and small-business markets across the WSJ franchise. From 2002 to 2010, Brian ran Veracle Media and Moran Media Group, content companies in the SMB market.