Why Businesses Fail
“I have not failed…I have just found 10,000 ways that won’t work,” said Thomas Edison. Sometimes I reflect on my experience with opening and ultimately closing my family entertainment center. Why do some businesses make it while others fail? Is it timing? Location? Lack of experience? Luck? Or maybe a combination of these, or none of these at all? They say that 8 out of 10 new businesses fail. That’s 80%!!! That is a huge number. Why would ANYONE want to take this risk? People decide to start their own businesses for many reasons, but first, let’s talk about some reasons businesses fail.
The primary reason why businesses fail is because of cash flow issues. However, there are many reasons why and how they get to that point. Here are a few of those reasons.
Out of touch with your customers
When you see an opportunity in the market, we are often too quick to jump in with both feet and not explore and listen to our customers enough or at a deep enough level to get all the information. Or, we are just listening to a small segment of our customers and assume that ALL or MOST of our customers feel or would like the same things. I have seen this often with new games or attractions. We go to a tradeshow and try out or play a new game we enjoy. We spend thousands of dollars on the game or attraction and assume that all our customers will enjoy the game as much as we did. A few months later, we are trying to find a new buyer for that game. This same thing happens with our business plan. We plan our business on an idea that we think EVERYONE would enjoy, but we don’t get enough information or feedback from the customers. 10-15% of businesses fail because they ignore their customers, and 40-45% fail because there is no market need for the offered product or service.
No differentiation from everyone else.
I realize that this is almost the opposite of #1. There is a delicate balance between reinventing the wheel and differentiating your business. There are a lot of great proven concepts that make money in the right location or scenarios; however, you also need to set yourself apart. If a similar business opened across the street from you, how are you different or better? Around 15-20% of businesses fail because they were out-competed. You need to have a value proposition. What makes you different and better than other entertainment options your customers have?
Who are your competitors? In the family entertainment space, we have a ton of competition. We have more competition than many of us would like to admit. When I started my business, I underestimated the sheer amount of competition. When planning our business, we always consider other similar businesses as competition. Still, we forget that our competition is anything and everything a family might do with their time and money. This includes everything from at-home entertainment like streaming movies and gaming systems to other activities such as hiking, camping, and going to the lake. In my particular location in NW Montana, I was near Glacier National Park. In my initial business plan, I considered the 4 million visitors each year that we would receive BECAUSE of the nearby park as potential customers. And they were potential customers; however, I later found out that they ONLY were customers when the weather stopped them from going to the park. Summer ended up being my slowest season, despite having 40 times the population in the area. My competition was the national park, the lake, camping, fishing, and outdoor fairs & festivals, which I failed to account for in my initial business plan.
Failure to communicate
So, do you have an amazing business idea that appeals to EVERYONE? You know who your competition is and have a value proposition that sets you apart. Your value proposition can’t just be a slogan or buzzword; it has to be what TRULY sets you apart. You need a value proposition that is in touch with something your customers want and/or need and that sets you apart from others in your field and competitors, and you have to convey that message to your customers. This is one of the areas that lead many new businesses to failure. Build it, and they will come was only a slogan in the Field of Dreams movie; it doesn’t apply to real life. You have to communicate and tell a compelling story to your guests.
Many underestimate the sheer amount of stuff we must know and learn to be a successful entrepreneur. As a business owner, you not only need to know your strengths but also your weaknesses. You should build your team around your weaknesses. Hire those who can fill in areas where you are not strong. It’s estimated that around 20-25% of businesses fail because they don’t have the right team.
So, with such a high probability of failure, why would ANYONE want to start their own business? There are many reasons why people go into business for themselves.
- CHALLENGE – Some people are seeking a challenge. Starting your own business poses challenges you could never get from working FOR someone.
- FREEDOM – Another reason is the freedom to be your own boss. Even though many go into business with the false idea that they will work fewer hours than working for someone else, having the freedom to choose the hours you want to work is really a benefit of owning your own business. This benefit can also be a double-edged sword. When starting a new business, let me assure you that a 40- or even 50-hour work week is a myth that business owners only dream about. You will put in countless hours for little to no pay. But once you get established, you will be able to have the freedom to be a bit more selective in what days and time off you choose to take. Remember, if you have kids and are starting a family entertainment business, you must be at work the most when the kids are out of school. This will mean that you will work the most during weekends and school breaks and will NOT be spending that time with your kids. If you are starting a business to have the freedom to spend more time with your kids, you might want to consider a different type of business.
- POSTERITY – People start their own businesses for pride and posterity. Everyone wants to leave a legacy and leave something to their kids. What’s cooler to leave to your kids than a profitable family entertainment center?
- MAKE A DIFFERENCE – Some start their own business to change the world. They see a need or demand and want to fill that need.
- MONEY – Money is usually at least part of the motivation to start a business. Not only are there tax benefits that accompany running your own business, but there is also the freedom to know that you can directly affect your destiny and ability to make money. And although the first few years may be rough, a high-risk, high-reward proposition goes along with owning your own business.
Why did I start my business? Probably a little bit of all of those reasons. I felt like there was a need that I could fill, and I could make a difference. I liked the idea of a challenge, freedom, and potential for future profits. Why did my business fail? There are many reasons and answers to this question, and I have explored, soul-searched, and think I know the answers. Stop by the next time you see me at a trade show, and we can discuss it.
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Amber Lambert is the Regional Sales Representative for Betson Enterprises. She began her career in the amusement industry 12 years ago when she started her own family entertainment center she built from the ground up. She also managed a corporate-owned family entertainment center, held a sales role with an industry supplier, and is active in industry associations.