Editor’s note: This article was first published in March 2012, in the middle of the Spanish economic crisis, with high unemployment and entrepreneurship presented as the way out.
Economic recovery is in the hands of new entrepreneurs. That is one message. The other is that when there aren’t enough jobs, the only solution is to start your own business. The trouble is that the statistics on failure among new entrepreneurs’ projects are shocking. 50% of new businesses “fall” within three years. The tech company boom doesn’t have better numbers either: 8 out of 10 also fail.
People usually list hundreds of reasons why a business fails to get off the ground, among them: problems collecting payments and late-paying customers, lack of financing, falling consumer spending and failure to adapt to changing market needs. However, those circumstances affect everyone, so we have to ask why, in the same landscape, some businesses thrive and achieve astonishing success while others end up in those grim statistics.
The first and main reason a new business fails is, quite simply, that it was already destined to fail before it opened. There were clearly factors such as a project that wasn’t viable, poor market research, a bad strategy, probably the wrong niche, or entry into a saturated market where our slice of the pie was very small.
Necessity also works against us: while it’s true that we need to start a business, it’s also true that this need makes us cross an ocean without having prepared properly for the crossing.
When financing is lacking, people often bring in partners purely for their capital, without considering any other requirements when looking for a partner. Read: Tips for choosing a business partner. Part of the financing problem new entrepreneurs face usually stems from a poorly prepared business plan, one that fails to show the project is viable or that ventures into a market of doubtful profitability.
An entrepreneur’s lack of preparation in developing strategies and winning new markets can also lead to failure.
Having a good business idea is important, but it is just as important to establish properly whether we have the following requirements or capabilities: a good product, a broad market, and the ability, means and know-how to bring the product to market. Few entrepreneurs ask themselves these 15 questions to evaluate their business idea, and it really is necessary.
Passion and enthusiasm are necessary, but they are worthless when the wrong strategy is carried out: passion without knowledge is like speed without control (we end up off the road).
In short, as I always advise, when you’re thinking of starting a business you have to be bold, but stop long enough to be clear (and not just on paper) about how you’re going to do it. Decide properly and impartially whether it will be a profitable business, with realistic numbers, because sometimes, in trying to convince a potential investor or a bank, we end up fooling ourselves.
Starting a business is a good idea and a great option, as long as we are clear about the type of business and the strategy we are going to follow.
Further reading
Featured image: Mtaylor848, CC BY-SA 4.0, via Wikimedia Commons.
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