Ever wondered why most home businesses fail? Here are the most common reasons!
Everyone dreams about being their own boss, but only a few understand why other businesses failed before them. Many of you are starting businesses or are already running them, that’s why the interest in increasing your chances of success is becoming a priority. It makes sense to study what others did wrong in the hopes of avoiding it, that’s where we come in. We put together a list of factors that impact why new companies never really get of the ground as well as resources for you to look into the matter.
1. No Competitive Advantage
It all sounds cool and exciting, you’re gonna launch a business, you see them all around you so you think to yourself, why wouldn’t I be a successful entrepreneur. I have plenty ideas, I can figure this out. You borrow money from the 3 Fs, family, friends and other fools & open up a coffee shop on your street. 3 months later, a brand new Starbucks pops up 1 block away from you and you don’t think much of it.
But less people are coming in, you try selling all kind of things in the store just to supplement the income because your rent doesn’t care that people want their frappuccinos not you generic lattes and in 6 months you close it all down, losing money and putting a strain on your relationships. It’s easy to blame your failure on the faceless corporations that are slowly taking over the world, when in reality, you have no differentiators.
You were selling something people could’ve bought anywhere else, you didn’t approach the issue in an innovative way, you didn’t leverage new resources others didn’t. This is even more accelerated in the online space, where you’re not only competing against the people in your area, you’re competing against everyone in the world who’s coming after your customers.
2. No Strategy
We were never the business plan type of entrepreneurs but we always understood what the plan for our business was. You need to know where you’re going and what steps you need to take. If I do this -> then I can do that -> and then we can expand into this. It’s all a chain process. Everybody calls it strategy and without it any business is doomed to fail. Your strategy is what allows you deal with the market, with how you behave in times of prosperity and in times of crisis. It’s the foundation of all your decisions and it allows you to keep track of how well you are performing. The most popular book on strategy is Good to Great by Jim Collins.
3. Poor Understanding Of Market Needs
One of the simplest things to do that lead companies to failure is they ignore the customer. This might sound counter-intuitive, but you’d be shocked how wide-spread this issue is. Listening to your customer is an invaluable practice that allows any company to mature, learn and adapt. Customers are constantly offering feedback and suggesting what they would need in order to better fulfill their needs. Always keep the customer in mind and based on his problems you can generate valuable products.
Probably the most interesting story on the topic is the one of how Starbucks almost collapsed by assuming what they’re customers wanted and not focusing on what they do best. You can hear the story from the man himself, Howard Schultz in his book Onward or if you’re thinking about how your customers feel, read The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary by Joseph Michelli.
4. Wrong Partners
Partnerships are always difficult, especially when the founders complement each other but grow to have different drives and priorities. As humans we are complex beings, our desires and focus shifts as time goes on influenced by an array of variables. Imagine being a year into a project and finding out your partner no longer feels the same fire you do about this business, or he simply has a different idea of what the business should look like. You both go your separate ways and both your likelihood of success go down the drain.
And that’s the mildest of the outcomes. Talk to any venture capitalist in Silicon Valley and they’ll tell you crazy stories about founders stabbing each other in the back in order to take the upper hand. Even the most famous companies have similar stories. The founders of snapchat kicked out the 3rd cofunder when the business started doing well. The entire case ended up in a 157 million dollar settlement. It’s hard to go at it alone, but if you can, we recommend it.
5. Lack of business acumenTo be honest, some people have more of a sense for business than others, the same way some people are better at drawing or poetry. This is also one of the reasons most people go broke or end up being poor, they’re bad at business, where the business is yourself. Understanding how much it costs to run a business, how much each employee needs to generate in order to sustain their own job-position, all that leads into how much you price your products or services.
The more businesses you study and understand the better you will able to connect dots and take advantages of opportunities coming your way. The good news is, you can develop your business skills if you choose to. A couple of years ago, we read The E-Myth Revisited by Michael Gerber. It’s a book on why most businesses don’t work and what to do about it. In it there are great lessons about why some people find it difficult to switch from being an employee to running a business. We recommend the book to anyone who’s just now starting their first business.
6. Something For Nothing Syndrome
Let me be perfectly honest with you, there is no such thing as something for nothing, but you already knew that didn’t you. Then why are there so many home based business and success programs being sold by way of TV info-commercials, ads in magazines, newspapers, and the especially the Internet? I personally think that we would all like to think that there is a shortcut to success but deep inside we all know that is success is earned.
Success would not be success if you could simply purchase a home based business system for $49.95 that is completely automated and all you do is collect the money, yet I have personally seen thousands of internet sites and info commercials claiming they have a fully automated system, plug in and you will be wealthy by just paying your $49.95, presto you’re an instant success, no real efforts required, they even guarantee it.
People are purchasing these programs every day and they are disappointed everyday. I will even admit to you that I have purchased these programs and had them piled up in my drawer (anybody else?). I am not saying that you must work your life away, but I am saying that focused and leveraged efforts are “key” to success. Let’s compare a home based business with a weight loss program.
Weight loss programs are everywhere and they range from real programs that teach the truth, which is healthy eating and exercise are required to get any real results, to magic weight lose plans that all you do is take a pill and you are magically transformed with no effort. There are some good weight lose systems out there, but the key ingredient is you and the efforts you put forth. So the truth about your home based business will be the very same, the key ingredient is you and the efforts you put forth will determine your success.
If you are broke and looking for that magic pill to save you, it does not exist, do both of us a favor and stay at or go get a J.O.B. If you approach your home based business with a focused and committed attitude, understanding that a business does require work and capital (money), you are well on your way. The great thing about the home based business industry is that you can get started with minimal funds compared to other more traditional brick and mortar businesses.
7. Not Understanding Capital & ROI
Capital is the money required to start and operate your business. Remember Rule #1, there is never something for nothing. Understanding how much capital is going to be required to start and operate your business until profits are realized is an important factor in the success of any business. Once your capital needs are identified you can begin to calculate your ROI “Return on Investment”, or should we say “Return on Capital”.
So for example, if your business will require $20,000.00 to start and operate until profits come in and that business will generate $100,000.00 net profit the first year then you would have achieved a complete capital payback and a 400% return on capital first year. Wall Street would fund this business model all day long. The home based business industry really does offer this type of return, that is if you understand your capital requirements and have a business plan that provides leverage. For example most brick and mortar businesses do not pay back capital first years, so no profit is realized for several years!
The challenge with a home based business is that thinking you can purchase a business for $49.95 on the internet and then make a million dollars, frankly is a fantasy. In fact, let’s look at a franchise for example, a $200,000.00 capital outlay is not uncommon to purchase a franchise, that franchise would then usually produce net profits in the neighborhood of $50,000.00 per year. Might make it more understandable to offer a specific example.
So in this franchise example, it would take four years just to break even and start producing a return on capital, not very exciting is it. If success was easy it would no longer be success. Look for opportunities that can produce a reasonable ROI first year, and that require a minimal capital investment. Any businesses that can produce a 1st year capital pay back, while also producing a first year net profit is always a winner. Look for a home based business with great ROI potential, this will be best accomplished with leverage.
Expect to capitalize your business properly and understand your business plan. Ask yourself how much capital will be required and how long will it take to pay back that capital and to then realize a net profit. Remember the more leverage you have the more net profits you will keep. Gross sales are important but I would rather start a business with gross sales of $100,000.00 year and that produces a net profit of $60,000.00 (60%) over having a business that has gross sales of $1,000,000.00 year and a net profit of $60,000.00 (6%).
They both produce the same net profit, but the business with the larger gross sales will in most all cases be 10 times more expensive to start (a lot more money up front) and will have more employees (and taxes) and require a lot more of your time to manage. So the return on your time in a business is what you make an hour. The larger the lever built into your business model, the more you make per hour spent.
8. Listening To The Wrong People
Why is it that if we are learning to golf we have no problem taking lessons from the Golf Pro at the Country Club, or if we were learning to Skydive we would be insane to learn from any one but the Jump Master. Yet when it comes to learning to earn a substantial personal income we usually make the mistake of listening to family and friends most of the time, or we actually think we are qualified to teach ourselves, this is called the school of hard knocks.
If you are looking to earn $100,000.00 a month then doesn’t it just make sense you would look for a person or better yet, a team of people that have already achieved this level of income and then learn from them. We would never have our friends or family teach us how to jump out of an airplane. The challenge we do have is unlike in golf or skydiving were we know where to go for expert advice, where do we go to learn to earn a substantial personal income?
Well a franchise system is one place where a successful business system is taught to you by other successful people, but we all know that a franchise requires a large up front capital outlay. When evaluating a home based business system look at the training and support, make sure the individuals doing the training are at a high “personal” level of success in that business. Most companies have customer support teams that are just hourly employees reading information from manuals.
They are not qualified to teach you how to reach the level of success you are looking for, or worse yet you can only e-mail your questions or complaints to them. You should look for a home based business system that allows for the top income earners within that system to be the trainers. This way you are learning from the people who are getting results. Ask yourself, will I have the telephone numbers of the people with whom I will be doing business, will I have access to the top income earners on a daily bases if necessary.
Or will there be a $49.95 kit sold up front, only to find out that if you want to access the real training and support, it will cost you an additional $5,000.00 or so, let alone the other capital you will need to operate your business. I will not mention any specific companies but they are doing info-commercials every day. Does the home based business you are considering have mentors and coaches who are successfully operating the same business, and do you have access to them for the price of the business, no hidden costs? Remember e-books and online kits are usually designed to make the person selling them rich, not you.
If you can not get the company on the phone before you purchase, please be very careful. Make sure that the company is registered in the United States and they are required to follow US law, there are a lot of these companies whose headquarters are offshore, ask yourself why? Websites without phone numbers are designed to make the company money, without doing any real training and support.
When you purchase a franchise they always include the training and support as without it they know you will probably fail. It is usually not even an option to leave it out and why would you? Make sure you understand how much training and support is included in the business system, an unlimited amount would be optimum. Live training from real people that are successfully operating the same business is the very best, e-mail only support can drastically limit your learning. You deserve to be trained by the best make sure it is included, otherwise you are probably wasting your time!
9. Marketing, Marketing and Marketing
You can have the best products in the entire world or provide the best service in your industry, but unless people know about your products or service, you will be out of business. There are many ways to market your business and they can be very simple and inexpensive or they can be complicated and very expensive. Make sure to keep it as simple as possible and understand your conversion rates.
This means that if you spend $1,000.00 a month on advertising and that generates 100 potential customers and 3 purchase your product. You have a 3% conversion rate. You should also make sure that your profit from those 3 sales provides enough revenue to pay all of your costs (including advertising) and still provides you with a net profit. Finding products that have a substantial profit can make this process much easier. Repeat business can also be instrumental to your profitability.
If your customers return and purchase again you have made a profit without any additional marketing. Repeat business is essential to a successful business and marketing system. It is possible to operate a profitable business with no repeat business, but why not look for a business with repeat customers built in! When considering a home based business the simpler the marketing the better.
10. Poor Environment Management
Working from home offers many benefits such as no commute and no day care costs, etc. The flip side of this coin is that distractions can exist that you do not find in an office setting, such as crying children, barking dogs, the television, you get the idea. The trick is to balance your environment. It may take a little practice but by no means is it difficult with a little planning.
So take advantage of all the positive that a home based business provides, while learning to manage your environment, working from home can prove to be an enormous advantage over the rat race. So create a workspace that is a dedicated resource and set some simple rules so that you can create a professional office environment at home. Creating this environment is key, make sure you have good equipment. If you are constantly struggling with your equipment you will not be focused or efficient. You can involve the rest of the family and make it positive for everyone. It just takes a little communication and cooperation to have a successful environment. Be creative and have fun!
11. Having A Closed Mind
Entering the small business arena can be a change of pace. If you are operating a business for the first time as an owner rather than working as an employee it will be imperative that you keep an open mind so that you can learn new concepts and not look upon new business concepts that you may be unfamiliar with as risky. Anytime new information or concepts are presented keep an open mind and be a student of the information before you form any conclusions.
Be informed and educated before you make judgments. If you are a seasoned business professional coming from a large corporation it is also important to be open minded as operating a small business can be completely different. A strong ego can keep you from learning new things. Remember the only requirement for being an expert is results, so look for results not at the age, color, or gender, of the person teaching you, just their results.
Be coachable and trainable and become a student of your industry. Network Marketing and home based businesses can offer huge leverage if you just keep an open mind. A lot of major Corporations sell there products through Network Marketing, and these concepts are now taught at major universities. GM sells cars this way now, so just because you are not familiar with a certain type of business or compensation plan don’t judge it until you have learned all there is to know. It may be the best way for you to get in the game if you lack a lot of capital (money).
12. Poor Product or Service Selection
Selecting products or services and more importantly focusing on the profit potential is a critical component. Yes it is always exciting when you can work with products or services that you are passionate about, but please remember to look at the net profitability and your overall plan. So if your product has a substantial profit margin you have a much better opportunity to succeed.
Look for products that can be drop shipped to your client and products that will also provide you with substantial net profits. This way you can focus on marketing and running your business. Understand that Service businesses can be more difficult depending on the service and if you are required to provide the labor. In most cases with services you will do the labor, but you may be able to market other people’s services, this would be our recommendation.
With any service businesses you may find you have just purchased yourself a J.O.B. Always look for others to do the bulk of the work so you can grow quickly. Pick suppliers that have large capacity. As you identify your products or services choosing ones that allows for repeat business will also be a key ingredient for a profitable and successful business.
13. Fear of Rejection
Fear of rejection is usually caused by low self-esteem and the lack of self-confidence. A business can not be profitable without sales. Remember that when a potential customer rejects your product or service he/she is not rejecting you they are simply rejecting a product or service at that point in their life, they may very well become a customer at a later time, so stay positive.
The most successful people in sales are the ones who receive the most rejection as that means they have also sold the most products or services. The home run champion is always high in the strike out count as well. Through practice and good training you will master this skill and be a successful home entrepreneur. Please do not fall into the trap we discussed earlier were you are told the system is fully automated and you will not talk to anyone.
If it was that easy we would all be rich. Businesses require sales and those sales involve people and more importantly contact with these people. Home based businesses are no exception. If you are afraid to sell then a J.O.B. may be a better choice for you, preferably not one is sales. Sales drive every company and the relationship you build with your clients will keep you in business.
Look for home based businesses that will provide you with warm contacts through your marketing efforts so you are not cold calling. Cold calling is painful especially for people new to sales. Be determined to develop reasonable people skills if you intend to go into business. You may not currently have them but you can easily learn these skills if you posses self confidence and are willing to do a little practice.
14. No Leverage
If you do not understand leveraging then you might as well dust off your Resume’ and hit www.careerbuilder.com. Leverage is the only way you will create real wealth in your life. A business owner leverages his time by hiring employees, these employees leverage his time. This is why service businesses where you do the work have no leverage without employees or someone else doing the labor. A manufacturer that uses distributors is an example of leverage.
A franchise that sells it’s system and collects a portion of profits is leverage. An author, who writes a book once and sells it over and over again, is leverage. An actor who stars in a film and the film is shown in theaters all over the world is leverage. Leverage can be created in many ways but if you ever want true wealth you must create a lever and the larger the lever the more wealth. Leverage is the key, so look for leverage in a system you can learn or create leverage in the business you decide to run but find leverage and your profit will multiply equally to the size of your lever.
15. Inadequate Planning
Creating a plan to achieve your goals is paramount. This should include a “DMO”, “Daily Method of Operations”. Focus efforts can produce the best results just like the magnifying glass focuses the suns rays and creates fire, your efforts can be focused for best results. Having a precised plan with measurements is imperative, for example to say your goal is to improve sales, is a goal without a measure. Instead say your goal is to increase sales 30% in the next 90 days, this is an example of a goal with measure and a completion date.
You can clearly measure if you have reached your goal as well as track its progress along the say. Set your DMO and follow it while consulting your goals on a daily basis and make sure you are doing all necessary to meet your objectives. Managing your time is important but focused effort and balance will propel you to success, don’t forget to relax and have fun. By focusing your time, you will surely get better results in all areas of your life.
We want to make sure you have the knowledge and information, to you make these important decisions. Our Mission is to provide all the support and resources you require to assist you in making an intelligent decision about the perfect business opportunity for you. I wish you all the success in your endeavors.