Your business will likely fail not because of your actions but your thoughts.
According to the U.S. Small Business Administration, 70 percent of new businesses survive at least two years, but that drops to 50 percent by the five-year mark and 33 percent at the 10-year point, with just 25 percent lasting 15 years or more. Unfortunately, after the failure, the owners still don’t really understand why their business failed. They point to reasons like the economy or lack of capital or some tangible issue but in fact the reason that businesses fail is most likely due to a hidden intangible issue.
Some of these businesses do fail because of tactical reasons. By tactical I mean there wasn’t enough capital or the sales pitch was incorrect or the advertising copy wasn’t compelling or some other error that is easy for an outsider to observe and blame. These are tangible reasons that are easy to identify and therefore most likely noted as the reasons for failure. But a larger number of businesses fail not because of tactical reasons but because of an improper context. By context, I mean the owner being able to see the big picture, the picture that includes how the owner thinks and speaks to himself. Let’s look at a few examples.
Keeping Expenses Low
The average person starting a business will seek to keep their expenses low so as not to burn through their limited cash resources. This becomes the context for all actions in their business. However, it is an incorrect context which increases the probability of business failure. The appropriate way to start a business is with more than enough capital so that appropriate investments can be made and the focus can be on revenue maximization rather than expense minimization. To have a focus on minimizing expenses is to think like a poor person. One can only cut their expenses to zero but revenues are unlimited. So clearly, the appropriate focus for success is on the revenues, not on expenses.
This context of keeping expenses low leads to common tactical errors. It results in insufficient advertising or promotion and failure to delegate. New business owners will typically try and do everything themselves to save money. This is of course foolish as you can hire most people in the world to do almost anything for $10 an hour or less and the owner’s time is surely worth more.
Why Not Invest More Heavily?
So why don’t business owners start out with sufficient capital? It’s likely because they are not that confident in their idea or they pursue self-employment as a default to not finding a job. If confident and committed, they would borrow money on credit cards, on the equity line of their home, ask others to invest—the same tactics used by large businesses—get outside funding of debt and equity. So entering the business lacking confidence and commitment, being run by a fear of failure rather than the bravado of success, is a common contextual problem of most new business owners. You already know that outcomes on which people meditate (i.e. worry), in this case failure, make them more probable.
But you did try and raise more capital? Let me give you a secret: capital flows to commitment. This was proved by the dotcom boom. Businesses with no product, no revenue and a half-baked idea got funding from venture capitalists. The asset that venture capitalists largely fund is commitment. They ask if the principals have placed all of their own chips in the idea and only then will the professional investors come forward with funding. All great companies and products have been sourced in a single individual’s unwavering and unreasonable commitment to success. Is that you? Are you 100% committed? If not, your context for success has holes. This lack of commitment is why most people are more suited to be employees.
The Single Activity That Makes the Difference
Often, new business owners focus on the trappings of the business—the right phone system, copier, fax service, etc. This is a foolish focus. These items will not produce sales. Sales come from using language in a powerful way that motivates others to act. A sale comes from speaking to another individual either in person, recording or through writing that fulfills this definition of sales:
“Selling is the asking of appropriate questions so that prospect
sees the correct course of action for himself”
Uninitiated business owners often shy away from sales because they think sales is about being pushy or twisting someone’s arm. No, it is just the opposite. It is allowing another person to clearly see an unfilled desire and how they can have it filled. The buyer is pulled (not pushed) into the purchase. So the context on trying “not to be salesy” or lack of focus on the sales process and tactics to generate revenue becomes a major cause of business failure.
Change Your Context, Change Your Outcome
We often use the model:
Actions precede results.
But we forget that:
Thoughts precede actions which precede results.
Start with your thoughts to get it right.
Bob Richards is publisher of the Retirement Blog and serial entrepreneur.