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Start-up Advice

10 Top Reasons Why First-Time Entrepreneurs Fail

For entrepreneurs – especially those just starting out – businesses succeed as much as they fail.

Martin Zwilling

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I’ve seen this time and again as a mentor and entrepreneur. But statistics also suggest that the failure rate for new start-ups within the first five years is as high as 50 percent.

Of course, real entrepreneurs treat business failure as a milestone on the road to success. They count on learning from their mistakes, and use the experience to move to the next idea. But why not learn from the mistakes of others, without all the pain and suffering?

Here is my list of 10 top start-up failure causes – and how to avoid them:

  1. No written plan. Don’t believe the myth that a business plan isn’t worth the effort. The discipline of writing down a plan is the best way to make sure you actually understand how to transform your idea into a business.
  2. Slim or no revenue model. Even a non-profit has to generate revenue (or donations) to offset operating costs. If your product is free, or you lose money on every sale, it’s hard to make it up in volume. You may have the solution to world hunger, but if your customers have no money, your business won’t last long.
  3. Limited business opportunities. Not every good idea can become a blockbuster business. Just because you passionately believe that your product or service is great, and everyone needs it, doesn’t mean that everyone will buy it. There is no substitute for market research, written by domain experts, to supplement your informal poll of friends and family.
  4. Can’t execute. When young entrepreneurs come to me with that “million dollar idea,” I have to tell them that an idea alone is really worth nothing. It’s all about the execution. If you’re not comfortable making hard decisions and taking risks, you won’t do well in this role.
  5. Too much competition. Having no competitors is a red flag – it may mean there’s no market – but finding ten or more with a simple Google search means your area of interest may be a crowded. Remember, sleeping giants can wake up. So, don’t assume that Microsoft or Procter & Gamble are too big and slow for you to worry about.
  6. No intellectual property. If you expect to seek investors, or you expect to have a sustainable competitive advantage against giants in your industry, you need to register for patents, trademarks and copyrights, as well as enlist non-compete and non-disclosure agreements to protect trade secrets. Intellectual property is also often the largest element of early-stage company valuations for professional investors.
  7. An inexperienced team. In reality, investors fund people, not ideas. They look for people with real experience in the business domain of the start-up, and people with real experience running a start-up. If this is your first time around, find a partner who has “been there and done that” to balance your passion and bring experience to the team.
  8. Underestimating resource requirements. A major resource is cash funding, but other resources, such as industry contacts and access to marketing channels may be more important for certain products. Having too much cash, not managed wisely, can be just as devastating as too little cash. Don’t quit your day job until new revenue is flowing.
  9. Not enough marketing. Having a slick word-of-mouth marketing strategy isn’t enough to make your product and brand visible in the relentless onslaught of new media out there today. Even viral marketing costs real money and time. Without effective and innovative marketing across the range of media, you won’t have customers – or a business.
  10. Giving in too early. In my experience, the most common cause of start-up failure is the entrepreneur just gets tired, gives up and shuts down the company. Despite setbacks, many successful entrepreneurs like Steve Jobs and Thomas Edison kept slugging away on their vision until they found success.

Martin Zwilling is a veteran startup mentor, executive, blogger, author, tech professional, and angel investor. Contact him at at marty@startupprofessionals.com

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Start-up Advice

Start-ups Need More Than Money To Succeed – They Need Smart Money

Start-ups need investors who bring not only cash to the table, but also their networks and business acumen.

Max Lyadvinsky

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Ask any start-up what the single most important element to success is and – more often than not – the answer will be money. Financing always ranks as a high priority for the small fish trying to make it happen in the big pond of business – but often discussed with less fanfare is where this cash comes from and what will come with it. These are actually the most important details to a start-up.

That is not to say that money is not important. In fact, the second most common reason for start-up failure is lack of funding, according to CB Insights. Although, perhaps ironically enough, the top reason for start-up failure is lack of market need – a problem which could have been identified and avoided by investors who bring money with direction and money with experience.

Start-ups don’t just need money, they need smart money.

Start-ups need investors who bring not only cash to the table, but also their networks and business acumen. Essentially, they bring experience and direction to outfits that are usually inexperienced or directionless. So, let’s talk smart money and the start-up.

What is smart money?

“Smart money” refers to investors who are simply more intuitive and aware of market movements and business health. The Financial Times describes “smart money” as “sophisticated investors who tend to pick the right moment to buy or sell assets because they can identify trends and opportunities before others do.” These investors calculate based on history and profit and invest accordingly. Where they go, other investors follow.

These business heavyweights are invaluable to a startup because they put more than simply their money where their mouth is; they also invest their expertise. A start-up could have all the money in the world but it will fail more without the proper business direction and market placement.

Smart money works best for start-ups when nascent businesses pair with investors who provide a holistic approach to business. They can help in hiring the best talent, attracting interest from the most relevant stakeholders, securing a continuous presence in the press, avoiding pitfalls and, ultimately, fulfilling ambitions.

There are more than a few ways that money can be termed as smart. Perhaps the cash infusion also comes with experts in thought leadership and strategy, or executional capacity, or the ability to increase sales and raise funds. Whatever the method, smart money brings something more to the table than dollars. This becomes abundantly clear when conducting post-mortems of the startups which have failed.

Related: Government Funding And Grants For Small Businesses

Why do start-ups fail?

Start-ups fail all the time – and it is important to understand why. As mentioned above, the top reason start-ups fail is simply the lack of market need. Tackling problems that are interesting to solve rather than those that serve a market need is the most common issue start-ups cite for their downfall. The next most common reason for start-up failure, as likely predicted, is money. Smart or not, money does need to flow into any start-up to make it possible. Meanwhile, the third most common reason for startup collapse was team composition. More to the point: Start-ups need to comprise a diverse team with different skill sets.

These top three reasons for start-up failure could be solved with the right management approach from the top down. Each of these reasons can be addressed with smart money. The right business and management structure will allow the right hires to be made and course to be charted. Smart investors can identify the right people for your team and help you to hire staff who will take the business to the next level.

While start-ups think money is the key, it is not the end-all and be-all for their potential success. They need skills and networks. Business and innovation expert Rosemarie Truman explained this misunderstanding best: “A common mistake entrepreneurs make in their struggle to find funding is focusing too much on getting the money under specific terms and not paying enough attention to who is providing the funds.”

Show me the (smart) money

Savvy entrepreneurs recognise their businesses need more than cash to be successful – especially those at the top. Alibaba chief executive officer Jack Ma, who ranks as one of the richest people in the world, described the need for smart hires and smart staff as thus: “At first, I knew nothing about technology. I knew nothing about management. But, the thing is, you don’t have to know a lot of things. You have to find the people who are smarter than you are.”

Smart business owners want to work with investors who provide not just money but also their expertise, time and access to networks – and this is especially important for businesses looking to scale. The proof is in the research: Take for example a paper by Morten Sorensen, professor of finance at Copenhagen Business School, about venture capital and its impact on an overall business. Sorensen found that companies funded by more experienced venture capital funds were more likely to go public, and also that more experienced venture capital funds invest in better companies, leading to better long-term business health.

So, the question then becomes: Where does one access smart money? The answer will depend on whom is asked, but startups that have survived and later grown into viable businesses are a good place to start. The founders of collaborative blogging platform Niume, Daniel Gennaoui and Francesco Facca, have this advice for start-ups who are on the hunt for smart money:

“First, you need a strong founding team with complementary skills that can actually deliver on their promises. Second, you need a working minimum viable product (MVP), showing that there is traction and interest for the product and people willing to use and pay for it,” the founders said. “The actual amount they invest is far less important than the value they bring to your company.”

It is also worth noting that crowdfunding can be considered a form of smart money, as it brings an ecosystem of partners who will help to scale and countless brand ambassadors who have invested their hard-earned cash.

Related: The DTI Funding Guide You’ve Been Looking For: The What And How

It’s simply more than capital

Gaining start-up finance is not only venture capital or crowdfunding – it should also provide an ecosystem of business management and be viewed as such. It’s simply wrong to think funding is only funding. Start-ups can have all the money in the world but will fail more often than not without the proper business direction and market placement. Those who want to make a lasting impression in their given field need the guidance and support smart money brings.

This article was originally posted here on Entrepreneur.com.

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Start-up Advice

7 Lessons For The New Entrepreneur To Take Into 2019

You already have what it takes to make this year successful, but keep these points in mind.

Dr John Demartini

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Human behaviourist, Dr John Demartini upacks some important lessons that new entrepreneurs would be wise to take into the new year.

1. Find a need to fill that will also fulfill you as well

First and foremost, the most important thing an entrepreneur needs to do is to find out what exactly it is that businesses or people need, and make sure that this matches what is absolutely most meaningful and inspiring to you.

This need or value that you are going to fill must also be important to you and on your list of highest values so that you have a relentless drive to go and serve this need. In other words, it is important to make sure that you are doing something that’s meaningful and inspiring to you and serves a great number of people.

Related: Awaken Your Entrepreneurial Spirit

2. Clearly define all the functions required to build your business

Those functions are based on exactly what is systems and structures are required to fulfill your customer’s needs or values and to profit.

You must imagine every single step required to serve the customer. This helps build an infrastructure step by step.

3. Meet the need and generate the income

I think a great number of entrepreneurs set up fantasies that they have to depend on money to get their business started. Many have this grandiose idea that they’re going to do this, and then they need a certain amount of capital to get it going, instead of going in and actually meeting a need and generating income and then infusing capital into a proven model.

If you do it that way, then you don’t have to give away portions of your business and accumulate possibly unnecessary debt.  Ask how you can be paid up front to fulfill each essential step instead of how you can borrow to fulfill them. Sure selling in advance is often wiser than borrowing and gambling on what customer might want.

Those who decide to wait for capital before they start their business often feel they can’t get it started without outside capital. Then, a year later they’re still trying to get the capital together to get their business started. It’s often wise to actually make sure you have something that really meets a need and be willing to work from the grassroots up and prove yourself and then infuse capital based on what’s already produced and proven and build it that way.

Related: 7 Character Traits Every Entrepreneur Can Cultivate

4. Manage money wisely

Save a portion of the money earned, and take another portion and return it back into the business to grow it. It’s important to have a liquid cushion – it’s unwise spending all your money or putting all of it back into the business and then having no cushion to fall back on.

Make sure that a portion of the money is put into liquid cash. The greatest companies have a great reserve of cash. Liquid cash is important. Many entrepreneurs are gambling instead of investing and looking for a quick return instead of being patient.

5. Have adequate liquidity to prevent opportunity take overs

Watch out for opportunists – when you are running a successful business. There will be opportunists who come along and offer to purchase the business for much less than it may be worth.  That is another reason to have adequate liquid capital on hand, because without it, you can become vulnerable to others coming in and taking over the business. Leverage buyouts can occur.

Remember, cash is king. Cash grabs opportunities. So be sure to save and invest.

6. Keep focused

If you are not making money, then you must not be serving people. So make sure you are truly meeting your customer’s needs and serving them. Don’t take your focus off your mission. Don’t forget what got you to a point of success.

Related: Make A New Start In 2019

7. Be true to yourself

Don’t try to be somebody that you are not. Don’t envy and imitate other companies, you may end up not being authentic and true to what your values are. It is wiser to recognise where and when you already own the traits of those you admire according to your own highest values.  You already have what it takes.

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Start-up Advice

Outdoor Versus Indoor: How Different Conditions Will Impact Your Budding Marijuana Business

When starting out you should know the difference between indoor and outdoor production and why it matters to your future cannabis business.

Nicole Crampton

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If you’re looking to start growing and cultivating a strategy in the hopes that weed will be legalised, you’ll need to do some experimentation. Growing marijuana is a science and will require more than just a splash of water every other day like normal house plants.

Firstly, you’ll need to determine if you can grow your “crop” outside or if you’ll need to set-up a space inside. Here is what you need to know about growing cannabis inside versus outside:

Optimised versus natural

Deciding which option will work better for you depends on your unique circumstances. If you have access to an outdoor area you can use the natural resources of the sun and wind. If, on the other hand, you prefer to grow your crop inside you’ll need to cater for the natural elements you’ve lost, but you can also optimise the environment to give you exactly what you’re looking for.

When growing indoors you can control:

  • Temperature
  • Light source
  • CO2 production
  • Humidity.

This will create a stable habitat for your weed plant to grow in, without having to risk any outdoor elements. Keep in mind, no bulb is going to be able to produce the same spectrum of light as the Sun, which will leave you will smaller yields and less vigorous plants.

You’ll also find it challenging to simulate the natural environment. For example: wasps, ants and ladybugs are natural helpers against mites, you won’t be able to mimic this ecosystem indoors, and if your plants become infested with mites it can be difficult to control. To avoid using pesticides and insecticides some cultivators could find the trade-off of growing outdoors appealing.

Outdoor growers will need a suitable climate for cannabis production such as:

  • Good sun exposure
  • Hot days, warm nights
  • Low humidity.

cannabis-production-pros-and-cons

Related: 6 Fundamental Steps To Consider Before Venturing Into The South African Cannabis Industry

Can you afford to grow indoors versus outdoors?

planting-marijuanaWhether you’re growing indoor or outdoor there will be significant initial costs, however, the difference will come in when it comes to long term costs.

An indoor climate control system can be quite capital intensive compared to outdoor where the majority of the costs are in the initial start-up.

The expected labour costs for indoor and outdoor are also quite different. There is always work that needs to be done to create an optimal environment with indoor marijuana growing. With a smaller yield, like in indoor growing, pruning, trellising, watering, feeding and harvesting are more demanding and continuous.

When growing cannabis outdoors, you’ll work on one crop throughout the seasons. A farm with a large output typically can sustain four full-time workers until harvest, when more employees will be needed.

You can recoup the high cost of indoor weed farming through:

  • Breeding projects
  • Year-round harvests
  • Potent products
  • Higher selling points.

Indoor marijuana farming also allows you to cultivate strains that wouldn’t thrive outdoors.

Pro tip: Keep in mind, with the rising cost of energy and an increasing demand for more product within the current marketplace, outdoor farming could produce quality product at a more reasonable price.

indoors-versus-outdoors-pros-and-cons

Related: 12 Cannabis Products You Can Legally Start Selling Right Now

Will outdoor or indoor offer you better quality?

Being able to optimise your environment and accelerate breeding has allowed indoor cannabis to hold the title of top of the line product and generate beautiful strains with powerful flavour profiles. With indoor marijuana growth you can increase the CO2 level increasing bud growth and producing higher THC levels, which are difficult to obtain outdoors.

Indoor buds also remain in pristine condition as they aren’t exposed to the elements. Having an indoor operation enables you to harvest crops at peak conditions and curing the product in a controlled climate.

On the other hand, many users prefer the sun-grown organic marijuana. Although the actual plants tend to be more damaged, so the product isn’t as pristine. However, once you’ve gained enough experience you should be able to produce products of the same high quality as indoor growers.

outdoor-quality-pros-and-cons

Related: 10 Cannabis Business Opportunities That Can Grow Your Wealth

The best of both options

There has been a growing trend of commercial greenhouse marijuana farming. This seems to capture the best of both methods. It produces high quality cannabis, while using natural elements and optimised environments simultaneously.

Both styles of farming offer positives and negatives, and as a consumer or a future producer, you’ll need to continually educate yourself on the current trends. Continue to evolve your process, try something new and keep your mind open to possibilities.

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