Play to Win: Avoid 5 Common Small Business Fails

  •    Seattle-based marketing consultant and the owner of The Marketing Desks and author of 365 Days of Marketing.

Small business owners who are playing to win can learn from the mistakes of others and make their own organizations even stronger. A CB Insights study lists 20 reasons cited by small business owners whose companies failed. The good news is that most are avoidable, and they can be divided into five main categories. Let's take a closer look at these common small business challenges and their fixes.

1. Product

Far and away the most common reason cited for business failure was lack of demand. Another reason cited by almost 1 in 5 was a poor product:

  • 42% - Lack of demand for product
  • 17% - Poor product

No matter how amazing your product is, you should research potential demand before launching it to the marketplace. Not only will this help ensure that you have a potential target audience that is large enough to support sales of the new product or service, but it will also give you a head start in understanding how to effectively engage with them. Before launching your product or service to everyone, you may also be able to refine it using beta testing, trial launches and focus groups in order to make it even more appealing to your customers.

Albuquerque, New Mexico's Skinny Man Gourmet Jerky pays close attention to customer opinion when deciding which flavors will make the cut. Based on customer demand, they just added three new flavors of gourmet jerky to their regular inventory.

2. People

The second-most common reason cited for startup failure could surprise you, because while it does start with "P," it's not one of the 4 P's of Marketing. It's people:

  • 3% - Wrong team in place
  • 9% - Lack of passion

Anyone who has the potential to impact the customer's experience impacts your marketing efforts. This could include people you hire as well as your vendors and suppliers. Look for people who understand and buy into your company's mission and vision, who are team players and who have the people-skills needed to ensure a good experience for your customers.

One way to practically ensure buy-in and passion from staff, when you're ready to hire, is to build a business with a give-back aspect. The vision of ROI (short for Riding On Insulin) is to “instill resilience in those facing chronic diseases." This company was born out of the passion of founder and pro-snowboarder Sean Busby, who was himself inspired to keep snowboarding even after being diagnosed with Type 1 Diabetes. The company doesn't just have customers, it has fans and supporters who can even contribute so that more kids with chronic conditions can enjoy shred sessions on the slopes.

3. Promotion

In the study, 1 out of every 5 business failures was directly attributed to how the brand and its products and services were promoted, or marketed, to the target audience:

  • 19% - Were outcompeted by other companies
  • 14% - Had inadequate or ineffective marketing

This brings us back to research as a key component of product or service development. If you introduce something new but the market is already saturated, you may not be able to capture adequate market share. Even if the market isn't saturated, if your product isn't distinguishable from those of your rivals in some way that is meaningful to your audience, sales may flounder. Lastly, if enough members of your audience never learn about your products and services because your promotions are ineffective (or non-existent!) than sales may lag.

Here are four questions to ask when it comes to successfully differentiating and promoting your products or services:

  • What is the market saturation? (Are there already a lot of products or services like this one, and/or are there already a lot of competitors?)
  • How is your product different and better than other options?
  • Does your positioning or point of differentiation truly matter to prospective customers?
  • How will you engage and educate potential buyers?

Real Body Fitness Photos is a perfect example of successful product differentiation, even in what may seem like a saturated marketplace. There are many sites offering stock photography for business and advertising use; however, Michelle Burmaster discovered a niche market for stock photos showing diversity not only of ethnicity, but of body types, in the fitness market. Her website was even featured in Self Magazine for its approach in showing that anyone can work out whether they “look like a body builder or not."

4. Price

Nearly 18 percent of the survey's respondents said pricing issues were to blame for the failure of their small business. Pricing is a very complex issue. Not only do you have to take consider input and operating costs, you have to study the market to see where competitors are pricing similar products. Then you must decide on pricing that takes all of these things into account and enables you to price products fairly (for customers and for your business) and competitively.

5. Place and Time

Last but not least, more than 1 in 10 business failures were chalked up to place and time in the study:

  • 13% - Product mis-timed
  • 9% - Bad location

As the saying goes, timing is everything. Mis-timing the release of a product or service can mean you miss the selling season or find that marketplace demand is on a down-hill slope. Part of your market research should be to assess any cyclical ups and downs sales a product or service may experience, whether market demand has reached its peak, or whether a new product or service coming to market could make yours obsolete.

Location, location, location is the mantra of choosing real estate and that includes commercial as well as residential property. As you evaluate potential locations for a new business or expansion, make sure to carefully evaluate its proximity to prospective customers as well as customers' willingness to travel to that location. It might be better to opt for a smaller space in a more customer-friendly location than a large space located somewhere customers don't want to go. Luckily, if you have a strong eCommerce presence your product can always be readily available to customers worldwide.

Knowledge is power. The more knowledgeable you are about problems that caused other companies to fail, the more you will be able to identify potential pitfalls. With these lessons learned, you can steer clear of problems that could hurt your business.