Your Guide to Avoiding the Top 10 Mistakes of Failed Businesses

When Forbes says that 90% of businesses fail, your ears should perk up. This is a dumb-founding and mind-numbing amount considering that 4.4 million businesses are started each year.

Entrepreneurs, this is a huge red flag that should make you sweat a little. Perhaps you have already tried (and failed) to start your business or you are about to kickstart your journey.

Read this article on the top reasons why businesses fail. Bonus content: How to be in the top 10% that make it.

Examples of Failed Businesses

Before we dive into the top reasons why businesses fail, it's helpful to observe how and why this happens even in the largest and most-trusted companies.

MySpace

MySpace, the leading social network from 2004 to 2009, enjoyed widespread use and even contributed to launching the careers of many musicians. However, it fell to Facebook's superior user experience, diversified connection methods beyond music, and gradual expansion to different user groups. Despite attempts to change the platform's look, the hemorrhage of users continued. Finally, Specific Media Group and Justin Timberlake acquired MySpace for $35 million in 2011, transforming it into a music promotion platform, marking the end of its social networking era.

MySpace failed primarily due to its inability to adapt to changing user needs and compete with Facebook's superior user experience and broader social networking features. Its focus on a niche audience of music and entertainment lovers, along with a detrimental ad deal with Google, led to its decline in user engagement and site traffic. Unfortunately, unsuccessful attempts at site redesign further accelerated its downfall.

Kodak

Kodak, once a photographic film giant, faced demise due to its resistance to digital innovation. Despite developing the first digital camera in 1975, Kodak's fear of undermining its thriving film business led to its discontinuation. The digital revolution, coupled with the agility of rivals like Fuji, rendered Kodak obsolete. Despite early warnings about digital technology's potential, Kodak’s management failed to adapt, leading to its bankruptcy in 2012. It re-emerged in 2013, significantly smaller, catering to commercial clients.

Blockbuster Video

A more well-known business fail, but similar to Kodak, is Blockbuster Video which died out in 2010. Blockbuster Video failed to adapt their business into a digital model. It's interesting how in 2006, Blockbuster was listed #410 on Fortune 500 Companies. This shows how quickly change occurs and why it's important to consistently reevaluate your business model.

The Top 10 Mistakes of Failed Businesses

Now that we've examined the rise and collapse of the businesses that were booming during their peak their time, let's discuss these fatal errors to avoid. These are the top 10 mistakes and pitfalls that new business owners fail to consider which ruin the viability of their business.

1. Lack of Market Need

This happens when a startup fails to solve a market problem or meet consumer demands. If the product or service does not fulfill a need in the market, it will likely fail. Startups that focus on creating a product or service without first validating the market need run a high risk of failure. Without customers who are willing and able to pay for a solution, the startup's offering will have no demand. Market research is a crucial first step to determine if there is a consumer need and a profitable segment of customers to target.

2. Insufficient Capital

Startups can fail due to a lack of funds. This can prevent them from investing in development, marketing, and other crucial areas. Securing adequate funding is a fundamental challenge for startups. Without sufficient financial resources, a startup may struggle to invest in necessary areas such as product development, marketing, or hiring top talent. Startups need to plan their financial runway wisely, have a realistic projection of costs, and work on a viable revenue model to attract potential investors.

3. Poor Management Team

Ineffective leadership can result in poor decision-making, a lack of strategic direction, and failure to adapt to market changes, which can lead to startup failure. The management team's decisions largely determine the course of a startup. A team lacking relevant industry experience, business acumen, or decision-making skills can make mistakes that jeopardize the company's survival. Building a balanced team, with a range of complementary skills and experiences, can significantly increase the chances of success.‍

4. Strong Competition

In a crowded market, startups that fail to differentiate themselves or offer a unique value proposition can lose out to competitors. In an industry with strong competition, a startup must differentiate itself through unique value propositions. Without clear competitive advantages, a startup may struggle to gain market share and establish a strong customer base. An understanding of the competitive landscape and positioning the product or service accordingly is crucial for success.‍

5. Pricing Issues

If a startup's product or service is priced too high or too low, it can deter potential customers, affecting sales and revenue. Pricing can make or break a startup. If the price is too high, it may deter potential customers; if too low, it can erode profit margins. A pricing strategy should consider factors such as customer's willingness to pay, cost of production, and competitors' pricing.

6. Poor Business Model

A startup with a business model that is not viable, scalable, or profitable is prone to failure. Without a sound and scalable business model, a startup may struggle to generate profits or attract investors. The business model should clearly show how the startup will create, deliver, and capture value over time. Regularly reviewing and refining the business model in response to market feedback and changes can help ensure its viability.

7. Poor Marketing

A lack of effective marketing can mean a startup is unable to attract and retain customers. Effective marketing is critical for customer acquisition and brand awareness. If a startup fails to communicate its value proposition effectively, it can struggle to attract and retain customers. A strategic marketing plan that considers the target audience, channels, messaging, and metrics can help optimize marketing efforts.‍

8. Ignoring Customers

Not listening to customer feedback and failing to adapt products or services to meet customer needs can lead to a startup's downfall. Not listening to customer feedback can lead to misalignment between the product or service and the market needs. Customer feedback is crucial in refining the product, improving user experience, and building customer loyalty. Startups need to have mechanisms in place to collect, analyze, and act on customer feedback regularly.

9. Lack of a Strategic Plan

Without a solid plan, a startup may lack direction, making it difficult to set and achieve goals. A startup without a clear strategic plan may drift off course or lose sight of its goals. The plan should outline the startup's mission, vision, objectives, strategies, and action plans. Regular reviews and adjustments of the plan to accommodate market changes and business progress are necessary for staying on track.‍

10. Premature Scaling

Startups that try to scale too quickly, before they have a solid foundation, often end up failing. Scaling a startup before it has achieved a product-market fit or before the business model is proven can lead to operational and financial problems. The startup may burn through its resources faster than acquiring new customers or generating revenues. Understanding the right timing and method for scaling is crucial for sustainable growth.

How Phase One Ventures Helps Startups Reach an 8 Figure Valuation within 8 Months

These examples of failed businesses show that adaptability is key to surviving.

Phase One Ventures has helped businesses scale and reach the market quickly by concentrating on flexibility. Phase One Ventures' business model focuses on building user-centric and market-responsive products. We build MVPs (minimum viable products) that are tested first to ensure they perform well. When we receive feedback and data, we continue to optimize the SaaS platform.

Here are just a couple of our success stories.

If you're interested in building your own 8 figure SaaS platform, schedule your free discovery call with our founder today.

Dispute Panda

This credit repair software reached an 8 figure valuation within 8 months. Unlike traditional credit repair businesses, Dispute Panda uses AI to generate 100% unique letters in less than 10 seconds. Clients see results up to 70% faster than traditional credit repair companies.

To hear how Dispute Panda disrupted the credit repair industry, read the full case study.

Cellyce

Cellyce is an e-commerce product aggregator built for both consumers and business owners. This platform hasn't launched yet, but there are hundreds of eager customers on our waitlist. Cellyce allows customers to save money and time by finding the lowest priced items from multiple stores simultaneously. Customers can shop for both groceries and regular products. With each search query, customers will find the lowest prices across the web along with product reviews.

You can find more about this SaaS platform by reading the complete case study.

How to be in the Top 10%

Although the stats for businesses seem bleak, there are many ways to improve the chances and longevity of your business. Luckily, there's not just one right way to do it. Here are the top ways you can work towards the success of your startup.

Achieving success requires a careful balance of innovation, strategy, and resilience. To be in the top 10% of startups that make it, a deep understanding of the target market is critical.

This includes continuous research and validation of consumer needs and preferences along with a steady commitment to customer satisfaction.

A well-structured business model is very important, clearly demonstrating and communicating how the startup creates, delivers, and captures value.

In addition, securing adequate funding and deploying it wisely in core activities ensures financial stability and facilitates growth. Learn from the mistakes of Blockbuster Video and be open to adjustments in your business model.

A successful startup is largely built on the foundation of a competent, dynamic team. This team's adaptability, quick decision-making, and ability to pivot according to market trends is vital. Equally important is the blend of complementary skills, experiences, and personalities that can navigate the ebb and flow of the business climate, fostering a resilient work culture. A team's capacity to collaborate effectively, learn from setbacks, and capitalize on opportunities, ultimately dictates the trajectory of the startup's journey.

Effective marketing, distinct competitive advantages, strategic planning, and sustainable scaling form the pillars of success. These strategies must be executed with precision, with the ultimate goal of delivering a unique and valuable product/service to customers.

Dispute Panda is an example of combining these strategies to win first year market advantage. Dispute Panda saw a gap in the marketplace and took the opportunity which set them apart from their competitors.

The last key to success is learning from failures and adapting to changing circumstances that will take you far. Every step is an opportunity for growth and improvement. We learn from MySpace, Kodak, Blockbuster Video that when you refuse to adapt, you seal your fate.

Conclusion

Navigating the entrepreneurial journey is challenging. The fact that 90% of businesses fail is a sobering reality.

By understanding the reasons why these failed businesses faltered, entrepreneurs can strategically sidestep similar pitfalls and mistakes.

Complacency and resistance to change sealed the fate of entities like MySpace, Kodak, and Blockbuster Video. With informed strategy, self-assessments, and perseverance, success is attainable.

Triumphs of startups like Dispute Panda and Cellyce epitomize the power of customer-focused innovation and effective scaling.

To join the top 10% of businesses, entrepreneurs must meticulously comprehend their market, devise a robust business model, secure adequate funding, form a competent team, and craft a potent marketing strategy.

Ultimately, the journey to success in the startup arena requires resilience, adaptability, and the ability to transform lessons from failed businesses into stepping stones.