Updated: Feb 13, 2020
There was an article published in Fortune Magazine titled “Why start-ups fail, according to their founders” that took a deep dive into 101 failed start-ups.
The #1 reason for failure was “No Market Need” for the product/service.
The article went on to elaborate that today the business world has embraced a “fail fast” mentality. As an entrepreneur…I would agree with that comment and support it wholeheartedly.
But as an investor and someone toiling in the trenches daily (investing my time) to help build companies… my ears perked up.
When a company fails, money is sent to die.
It’s a potential risk investors and entrepreneurs are well aware of.
The thought that then crossed my mind after reading this article was “ how does an entrepreneur decide where to (potentially) fail fast”.
In other words, what should they be looking for before getting in too deep in an existing business or potential start-up.
Most business owners get caught on the fee treadmill. Whether they sell a product or service, many take the sale today and just push to make the sale again tomorrow.
This is a fantastic way to build a cash position and expand however businesses that find creative ways to turn their one-time transactions into monthly subscriptions, memberships or payment plans tend to become far more valuable.
Residual income-based companies create more stability as cash comes in every month. Not surprisingly, residual based companies typically find it easier to raise capital and receive healthy valuations.
FLAT OPERATING COSTS
Nearly all businesses require some meaningful amount of capital to start. With most of those companies that’s just the beginning as the expenses keep piling up.
Many of those entrepreneurs find themselves stuck, often times running flat out and not getting much further ahead than the month prior.
Yet some of those businesses grow like weeds and make a tidy profit. Why is that?
High margins, low overheads, recurring revenue, high turn over of inventory and significant market demand are the typical drivers of businesses that grow at light speed.
This lesson is as true for the hot dog stand vendor occupying 21 square feet of a downtown street corner as it is for the billion dollar tech company with a handful of employees.
It seems like Quinoa and Kale are in everything now.
My friends are shopping for self-driving electric cars and we’ve had at least 5 companies approach us with a “medical marijuana” opportunity.
These are all trends.
If your business can tie into or service a growing trend consider it free advertising.
Growing trends educate the market for you – leverage this especially if you what you do is not well understood or known.
Think about all the new “revolutionary” fitness equipment in the marketplace that leverages the new diet/exercise fad.
Don’t misunderstand, a business won’t survive on a trend alone (think tie-dye t-shirts) but it can give you a significant boost in sales and capitalize you for the next evolution of the business.
As an entrepreneur I’m all for the attitude of get out there, give it your all and making it happen.
But when it comes down to investing significant time/energy/money into a business I’m partial to stacking the odds in our favor wherever possible.
KEY POINT: SUCCESS LEAVES CLUES. STUDY THE FASTEST GROWING COMPANIES.
Marcin has been instrumental in building several businesses including commercial & multi family real estate investment partnerships, a consulting practice and a smart home security business serving customers nationwide. Marcin has secured over $100MM in growth capital for various businesses and has collectively spoken in front of thousands of entrepreneurs, business owners, investors and those just starting to explore living life on their own terms. Outside the office Marcin can be found at the gym lifting heavy things, skiing or on the road zipping along on an extended bicycle ride.
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