Why do Start-ups Fail? Revenue May Be the No. 1 Reason. And a the failure to differentiate your product is a key reason for that lack of revenue.
By Doug and Polly White •
Opinions expressed by Entrepreneur contributors are their own.
Opinions vary as to why start-ups fail. One business publication conducted a study, of sorts, which determined that a lack of need for the product was the number one reason.
Related: 6 Lessons I Wish I'd Known Before My Business Failed
However, in our experience, most new businesses fail because they don't generate sufficient revenue to sustain themselves. Admittedly, there are other reasons that startups don't make it, but most frequently, this lack of revenue is the culprit. To ensure that your own business generates enough revenue to succeed, we recommend following these four steps:
Differentiate your product or service.
In his book Competitive Advantage, Michael Porter, a professor at Harvard Business School, said there were only two ways to successfully compete: Either your offering can be differentiated from other options, or it must be priced below the competition's.
As a practical matter, startups rarely have the volume necessary to support a low-price strategy. Therefore, they must differentiate their offering. Startups must give prospective customers a reason to purchase their product or service rather than competitors offer. If you can't clearly and concisely articulate why your offering is your customers' best choice, our advice is: Don't launch.
Identify your target market segment.
Okay, so let's say that you know what makes your offering different from others in the market. Unfortunately, that by itself is insufficient if too few people value that differentiating factor.
Our example here is silly, but bear with us: a skunk-flavored ice pop. If you marketed this product, it would be differentiated, all right -- nothing else like it on the market. Unfortunately, sales would likely be very low. Few people would be willing to purchase this differentiated product. That's why you must identify a segment of the market that values what differentiates your offering; and that value must be large enough to support your business.
Start-ups also make the opposite mistake. They run after too many market segments. We made this mistake when we were first getting started. We had solid consulting skills, and Polly had experience providing individual coaching. When we thought about our possible markets, our plan grew to include small businesses, start-ups, midsize businesses, businesspeople and non-business people who needed coaching, as well as young people (including teenagers) who might need coaching direction.
Related: The 6-Step Process for Rebounding After a Business Failure
But you have a problem when you think you can help everyone: You dilute your message. We were diluting our message and had to stop and focus our efforts on a single segment. That made the difference for our business.
Decide how to reach your target market segment.
Whoever said, "If you build a better mousetrap, the world will beat a path to your door" was simply wrong. If the world doesn't know you have a better mousetrap, no one will be knocking on your door. You need a cost-effective plan for reaching your target market segment with your marketing message. You need to communicate why your offering is the right choice for them.
Know how close the sale.
Too many people launch a business because they are great widget-builders. They forget that they will have to sell the widgets. Understanding what differentiates your offering is paramount. Identifying your target market segment is critical. Reaching your target market segment with your marketing message is a necessity. Yet, even after you have done these three things, in many cases, you still need to close the sale. Be sure you know how you will sell your product or service before launching your business.
There are many books and other tools that can help you to develop your closing technique. So, do some research. Ask for help. Get training. You must be able to close the deal to earn the revenue your company will need to survive.
Starting a business is risky, and the odds are stacked against you. Most new ventures close their doors because they fail to generate sufficient revenue. Maximize your chance for success by following each of the tips above. As you think through each one, be brutally honest with yourself.
Related: Reinventing Yourself: Life After a Business Failure
And, remember: In this case, self-deceit can be deadly. Coming up short on any one of the above action steps may well spell disaster for your fledgling enterprise.
