top of page
  • Writer's pictureSrikanth Gaddam

Why Do So Many Businesses Fail and So Few Thrive?

Author: Dr. Srikanth Gaddam, CEO, ERPA Group

October 07, 2020

Starting a business is an endeavor that is often years in the making. Saving money, searching for locations, hiring staff, and setting up a company website can take a lot of time and effort leading up to the all-important launch day. However, despite the long process of starting a business and all the factors involved, many businesses fail within the first few years, while far fewer thrive and meet or exceed the business owner’s expectations. Why does this happen? What is it that allows certain businesses to grow to a much greater scale, while others struggle to get off the ground? What’s more, is there anything that business owners can ensure that their ventures don’t fail?

Leadership Matters: Lack of Vision, Strategy, and Alignment

When starting a business as an entrepreneur, it can be difficult not to fall into the trap of thinking too far ahead, imagining a best-case scenario full of great success and maximizing profits, without carefully considering how you are going to get there in the first place.

Every entrepreneur has a vision of what their business could eventually be. However, the responsibility of getting the business to that point does not fall solely on their shoulders, but also on the shoulders of the team surrounding them. No matter how strong your vision of the future of your business is, it’s no use if your team does not share it, or if you do not have a plan on how to ensure that the future you have visualized is the future that you experience.

There are two initial things that a business owner must do to avoid the failure of their venture: share the vision with their team and be clear on exactly how they plan to make that goal a reality.

First off, the teams working for new businesses must know what the goal for the business is. Where will that business be in three years if all goes to plan? What are the next steps and the plan for the business’ growth? If the team does not understand these goals or the importance of them and are unable to picture this future, then they will not do all they can to help the business get there.

As a business owner, you must pitch your vision to the core team who will help you make it a reality – and you must separate from those who do not appear to share in that vision with you.

More important than simply having a vision, though, is having a strategy. It isn’t enough to convince your team ‘our business will have a turnover of $100,000 by the end of this year’ if you cannot provide that team with a look at exactly how you will make that happen.

Put, it is important that your team are not just able to share in your vision for the future of your business, but also to understand how you, collectively, are going to make it a reality.

Business owners must share their vision, lay out their strategy and ensure alignment with their team as a whole in order to avoid failure.

Target Market: Lack of Understanding Market Size and Target Customer

Unfortunately, there are many businesses who are doomed to fail before their even begin, as they attempt to break into markets which are already entirely over-saturated.

One of the most important parts of establishing a successful business is to be able to identify your product’s unique selling point (USP) and largest target demographic. If you cannot do identify a USP that sets your product apart from others on the market or if you cannot define a clear target market for any reason, then it is unlikely that your business is individual or necessary enough to out-do the competition.

There must be a gap in the market. There must be a problem that your business will attempt to solve. If your product or service is similar to others which already exist, then there must be a reason why your product or service is better, and can feasibly stand up and win against existing competition.

To put it bluntly, if there is no clear reason for your business to exist from a customer’s point of view, then it has very little chance of getting off the ground. What does this business do separately? What sets it apart from the competition? What will convince the consumers of a similar product to choose your product instead?

Too many entrepreneurs pour their time into bringing a product into a market which is already full. This unoriginality and lack of any clear USP is what puts the wheels of their downfall in motion before they have even started.

There is also a lack of understanding of just how specific your target market should be. Many businesses fall into the trap of believing that the larger the target market, the higher the potential for sales and profit – this is simply not the case.

For example, it may seem more practical to target your product to ‘women’ in general, rather than ‘women, aged 25 – 30, who have over $200 monthly disposable income’, as there are 3.9 billion women in the world, but only a fraction of them fit this second category. However, this is entirely counterproductive.

The reason that a target demographic must be more specific is that it allows for much more effective marketing. It is impossible to appeal to all women or all men at once, as interests and needs vary so much dependent on age group, financial stability, marital status, etc. A marketing campaign which attempts to appeal to far too many people at once is more likely to fail to appeal enough to anyone.

To summarize, a business which defines a clear gap in the market and advertises the resulting product to a specific demographic is far more likely to succeed than a business which seeks to capitalize on an existing concept by marketing it towards a much larger group.

Value Creation: Failure To Create And Deliver Real Value

Again, the issue that many businesses run into is that their product simply does not demonstrate value to its target group of consumers.

When entrepreneurs decide to develop a particular product or service, many fall into the trap of mistaking the success of pre-established similar products as proof that their own will experience the same success.

To ensure that they do not waste time, money and effort delivering a product or service that there is no call for, business owners must first research their target demographic and gather evidence that there is enough room in the market for their business to succeed.

The best way to do this is by identifying their clear target market and speaking to potential consumers who fit this demographic to find out just how many of this group would be genuinely interested in the product. This can be an incredibly time-consuming process, as it is important to gather as much market research as possible, but the findings are invaluable for business owners who use them correctly.

It would be advisable to gather the opinions of at least 100 members of your target market, and to know exactly what you need to say and ask in order to demonstrate the value of your product.

Start by presenting your potential consumers with the problem that your product attempts to solve and finding out whether this problem is common enough to justify the solution – the solution being that they would buy the product.

Then, present this solution. Explain every way that your product solves the problem and demonstrate the value of the product to your consumer. Why do they need this product? What difference will it make to their daily lives?

If your product is one which solves a long-standing problem or which you imagined would have been around before now, then there must be a reason why it has not been done before. Find out what that reason is.

This market research will help the business owner to make some incredibly important decisions about their product, so it is important to define the benchmark in the findings that shows the product is worth developing. You can’t please everyone, but if at least 80% of the consumers that the business owner spoke with found in favor of the product, then it certainly is worth developing.

If, however, just 60% of the potential consumers are impressed by the product, then this could be an incredibly risky business idea to proceed with, as the pool of consumers who are surveyed are supposed to represent the target demographic as a whole.

When you consider that a potential consumer simply telling the business owner that they would be interested in purchasing this hypothetical product is very different to actually parting ways with their money for it, you can expect that the 60% would dwindle in a real life situation – if only around half of a product’s target demographic are particularly interested in it, the business isn’t likely to thrive in practice.

Go-To Market Strategy: Failure To Communicate Value Propositions and Product Differentiation

All too often, a business may present an excellent product with the potential for huge sales, only for the product to fail due to ineffective marketing.

When marketing a product, business owners need to consider how they can use their campaign to get across as many of the positive aspects of the product as possible, and that the format and location of the campaign is suited to the target demographic.

For example, many business owners make the mistake of marketing their product in a way which does not place it in front of their target demographic. There is no sense in marketing a product aimed at the elderly via social media, just as there is no sense in marketing a product targeted towards teenagers via print advertising in a newspaper. Business owners must consider where their target market is at their most present in order to get the word out efficiently.

Then, it is often a case that the marketing just isn’t quite effective enough in describing what the product is and how it will forward the lives of its consumers. Advertising, in most formats, usually gives businesses a short window of time in which to demonstrate the value of their product or service – if you cannot work out how to do this effectively, then you simply will not turn your target marketing into paying customers.

Execution: Inability To Define Clear Goals, Failure To Build An Employee Tribe & Lack of Financial Discipline

Successful strategy execution is more about saying no to many things and focus on very few things that matter most, while creating a sense of urgency and a culture of accountability.

Successful strategy execution comes from:

  1. Defining clear goals across the organization that are aligned with the organization’s strategy, Choosing the right people for the right jobs and developing a culture of accountability, Identifying and removing potential barriers that may cause disruptions in achieving key organizational goals.

  2. Always setting aside time for strategic planning and execution while not getting carried away with tactical day-to-day operational issues.

  3. Defining, reviewing, monitoring, and providing feedback on Key Performance Indicators (KPIs) on a regular basis, and ensuring that everyone’s KPIs are aligned with the organization’s goals.

  4. Defining a compensation structure to reward behaviors that drive desired results.

  5. Communicate and link the message to various levels in the organization to facilitate making timely decisions. Anything can be successful in theory, but not everything can be successful in practice.

Too many business owners get so wrapped up in the process of initially launching their business that they forget to consider what comes next. They fail to prepare for potential roadblocks or to budget effectively. They often begin to take their eye off the ball in terms of keeping their team focused on the all-important vision that they defined at the start of their business’ journey.

To prevent the failure of their business, business owners must continue to monitor the way that their business changes. Are there up and overcoming competitors? Have the needs of your target market changed at all? How can you effectively use the money that your business has made to grow the business further?

Dr. Gaddam is a seasoned entrepreneur, angel investor, and author. Dr. Gaddam’ s greatest accomplishment lies in raising ERP Analysts, Inc. from a two-person organization to eighty-five-million-dollar firm. ERP Analysts, Inc. has been recognized as one of the fastest-growing companies by Inc. 5000 for ten years, Deloitte Fast 500, & Business First Fast 50 for several years. ERP Analysts is recognized as a “Best Places to Work” in Ohio for several years ( Dr. Gaddam graduated the Doctor of Management (DM) from Case Western Reserve University, MBA from the Ohio State University, and the Owner President Management program (OPM 43) from Harvard Business School. He is the author of the book “Destination Success: Discovering the Entrepreneurial Journey” and also co-author of “Roadmap to Success,” with Deepak Chopra, Ken Blanchard, and other entrepreneurial leaders.

36 views0 comments

Recent Posts

See All

Roadmap to Successful Entrepreneurship

By Dr. Srikanth Gaddam March 05, 2021 In my view, successful entrepreneurship is envisioning snapshots of future building success scenarios, way ahead of others, and building pragmatic strategies to

The Future of Entrepreneurship in the 21st Century

By Dr Srikanth Gaddam, CEO, ERPA Group September 06, 2020 “For years, becoming an entrepreneur has been the goal of many a would-be business owner. The lifestyle, flexibility of working hours and the


bottom of page