Why Do So Many Entrepreneurs Fail In Business?

Why do so many entrepreneurs fail in business? That is the fundamental question we’re going to wrestle with here.

We are NOT going to explore boring and weak explanations like “they spend too much money” or “they hire the wrong people”. Things like that are really just basic business acumen and entrepreneurial common sense—and I assume that the person reading this is competent enough to not flush their money down the toilet or hire a team of morons.

Here, we will instead get at the essence of entrepreneurship—focusing on the most important, fundamental causes of entrepreneurial failure. The goal here is to provide you with a distillation of THE biggest pitfalls to avoid in your entrepreneurial journey, so you can check your actions and strategies against these worst-practices to avoid. You will learn, what I believe, is the best possible pathway to maximize your odds of achieving entrepreneurial success.

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MISTAKE #1: Failing to offer a product or service that people are COMPELLED to buy, relative to existing options.

I believe that this is the essential starting point of effective entrepreneurship:

1) Do people really want (and even NEED) to buy the thing that you’re selling?
2) Is there an excellent reason to buy it specifically from you?

Most entrepreneurs that fail in business get at least one of those questions wrong.

Another way to phrase these two questions is as follows:

1) Do you have a compelling value proposition?
2) Do you have a powerful competitive advantage?

DEVELOPING A COMPELLING VALUE PROPOSITION

The bottom line is, you need to be offering something that genuinely helps people to solve a problem to such a degree that they’d be willing to eagerly pay for it. The concise “elevator pitch” version of how you do that is called your “value proposition”.

Here’s an example: “Our software automates this part of your workflow, saving you several hours of time each week.” People that value their time, spend countless hours on this part of their workflow, and absolutely hate doing this work would be very likely to pay for such a solution. If your value proposition is strong enough, the right people will wait in line and do backflips just for the privilege of paying you for your product.

The starting point of any effective business is offering something that has this kind of compelling magnetism. If you’re just selling some shitty, boring T-shirts, for example, such a business offering doesn’t have much gravitational pull behind it. What’s the draw? Why would anybody salivate and fantasize about buying a couple of shitty T-shirts? Unless you’re a large company with a well-established customer base, a set of well-oiled distribution channels, economies of scale, and a mountain-sized marketing budget, you’re unlikely to become an outstanding success selling plain, boring T-shirts.

The best value propositions are so good, so utterly compelling (to at least some group of prospective customers) that when the right people see and hear about your business offering, they can hardly stop themselves from taking their wallet out and throwing their credit cards at you.

ESTABLISHING A POWERFUL COMPETITIVE ADVANTAGE

Many people get that first part right, and they do indeed select a product or service that would help people to solve a major problem in their life. Where rookie entrepreneurs tend to stumble? They don’t provide customers with any compelling reason to buy specifically from them.

MAYBE if you’re lucky, some percent of people will type a query into a search engine, then immediately buy from the very first website whose PPC ad they clicked on.

“I have a problem” –> “This company solves my problem” –> “I will pay what they’re asking right now to solve this problem.”

SOME people might act in this way, but in reality, this is more of an optimistic fantasy about how things work. The general rule is that people tend to explore at least a few competing options before they make a buying decision. And if all you’re doing is just selling the same shit that several-dozen other companies are selling—with no good reason why your offering is superior—what makes you think that customers are going to buy from your specific company?

HAVE AT LEAST ONE REAL REASON THAT YOUR COMPANY STANDS OUT

Given the reality of how customers shop among competing options, to have any chance at entrepreneurial success, you need to have at least one REAL reason that your company stands out from competing options. This can’t be a bullshit reason like “our logo is fancier” or “our website looks better.” This needs to be a concrete, material reason that would have genuine weight in the mind of a customer.

“Our software has Unique Feature A, B and C—which allows you to save dramatically more time on this process vs. competing options.” –> THAT is a compelling reason that would cause somebody to take their wallet out.

“Our algorithm is 10x faster AND 10x cheaper than competing options” –> That’s another compelling value proposition that would have real, material weight to somebody making a buying decision. I value my time, I value my money, so a value proposition like this would make your software solution a no-brainer to me. (It’s also an example of stacking several different benefits on top of one another, which can be incredibly powerful because it has a compounding effect. Easier said than done, of course—but a potential goldmine if you can pull it off.)

“My company sells shitty boring T-shirts at basically the same prices as other companies” –> This is NOT a compelling value proposition. Why the fuck would anybody choose to buy T-shirts from your lame website, compared against the hundreds of other companies that sell such a thing? What good reason have you given me to make a purchasing decision from your specific company?

You need to understand that your products and value propositions do not exist in a vacuum. Frustrated entrepreneurs imagine their customer, next to their product, and they’re baffled as to why they don’t buy. You should actually imagine your customer, next to your product—which is next to all competing options (as well as all other methods of solving this problem). Once you expand your thinking in this way, the apparent “mysteries” of why people aren’t buying your products often become not so mysterious after all.

This brings us to our next core principle/best-practice to follow…

DON’T ENTER OVERLY-CROWDED MARKET SPACES

A major mistake that many entrepreneurs make is entering an extremely crowded market space. If dozens, or even hundreds, of existing companies have beat you to the punch, you need to be realistic and understand that it’s very unlikely that you’re going to be able to win (or make substantial profits) in such a market space.

If your value proposition is just incredibly compelling and truly superior to anything that ANY other competitor is offering, then maybe you still could become successful in a very crowded marketplace. However something else to keep in mind is this: Whatever value proposition you introduce? What is stopping the other existing players in this space from stealing the idea and implementing it in their own very similar business model? This is where entry barriers come into play…

SET UP SOLID ENTRY BARRIERS THAT KEEP COMPETITORS OUT

If you have some kind of proprietary formula that others can’t replicate, that’s a solid entry barrier that will make it hard for your competitors to copy what you’re doing. If you have patent protections, that’s another solid entry barrier where the law will keep others at bay. If you’re just offering an improved feature on your website that your competitors could implement with a few hours of coding changes, that’s not the type of competitive advantage that’s likely to have much resilience and staying power behind it. If you’re just offering superior customer service vs. existing competitors, what’s to stop these other companies from simply ramping up their customer service to match or exceed what you’re doing?

In fact, chances are, the established companies have a much larger war-chest and reserve of cash to draw upon, which would make it extremely easy for them to leapfrog what you’re doing. Given this reality, what’s an aspiring entrepreneur to do?

INNOVATION IS THE BEST POSSIBLE COMPETITIVE ADVANTAGE

I am a firm believer that one of the most effective ways you can achieve entrepreneurial success is by offering something TRULY innovative, that practically nobody else is doing yet (or doing effectively.) Think of how many problems this simultaneously solves for you: You have a compelling value proposition, AND you’re the best option, because… there aren’t really too many other options to even compare against! Genuine innovation can put you in a monopoly position, make you the obvious choice, and give you the First Mover Advantage that so many of us dream about.

This also happens to be one of the hardest parts of effective entrepreneurship: How can I find this jackpot business idea, where the value proposition is very compelling, AND there just aren’t many existing options that effectively solve this problem? Add to that, effective entry barriers that screen out easy/overnight competitors from cropping up? It’s a very tough balance to strike, but if you find that sweetspot? It can be “off to the races” for your business.

I am confident that many readers at this point are muttering clichés to themselves about how “ideas are meaningless; execution is everything in business.” Ok, imagine that the business idea you’re forced to execute is being food-truck #101 in a crowded location that already has 100 competing food-trucks. Do you really believe that, given this business model and these competitive circumstances, you’ll be able to “execute” your way to making millions?

Here’s the key point: Executing a shit idea in a crowded market space with zero competitive advantage is just making things unnecessarily harder on yourself than they need to be. Fixating only on execution is the business equivalent of boasting about how a true champion could win the Tour de France while riding a rusted kids Huffy bike: You technically maybe COULD do it if you’re an outstanding athlete, but with the right vehicle, you make your life substantially easier.

Execution is important. Having a great business idea is also important. But it’s having a great idea that you execute effectively which makes for a very powerful combo. (Note that Alberto Savoia describes his Law of Market Failure as follows: “Most new products will fail in the market, even if they are competently executed.“)

Now of course, this “be innovative” framework I’ve outlined definitely isn’t the only pathway to entrepreneurial success, and other people may try to copy your idea if the entry barriers aren’t insurmountable—but you have to admit, starting a business that meets the above criteria would definitely make profits and success a HELL of a lot easier. It’s the difference between entering a frantic, red-ocean feeding frenzy, and finding a nice empty space of blue ocean to capitalize upon (to borrow an analogy from the classic book Blue Ocean Strategy). Pursuing an innovative business idea can also give you a solid head-start against future competitors—versus entering a crowded space that’s already filled with existing, dominant players. The race to make profits is on: Would you like to start several miles ahead, or 1,000 miles behind?

IF YOU’RE NOT GOING TO INNOVATE? YOU NEED TO FOCUS OBSESSIVELY ON BEING THE BEST IN ONE PARTICULAR AREA

Maybe innovation and blue-ocean marketplaces are not your cup of tea. If you insist upon starting a “me too!” company in a crowded marketplace, you HAVE to have at least one area where your company is indisputably superior. If you decide to make “customer service” your competitive advantage, your customer service needs to be so genuinely amazing that people run to their cellphone to tell their friends about. If “product quality” is your competitive advantage, the quality of your products needs to be so unbelievably high that reporters phone you up to ask what your secret is. People need to be peeking into your curtains like a pervert just to get the faintest glimpse of how you make such high-quality products. You get the idea. It needs to be seriously, seriously difficult for any other company to match you in that one specific area.

Here’s another way to word this: You have to make sure that your area of competitive advantage actually is an area of competitive advantage. Claiming your company or product is the best at something, when in reality it’s just mediocre in that area compared against alternative options, is simply not going to cut it in the marketplace. You can fool yourself on this point, but you’re much less likely to fool your customer. Because he’s shopping around, and he doesn’t wear the same rose-colored glasses that you do when he evaluates your business offerings.

If we had to distill these insights down even further, we could summarize what we’ve covered so far by saying: “To succeed in business, you need to be better or different in a way that’s important to customers to a degree that they’ll pay for it.”

(Read Competitive Advantage by Michael Porter for a deep-dive on this subject. A VERY deep dive. That book is a bit of a slog, but well worth the read to sharpen your thinking in this area. Also recommended: Differentiate or Die by Jack Trout and Steve Rivkin.)

MISTAKE #2: Failing to find an effective, profitable distribution channel that allows you to grow your business.

This is the next major reason that entrepreneurs fail in business. They might get the preceding parts right—but they just can’t, for the life of them, find a way to sell their product profitably and actually make money operating this business.

Effective, profitable marketing is hard. VERY hard. So much so that it brings to mind a classic quote from Thomas J. Barratt: “Any fool can make soap. It takes a genius to SELL soap.”

Here are some best-practices to ensure you maximize your odds of profitably selling your business offering.

TEST A LARGE NUMBER OF DISTRIBUTION CHANNELS TO FIND OUT: WHAT WORKS BEST?

Many entrepreneurs make the fatal mistake of assuming they know how best to sell their product. Well, as the saying goes, “assumption is the mother of all failure.” And as the other saying goes: “You can’t assume without making an ass of u and me.”

Your assumptions about what marketing channels may or may not work best are very likely to just be flat-out wrong. What may have worked incredibly well for a previous venture could be an abysmal failure for this particular offering. Your staple go-to marketing techniques could just completely crash and burn on the runway for this latest business. Maybe your current offering is just way too niche for your previous methods to work. Maybe this particular group of customers buys in an entirely different way. Profitable marketing is a complicated beast, but if you get this right, you hold the keys to the Promised Land in business.

The best entrepreneurs adopt an intensely practical framework in everything they do. They’re not interested in theory, bravado, and armchair pontification about what you think will work best. They just want one simple thing: clear DATA that demonstrates what works best and what doesn’t work at all.

Another related mindset is eliminating the idea that you know anything. This may seem paradoxical—as we tend to imagine successful business leaders as confident, bold, decision-makers—but some of the best entrepreneurs you’ll ever learn from will tell you that they religiously adopt this mindset of “I’m probably wrong” to just about every major decision they make. This humility (typically adopted as a result of painful business failures where they acted rashly, with overconfidence) causes them to seek validation before they start blindly charging down whatever path may seem best.

Especially when starting out in a new venture, it is VITAL to adopt this mindset with regards to your marketing spend + efforts. What I would recommend is this very simple procedure: Brainstorm a small handful of what you think will be the absolute very best possible distribution channels for this business offering, then simply test each of them in parallel—genuinely giving your best effort at each one. Then? Simply measure the results, see which gets you the best ROTI, and quadruple down on your winners while ruthlessly abandoning your losers.

CONCENTRATE ON WHAT WORKS BEST & DON’T SPREAD YOURSELF THIN

Rookie entrepreneurs make the mistake of trying to do a little bit of marketing on every conceivable platform. They have social media accounts on every possible platform, optimistically believing that they’re competent enough to become extremely successful on all of them. What ACTUALLY ends up happening is: you spread yourself thin, get no substantial results on ANY of the platforms, and you fail to concentrate on what is actually working best for you.

This is a difficult mindset to break out of, especially if you’re hungry to grow and make loads of money, but you have to discipline yourself to focus and concentrate on the very best marketing channels for your product. Simply find the 1 or 2 platforms that get you the the very best results, and focus ALL of your efforts on that. Drop everything else like a hot potato. Cold turkey. Because if it only gets you 1/10th the results of these other distribution channels? You are effectively WASTING YOUR TIME trying to sell your product on these losing platforms.

You might delude yourself into believing that you’ll be able to crush on EVERY platform, but I promise you, if you carefully run the numbers on this, you’ll find that the 80/20 rule applies and there are probably 1 or 2 platforms that are driving 80% of your sales. The disparities might even end up being even more dramatic than this. I’ve had real-world situations where one singular platform outperformed every other tested platform COMBINED by a factor of 30. These numbers might sound unrealistic, but you’d be astonished by how tilted the numbers usually end up being. 80/20 disparities like this almost always end up appearing in the real world. It’s just… one of those things. Identify these rare winners, and focus your marketing efforts entirely on these—especially during your beginning stages.

Once you’re really starting to dominate and make lots of money, then you can think about re-investing more of your profits into these other lower-performing distribution channels. But for the time being? Put blinders on and just focus FULL FORCE on what’s working best.

WHAT IF NO DISTRIBUTION CHANNELS ARE WORKING?

The above analysis obviously assumes that there will be SOME marketing channels that are effective. What if your situation is less rosy than that, and NOTHING you’re trying is working?

Well, at that point, you need to confront the cold, hard facts that are in front of you: You’ve tried your absolute very best to sell your product via a wide variety of the very best distribution channels you could possibly think of. Then maybe you even tested a second and third round of distribution channels, really exhausting just about every viable option you can think of. And you gave your genuine, very best efforts at every step of the way. Despite that, you’re still light-years away from making money or being profitable.

At that point, it’s time to face the reality that your business idea might be a shitty one that’s doomed to failure. Better to learn and accept this sooner rather than later. Don’t make the idiotic mistake of dumping piles of cash on top of a losing idea that nobody’s excited about. If this is your situation, it might be time to cut your losses and move on to greener pastures.

HOWEVER! Before throwing in the towel on your idea? I’d recommend a few key steps.

MAKE SURE YOU DON’T JUST SUCK AT MARKETING, GENERALLY

Some people are just very bad at marketing. Maybe your company’s graphic design assets look like something that was quickly slapped together in MS Paint by a 4-year-old. Maybe you have absolutely no ability to write persuasively, instead churning out boring, technical jargon that compels absolutely nobody to make a buying decision. Let’s be honest here: Many tech entrepreneurs might be able to write some outstanding code and create the most brilliant, innovative products—but when it comes right down to it, they can’t market their way out of a wet paper bag.

Before throwing in the towel, get some feedback from a few seasoned marketers to make sure your trashcan marketing communications aren’t the problem. If the marketing is bad, consider upgrading your skills in these areas to produce better materials, or you could hire a few competent freelancers who can get you where you need to be. You can then give it another go and see what the results are. If your marketing materials are SOLID—and you’re still not making sufficient sales—this is probably an indication that you got something wrong in your “value proposition / competitive advantage” mix.

ASK IF YOUR PRICES COULD BE THE PROBLEM

Most entrepreneurs come up with their prices by pulling a random number directly out of their asshole. Maybe if you’re a bit more advanced than that, you glanced at a few similar products and put some more thought behind it. Whatever strategy you’ve followed, it could be that your pricing strategy is the reason for your sales struggles.

If you’re pricing way too low? It could just be impossible to drive sales in a cost-effective manner. If you’re selling a software widget for a one-time charge of $5, how could you POSSIBLY expect to run PPC ads while turning a profit?

If you find yourself in a situation where, you are making sales—you’re just nowhere near profitable—try raising your prices dramatically to see if that gets you closer to where you need to be. You’d be surprised at what customers will tolerate. Especially if your offering is an innovative one, with nothing to really benchmark it against, the price is probably a lot more fluid than you are imagining inside of your head. Your business is in the red? Could it be that your business is failing because you’re inadvertently sabotaging yourself with limiting beliefs about what price points are or are not appropriate? (I’d recommend Dan Kennedy’s book No B.S. Pricing Strategy for some excellent mental reframes in this area.)

The flip side of this is, pricing way too high. Maybe you’re just being way too greedy and unrealistic about what people should pay for your product. The product itself might be solid, but an excessively high price could be killing your conversion rate.

You could also try to experiment with different payment models to see if that is the difference-maker. If you’re trying to sell your product with an enormous, whale-sized, up-front price tag? What if you instead broke that up into a much smaller recurring monthly payment?

The bottom line is, before giving up on what you believe is a genuinely solid startup idea? If the market interest is there? Play around with a few different price points, and see if one particular strategy is a winner vs. the other ones.

MISTAKE #3: Prematurely optimizing & failing to validate key business assumptions.

While we already discussed this pitfall as it relates to marketing / distribution channels, arguably THE biggest reason that entrepreneurs fail is because they didn’t validate the idea that people will pay to use their product to begin with. Instead what happens is, they get an idea for a business, get excited about it, spend tons of time and money building it, and only THEN try to sell their product to people—discovering only AFTER several months of hard work that nobody wants to buy what they’re selling.

There is absolutely no reason to waste your time or money in this way. The sad reality is that it will probably take you several painful, expensive, time-consuming business failures before you actually take this to heart and start operating in this way, but please trust me on this: The first, second, and third thing you should do when you have an idea for a business is to CONFIRM that there is market demand for this business and that people will pay for your specific product.

Instead of spending months of time and energy on a business idea that’s doomed to failure, simply take a few HOURS of time to validate that your idea has the market sufficiently titillated to take their wallet out. Alberto Savoia, author of The Right It, has a great mental reframe on this: Think in terms of “hours-to-data”: How can I spend just a few hours to confirm whether this business is likely to succeed or not? You don’t need to spend tons of time doing fancy tests, either; ask yourself: “What is the minimum amount of effort required to get the maximum possible amount of data?”

HOW DOES ONE VALIDATE THEIR STARTUP IDEA?

What does such validation look like? At the simplest level, you can just ASK people in your target market: “Would you buy such a product if I created it?” Survey results like this are definitely not the gold standard—as professed words and real actions are two very different things—but this can at least point you in the right direction.

I’ve had business ideas that I thought were brilliant, but when I pitched the ideas to my ideal target market, all of them told me the idea was shit and they’d never imagine paying for it. Could you imagine if I spent 3 months grinding it out to code the software, and build an outstanding landing page, to only THEN find out that my idea sucks balls and nobody wants to buy it? (Spoiler alert: I’ve done that before. Multiple times. I would NOT recommend it.)

For other business ideas I’ve had? Many prospects told me it was an excellent idea, and several asked me directly if they could be an early user for the software. I found this out before writing a single line of code. The software didn’t exist—but the idea did, as did my ability to try to pitch it to people. This took about 15 minutes of work, a few shitty Reddit posts, and just like that, I had my first few customers lined up. THAT kind of a market response is a good indication that you’re on the right track. It’s not bulletproof, however.

The GOLD STANDARD of startup-idea validation is having people, quite literally, ready to take their wallet out to actually pay you to use the thing. You can set up a fake landing page, for example, that showcases the features and functionalities that your product would have, if you created it—then measure how many people click “Add To Cart” or move to checkout. Obviously since you don’t have anything to sell at this point, you could then inform the user that this was a business idea test and that they can sign up to be an early user when it does get built, maybe offering them a coupon or some extra bonuses to make up for the deception.

This might sound a bit unethical, because you are deceiving people, but I can promise you it’s 100x better than wasting months of your time and thousands of dollars building a business that nobody is going to spend money on. If you insist on being on your high horse about this, just make sure you don’t ride it off a cliff—find SOME ways of validating that people would be willing to pay for your product before you do the hard work of building it. There are lots of ways to do this, so use your imagination, and be creative here. Whatever you do, don’t go charging blindly into the dark. START OUT with this kind of validation, and you massively increase your odds of succeeding when it’s time to start selling your product.

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In my estimation, those are THE major reasons for entrepreneurial failure. What do you think of this list? Did I miss any that you believe are big ones? Do you fundamentally disagree with my philosophy about entrepreneurial success? Let me know in the comments—I do read these. Additionally, if you’d like to read more content like this, subscribe to my e-mail newsletter for more writing about entrepreneurship and self-improvement. I’ll try my best not to annoy you with spam or trash writing.

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