Anyone can think up a new product or service; few however can build a business. Delivering on a clearly defined and researched hypothesis often separates the few winners from the many losers.
Entrepreneurial spirit is characterized by risk-taking and innovation but the objective of planning is to minimise risk; in my extensive experience, this is often misunderstood, poorly executed and often poorly taught as an interrelated subject. Too often I witness plans which lack market research and its importance in underpinning every facet of the business planning process, in defining the value proposition and the disjointed way in which business plans are developed.
Of those that do start a business, survival rates are low and evidence from the UK and USA indicates that 70% fail within just three years, the majority after 18-24 months and 90% fail to make it to their tenth year. It's rarely one reason that causes failure but there is a common theme: they don't do their homework.
Key reasons for failure
Testing a questionnaire will identify issues which need to be considered before extensive research takes place. Research should identify, not only whether prospective customers like your idea but which ones will buy your service or product.
It also requires an understanding of your competitors and what’s working for them. However, market research is not a one off exercise; you need to constantly be aware of your prospective market and competitive threats. This will allow you to assess the risks, opportunities and timing objectively and in scaling an investment accordingly.
Often, the first product that a new business brings to market doesn’t meet market need. Market research will identify what revisions, to get the product/market fit right or whether a complete re-think, are required. This indicates that validating ideas with customers before, and during, development did not take place or was poorly executed.
Many entrepreneurs pay inadequate attention to identifying the realistic cost of customer acquisition. It is essential to find a scalable way to acquire customers. Often the link between research and promotions is not explored and validated and this can carry through to poorly thought through go-to-market strategies.
It is a common failure for entrepreneurs to identify and overcome gaps in skills and knowledge. Those who succeed often spend time with personal development. Those with weak skills often build weak teams below them resulting in weak business and poor execution will be rampant.
Cash needs to be managed in a way that will carry it to a milestone which can lead to a successful financing or to cash flow positive.
It is how you plan which matters.
Louis Naudi is the Chartered Institute of Marketing Ambassador for Malta, an Honorary Professor and Fellow Chartered Institute of Marketing. He has started 5 very successful businesses and today lectures in Entrepreneurship and is a judge in Malta’s best entrepreneur awards.
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