Why businesses fail

Thousands of new businesses are started every week. Ninety percent of those businesses will fail within the first two years. The primary reason is lack of capitalization. The second reason is poor management. Actually the two go together. If you don’t have the money in the first place you are a poor business manager.

General copy The biggest mistake that most entrepreneurs make is they really believe if they have a good idea the world will beat a path to their door and buy it. WRONG! Developing a product or service is only one-third of the equation. The other two-thirds require marketing and selling it. In other words, for every dollar you spend on developing your idea you need two more bucks to market it.

What do I mean, “market it”? Build a market demand by advertising, developing sales inquires, line up distribution channels and a method to SELL the product. This takes hard work (sales) and money. If given the option, I would rather invest my money to generate potential buyers clamoring for my product, than spend all my money on a warehouse full of goods and have no potential sales. For this you will need an advertising budget.

Of course there are some exceptions to this rule, companies that have started on a shoestring and managed to survive with little or no marketing. But those are rare. All of the highly successful businesses have utilized marketing to become profitable. Remember the Pet Rock? It was 99% marketing and 1% product.

A story I have heard repeated over the years is. “We spent all of our capital perfecting the product… now we need to sell it, but we don’t have any money left for advertising.” Without advertising you cannot reach your target market and tell them that your product or service exists.

If you put the emphasis on marketing over product development you will find out a lot quicker if the idea will sell. In the long run you’ll risk less and have a greater opportunity to be profitable. The reason is “marketing input”. As you develop your concept and get market feedback, you’ll be able to make modifications that will increase its appeal and salability. If in the course of marketing you come to the realization that the idea won’t fly… you cut your losses before expending your life savings on a dinosaur.

If going into business were easy everybody would have his or her own enterprise. This is where professional marketing consultants are invaluable. An experienced ad/marketing firm will offer outside objectivity, counsel and direction to make your dream a reality or point out where you are wasting money. Tom Smisek is a Marketing Consultant based out of Orange County.