Street Smart Business Coaching – Why do 96% of Traditional Businesses Fail?
How to Ensure You Are Not One of Them
So, you have a few business ideas, and you want to turn one into a successful business? Or, you have been running a business that has been going 2, 3, or 10 years, but it never really got off the ground?
There are tons of statistics showing how many businesses fail in the first year, within the first 18 months, and after ten years. They vary, depending on the source from 60% to over 96%; regardless, the number of business failures is staggering.
Why? And what do the very few business owners do to steam ahead, effortlessly while others continuously struggle, day to day, year after year and never seem to get anywhere?
The most common reasons you so often read about as to why small businesses fail are things like: poor management, the wrong products or services, cash flow issues, no business plan, a flawed business model or bad leadership skills, etc.
And all these reasons certainly do lead to business failure. However, there is one foundational reason that causes businesses to fail.
The Business Owners Do Not Start at the Beginning
To build a successful business, you need to start at the beginning. Seems logical but for many people in business, but they don’t start at the beginning. They skip the vital, first two steps and start somewhere down the road, assuming their business idea they came up with is just going to work out. They believe all they have to do is just run a business now, based on their idea.
Fifteen years later, they are still self-employed (not a business owner) and hover just off broke for most of their business careers. Their business transformation process never started.
Taking your business idea and turning it into a successful business or trying to work out “what do I do with my business, so it begins to make me real money?” is a lot simpler than most people think if you follow some simple, proven steps. Let’s look at how traditional businesses operate and two reasons that contribute to the staggering business failure rate.
1. The Business Idea is not positioned in a Lucrative Red-Hot Niche! (Step 1)
The business owner takes an idea, concept, or builds a business, but they do not correctly position it inside a lucrative red-hot niche.
This is a critical step most business owners get wrong and, therefore, never make money. If there are no buyers for your business idea, you will never make any money. If you have a business right now that is not making you the money you want, the chances are you are not positioned correctly inside a lucrative red-hot niche. A lucrative red-hot niche is where there is already an established market with thousands and thousands of ready, hungry, and willing to pay customers.
This is very important to understand if you ever want your business to make real and ongoing cash. And there is a very clear explanation of why choosing a niche that is too unique or too micro will never work. Let’s look at the diagram below:
This graph originates from Everett Rogers, a professor of communication studies. It is called the Diffusion of Innovations. I have added the red circles to help clarify my points. The graph clearly demonstrates the different stages of market share around business ideas and concepts, as they move through the buying cycle. I have added the red circles and the light bulb to illustrate my points.
It shows how customers’ buying habits begin at the “Innovators” stage, which has a tiny percent of market share and obviously very few buyers. That’s why it’s very hard to make money from brand new ideas.
From there, the “Early Adaptors” begin to show an interest. Here you can see the level of buyers is still very low. We are not yet correctly positioned in the sweet spot, the lucrative red-hot niche.
Once the buying cycle of the business idea or concept hits the “Early Majority” stage, you can see the market share percentage increases significantly. There are lots of buyers, easily spending money. This is what I refer to as the “sweet spot” or lucrative red-hot niche. This is where you want to position your business, right in the lucrative red-hot niches. It shows how and when people buy items, such as your products or services. Right here in the middle is the sweet spot. This is where all the lucrative, highly profitable niches lie. This is where you can make a lot of money, very quickly because these are niches that are red hot, right now. Here is where there are tons of hungry customers, willing to transact right now, easily.
If you choose a business idea that has not yet been tested or proven in the market, you will only be attracting the innovators or early adaptors. They have a very low market share. You can see there are not many buyers, and this is the reason, so many new business ideas never make any money. The niche is not attractive to most people. Most people are only comfortable to buy things such as your idea, your products or services once the market has tested them, and there are people already buying them.
If others are doing it, most people are then willing to buy. These are called red hot, lucrative niches.
If you already have an existing idea or small business, you can check to see if you are sitting on a gold mine. Maybe you need to adjust your niche, so you are sitting right in the sweet spot. The spot that is filled with hungry, ready to buy customers.
This simple business transformation tip could be the difference between years of struggle and soaring ahead.
2. The Business doesn’t have a Competitive Edge (No X-Factor) (Step 2)
The second reason traditional businesses struggle is because they have no competitive edge. They have no X-Factor to make them stand out from the crowd.
Every business must give their customers a reason to come to them, rather than going to the competition. But it must be your customers’ reason, not yours.
So few business owners know about these steps, and of those who do try to implement them, many do not get it right. I know this from my very own experience from being a coach and mentor to dozens of small business owners. The biggest hurdles were getting these first two steps right.
Did you find these two fundamental business transformation steps helpful?
If so, there are 11 more steps to building a successful business to compete in today’s competitive world.
You can learn all about them in the 7 Week Business Transformation program here.
I wish you all the best on your business journey.