Updated: Mar 29
About 50% of startup businesses fail by their 5th year, and the rate goes up as businesses age. Though the statistics are shocking, that doesn’t mean business failure is inevitable or that you should fear it.
As you begin your business journey, the most pressing question you probably have is “How can I prevent my business from failing?” While, thankfully, there are many things you can do to protect from failure, it’s equally important to reframe your thinking around the subject of failure.
Instead of always living in fear of failure, consider how it can help further shape your business goals. Find out how you can protect from failure and adapt to it. Start living and operating within the realm of confidence over fear!
1. Do Your Due Diligence and Research
If you’ve started any business, you probably already know this, but success doesn’t come easy. Beyond a regular job, there’s so much more to be done. Research, prep work and generally educating yourself constantly are among the few things that you’ll need to put in beyond 'Just the job.'
The first step to preventing failure is putting in the proper amount of business prep work. The more work you put into your business upfront, the less likely you’ll face something unexpected.
Startup research should include everything from market analysis to personal development. Find out as much as you can about your industry, competitive landscape and target customers.
Part of your due diligence should also include developing accurate projections. If you’re seeking investment, investors will use your projections to determine whether or not they move forward with your plan. Extra funding can offer the cushion you need to keep your business moving. Most investors or banks are going to be looking for a business plan that shows you've done the prep work.
Develop a Strong Business or Marketing Plan
As a new business owner, you have likely received an endless push to create your business plan. The funny thing is, there’s no template for business success. Creating a business plan might help, but it could be a waste of energy depending on your needs.
The thought that business plans are a must is what we often refer to as The Business Plan Fallacy. Instead, we recommend much of your prep work be put into your strategic marketing plan. By focusing here you'll save time otherwise wasted on full business plan items that you would likely never use!
Before spending time on any plan, consider your goals. If you’re seeking funding, investors will need to see a strong full fledged business plan. The plan should include all of the research you’ve conducted as well as your revenue projections. The idea is to prove to the investors that you have thought of every scenario and that you are realistic with your expectations.
On the other hand, a strategic marketing plan could provide more focus for your business. This type of plan will help you better manage your resources. A marketing plan will also help you reach new customers and develop a strong brand for business longevity.
The marketing plan portion of any business plan is where most of the actionable business intel is housed. Which is why we place such a focus on that rather than the whole plan. Knowing your mission and vision is great, but knowing, in detail, your customer demographics for example is far more impactful. You'll be able to make real business decisions with that intel.
Your mission and vision isn't going to tell you if your customers are interested in that new product or service you've been noodling in your mind. To prevent failure, you need to be placing as much focus on actionable items; things you can control.
Work With Mentors and Partners
In business, no one can do it alone. You’ll always need help, whether it’s in the form of a business coach, a business partner or strong, reliable employees. Building a network is a great way to prevent business failure because it offers support and guidance.
We may be a bit biased here, but we strongly recommend that you reach out and bring on a business coach as soon as you can. Having someone with detailed experience running a business as a guide or even just a sounding board is immensely powerful. Seriously, how many times have you been struggling with a business decision and wished you had someone to just chat about it instead of being on an island alone? A business coach solves that!
However, having a mentor isn't the only way to find camaraderie in your small business. You could also consider bringing someone on board as a partner for instance. For example, if you're running a local plumbing business and you KNOW plumbing. But, you've grown so big that the literal business problems are starting to become outside your domain. Maybe, you find someone to come on board as a CEO to command that side of things. You don't need to give them ownership, but you could as part of the deal.
Lastly, and especially powerful for growing businesses, is to build a team of employees you can rely on. And we don't me just to do the job you hired them for. Find team members that are invested in your success and help them see the vision you see for your company. Earn buy-in through positive leadership.
Either way, one of the most powerful ways to avoid small business failure is to stop trying to do it all alone. If you are on the path to success, you won't be able to do it all anyways. So why not get the best of both worlds and start crafting your success team?
Know That Plans Fail and Learn to Adapt
Despite all of your research and planning, your business could still fail. Knowing this is the first step toward adapting to failure and transforming it to your advantage.
You could have the best plan that many of your peers signed off on, but unforeseen circumstances can always throw a wrench in it. Know that there are plenty of things in business out of our control, such as changes in investment and industry shifts.
A great example of this has been the COVID pandemic. There isn't a small business out there that literally had pandemic on their strategy plan. What this shows us is that while a lot of businesses failed because of shutdowns etc., there were many more that were able to adapt in order to survive.
Each instance is different, of course. But most of those who adapted were already poised to be able to do so prior to the unexpected. What we mean is, they likely knew that whatever plan they had in place could ultimately fall apart... which prevented their business from also falling apart.
The best way you can boost your skills of adaptation, especially with respect to your business plans, is to constantly update the plan. We recommend that you go through the planning process at least once a quarter. Making sure to document what you had right or wrong and then crafting the next plan on what you learned.
Planning, then re-planning, and then adapting to the unexpected. Constantly. This is a powerful way to head off any potential failures. You will have built in the ability to handle unknowns down to the core of your culture!
Learning from Failure: A Tough Skill Indeed
Whether you’re facing a failing business or just a single failed decision, the best thing you can do is learn. Understand what worked and what didn’t, and make a new plan from there. If you stopped every time you hit failure, the truth is there wouldn’t any time left to do anything else.
With failure, you’ll always gain a lesson and an opportunity. Failure allows you to make a choice, whether you decide to pivot your business or take an entirely new direction. We circle back to the ability to adapt.
Let's use a common misstep for small businesses: getting involved in mass print advertising. Almost every small business owner reading this has likely dealt with one of those salespersons coming through their door or calling promising the world in sales. All you have to do, you see, is sign this year long contract for thousands a month and it'll start raining sales.
Except, it RARELY pans out that way. Usually, you'll blow through a ton of your marketing budget with not much in return. I would bet that 99% of you reading this right now found yourself nodding in agreement right?
Ok, how many of you have invested in print ads since then? Not many, right? What that means is that you made a dumb decision, not knowing any better at the time, and then when you experience the failure of that decision you learned!
If the business itself fails, you can always take all the knowledge you gained, including the failure experience, into your next venture. Utilizing the lessons learned, you'll already be poised to have a higher chance of success.
Failure is an absolute, inseparable part of success. It is completely normal and acceptable to have some failure on your way to success!
Accepting Failure and Using it to Your Advantage
To use failure to your advantage, you need to accept that it will be an ongoing battle. In business, there will always be failures big and small. Imagine every lesson you learn as a new pulley in your system. Every one you add, the more that you can lift.
After a failure, find the positives quickly. In many technology companies, failure isn’t only accepted, it’s encouraged. Businesses that use a fail-fast mindset are more likely to see long-term success.
Failing fast means you’re constantly testing and learning. Not everything will work, but you have to see what fails to optimize and try again.
Begin shaping your mindset around that thought that failure can be an asset. It does not always reflect on you as a person nor a business leader. Literally everyone that has succeeded has a trail of failures in their past.
Once you've wrapped your head around failure as a positive, you'll be far more likely to avoid critical business failures.
Find Consistent Motivation to Weather the Storm
No matter how much of a strong mindset you develop, failure will always hurt. Starting a business is an emotional project, and there will be plenty of disappointment and fear along the way. We often treat our small businesses as if they are a child, and all the same emotions tend to flow.
To adapt to failure, business leaders need to find consistent motivation. That means finding something to motivate you beyond your bottom line. After you face failure, what will keep you moving to try again?
Tap into your passions and the main reasons why you want to start a business. Use your emotions to your advantage by focusing on your drive and ambition rather than your disappointment.
What you don’t want to do is start blaming yourself for failures. It’s easy to focus on negative feelings and turn them into cynicism about the future. Blaming yourself will only make it more difficult to learn from your failure.
How to Live With Business Failure
Learning to live with business failure is one of the best secrets to business success. While it’s important to prepare against failure as much as possible, it’s just as important to use failure to your advantage.
Failure is inevitable, but you can make sure you’re failing fast and doing everything you can to fail appropriately. How to do this effectively comes down to each individual. Each person has different levels of mental fortitude as well as the skills to handle downturns.
The most effective way of how to live with business failure is to make sure that you don't go through it alone. Even if it was your singular decision that led to a failure, there are those around you or on your team that care as deeply as you. Reach out them them for help. Get their perspective on why it happens and how to learn.
If things start hitting you a bit too personal, then reach out to someone to talk to outside the company. Seek out a mentor, business or otherwise, to just talk it through. Perhaps consider hiring a therapist to help you work through the failure.
Regardless of how or who you reach out to, know that failure is OK. Everyone goes through it. Business owners just have more of it to work through than the average person. That's what make us, and YOU strong and successful!
At Out of the Box Advisors, we offer business coaching beyond the typical advice. We understand that business is about more than what’s on paper - it’s also about you, your drive and, your passion.
If you're reading this and are stressing about business failure. Please reach out to us. Our first chat is on us and we can at least be there for you when you're down, even if you don't need us long term. Everyone deserves a helping hand back up after falling down.