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Top 3 Common Reasons Why Small Businesses and Tech startups Fail

Back in 2003, when I first started Nineo in the National University of Singapore, a freelance job matching portal with a group of friends and mentors, everyone has big dreams. Yet the honest truth is everyone hates failure. I still remember one top tech executive from Huawei mentioned that 1 out of 24 tech startups will succeed. That’s how small the odds are.

No one likes to fail. The acceptance of failure is stronger in Silicon Valley relative to countries in Asia. However, that is changing over time. As such, I hope this article presents some insights as to how we can learn from my mistakes in the past.

Having experienced running small businesses in Singapore and being involved in incubating 4 startups in USA, China, Australia and Singapore since 2003, I noticed a common set of patterns for my failures.

If you fail to plan, you plan to fail.

Move fast, break thing” is the mantra behind the fastest growing social network company, Facebook. It seems to encourage people to just do it, which is another mantra of the most influential sports company, Nike. Yet, there are many businesses fail because they dive in too quickly. According ACCA Global, 78% of businesses fail because of poor planning.

Here are a few ways to build good plans:

  • Building a business canvas

A lean startup canvas helps you to anticipate all important aspects of a business. According to Harvard Business Review, lean startup methodology can help you.

  • Make a personal plan to hedge your personal life

Founders and business owners tend to pay themselves very little or do not pay themselves at all. This is because they want to burn as little money as possible to ensure the business can survive longer and eventually grow over time. However, the truth is that founders and business owners can encounter life changing events like accidents and health problems.

One of the most stressful jobs in the world is founders and business owners. Adweek mentioned that there are 10 common health issues that can affect founders. A recent study by Dr. Michael Freeman, a clinical professor at UCSF shows that out of 272 surveyed entrepreneurs, at least 49% self-reported having mental issues.

Given that the likelihood of getting into these mentioned problems such as suicides and health problems is very high, it makes common sense for founders to take a hedge. That hedge can be in the form of an insurance policy. The 2 most common forms of insurance policies recommended for founders are term life insurances with critical illness riders and hospitalization insurance.

Apart from making plans for themselves, founders should also anticipate other potential risks of their businesses.

  • Make plans for unforeseen circumstances

Any brick and mortar business will face business risks such as fire and workmen injury. No matter how well managed a shopping mall will be, there is still the likelihood of a fire. We have a recent example in Changi Airport where there is a small-fire-at-changi-airport.  

Therefore, business owners and founders can consider seeking advices from companies that can assist with planning for unexpected money management issues.

Yet, Mike Tyson once said, everyone has a plan till he or she get punched in the face. So this leads to the second reason why businesses fail.

2. If you fail to adapt, you will fail.

Once a plan is made, founders often plunge themselves to executing the plan. According to CBInsights in 2017, one of the biggest reason for failure is the founder is not able to find a product/market fit. Along the way, founders that reach a point of stagnation in terms of the development of their company will either deny failure or seek to pivot. Those that pivot gets closer to success. We always need to remember that Jack Ma, Henry Ford, and Steve Jobs experienced multiple failures before achieving success.

Here are a few ways to help you to adapt better:

  • Make connections

When I spend some time with my like-minded friends, we have a strong understanding of each other. That strong understanding leads to help and support. The support can be a phone call to share insights or it can be to have a pair of listening ears to the struggles that business owners face. The study by Ulla-Karin Schön, Anne Denhov Alain Topor shows that good social relationships can help individuals to recover from severe mental illness.

  • Avoid seeing crises as insurmountable problems.

Sometimes, founders can potentially see rising competitions are insurmountable threats to their businesses. Other times, business owners encounter unexpected events like fire or investors’ withdrawal from their funding commitments. While these highly stressful events happen, you have control over your perceptions and responses to these situations.

 

For other matters that founders have previously make plans for mitigating business risks, they can immediately consult their own business financial planners for advice.

 

Ok, now founders have made plans and adapt their plans to grow their business, why do they still fail?

3. If you fail to take care of your people, you will fail.

Once founders or business owners manage to find a market niche to serve, they will start to look for hiring great people. Most business owners fail to recognize that a good pay not only serves to attract talents but also serves to keep talents. Even Richard Branson quote “Train people well enough so they can leave, treat them well enough so they don't want to leave. “ Paying talents well is a form of treating them well. Business insider's reports that the best companies pay 10% to 25% above the market rate for each position in their companies.

 Science Daily also shows that performance-related pay positively affects talents’ attitude towards their work. Fortune magazine mentioned that pay is one of the best ways to keep people engaged in their work. Yet, every founder and business owner are finding its way to keep cost low while trying to increase the pay for their employees.

Here are a few ways to hack around the challenge:

  • Find innovative ways to reward them

There are many ways to structure reward package to talents. One of the value for money way is to provide the talents with employee insurance. Instead of paying them $800 a year of cash, you can offer them $10,000 worth of insurance coverage. This also shows that you want to give them a peace of mind.

In short, if you are planning to do a startup, you need to make a plan, adapt to it and take care of your people. By doing these 3 tips, you avoid falling into the 80% pool of founders and business owners that fail within the first 3 years. Last but not least, keep going.

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