Why Good Businesses Fail and How You Can Avoid It

Over the last 15 years, I have had diverse roles such as consultant, product manager, account director, and executive; and through the lens of these roles, I have seen many businesses succeed and fail. The reasons for success vary and depend on a number of factors such as technology, timing, team, and just plain luck. Fortunately (or unfortunately), the reasons for business failure typically come down to a few common areas: market, product/service, sales, and technology.

Market

The first and most important element to business success is the market. Specifically, how large is the market and is it growing? If you happen to find a large market, add 1-point for the good guys. If you have a market that is growing, even better. If you are in a market that is growing, with minimal competition, you have potentially hit the jackpot. I say potentially because any lucrative and growing market will attract competitors like flies to dung. I don’t say this to discourage you. I say this to make sure that you are aware of both the market size and your competitors. Any time you speak with bankers, investors, or potential customers, you should know these items in detail:

  • What is the market?
  • How large is the market?
  • Is it growing or shrinking? If so, by how much per year?
  • Who are your competitors?
  • What are their strengths and weaknesses?
  • What are the alternatives to your product or service?
  • How would you rank your product/service against your competitors and alternatives?
  • What advantages do you have over your competitors?

If you have straightforward, simple, and quantitative answers to these questions, you should be in good shape.

 

Product/Service

Every business can be simplified down to providing a product or service in exchange for a fee. For example:

  • Grocery Stores: groceries
  • Construction Firms: labor and expertise for new buildings or renovations
  • Consulting Firms: expertise and advice on a range of topics and industries
  • Software Development Firms: software engineering and labor
  • Creative Agencies: design and creative expertise

Each of these examples comes down to finding the right niche for your product or service, but most importantly, it requires the business managers to find the right product or service at a sufficient profit margin to sustain and grow the business. If you cannot sell your product with the right margins, your business will stagnate and eventually fail. If you cannot sell your product at all, maybe you should consider that no one wants what you are sell and there is no market. There are times when you are creating a new market and over time sales will come, however, the most likely outcome is a zombie business: there is still movement but no meaningful activity.

 

Sales

As I always tell my clients, sales are the lifeblood of a company. If you aren’t properly nurturing your leads, prospects, and sales, you will soon find yourself in a dying organization. Every day, you should be gathering new leads on the Internet, over the phone, by email, and/or in-person. These leads should be tracked in what is called a Customer Relationship Management (CRM) system. What you sell will determine how you qualify each lead to make a decision on whether to move forward to try and make the sale. Once you have made the decision to move forward, you will estimate the labor, price the product, or write a proposal (your industry will determine what is appropriate) and close the deal. This is a simplified overview of what needs to happen but gives you a good idea of what you should be doing to manage your sales effectively. I teach teams to review their sales pipeline each week to make sure that each lead and deal is moving along and nothing is stagnant. If you do find that a deal is not moving along, you will need to do some digging around with the salesperson, estimator, account manager, etc. to uncover the issue.

 

Technology

I group all of the systems, and tools that are needed to improve a business’ survival under the term “Technology.” First and most importantly is the company’s website. Not only should the site be visually appealing, it should be easy to navigate, find information, and clearly show the purpose of the business, products, and services. A key element that I see overlooked even in 2018, is a lack of focus on lead generation on many companies’ websites. As stated previously, lead generation is a key element in the sales process and needs appropriate attention at the most senior levels of the business. Another element to the website is to ensure that the site is secure using what is called SSL (the little green padlock in the browser address bar). Given that SSL can now be set up for free or very low cost, there is no longer a reason to have an insecure site.

Another element that is critical is the CRM as previously mentioned. The CRM is the central place for all of your customer, lead, and deal information. In other words, the CRM will contain all of the information about your customers leading up to you closing the deal. I have found and set up free and low-cost CRM options for my clients that have resulted in both in millions in new revenue and a detailed record of what led to the new revenue.

There are many other systems that are critical to a business but the website and CRM are the two that I find provide the largest ROI for every business that I have personally worked with in the past.


Daniel is a venture architect and advisor specializing in technology strategy, investment, and implementation. He has helped clients as diverse as the US government and automobile manufacturers manage their technical needs and endeavors. Formerly management consultant at Booz Allen Hamilton, he helped launch a $200+ million enterprise collaboration line of business. Daniel also doubled automotive vertical revenue to $25 million in less than 2 years. With B.S. and M.S. degrees in Computer Science and Technology Management respectively, he has become an expert in vendor management and business development utilizing technology and strategy skills.

 

U.S. Treasury awards $3.5 billion, New Markets Tax Credit allocations

Back in February, the U.S. Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) announced the awarding of $3.5 billion in allocations of New Markets Tax Credit (NMTC). For those of you that are not familiar with NMTC, it is a program run by the Treasury Department that allocated tax credits to community development entities (CDE). Those CDEs then go out and attract investors to their fund and in-turn, the investor gets a tax credit allocation of 39% on the total investment over 7 years.

According to the CDFI Fund, NMTC awards have historically generated $8 of private investment for every dollar invested by the federal government. Since 2001, NMTCs have generated more than $44.4 billion in investments in low-income communities and businesses, resulting in the creation or retention of more than 750,000 jobs, and the construction or rehabilitation of more than 190 million square feet of commercial real estate.

This year’s NMTC allocations were made to 73 community development entities in 29 states, the District of Columbia, and Guam. Read the list of entities known as Community Development Entities (CDEs) in the NMTC award book [PDF 5.2 MB]

I am working on a new project called Urban Deal Flow that is focused on NMTC and a new program that was created at the end of 2017 via the tax bill call Opportunity Zones (OZones). When I first learned about OZones in February and researched the program in more detail, I correctly guessed that the OZones would be managed by the CDFI Fund given that both programs had similar characteristics and objectives. I will be posted here about the project over the next few weeks. In the meantime, you can sign up for early access to Urban Deal Flow.

Strategy: 3 Reasons Why You Should Not Ask Potential Investors or Partners to Sign an NDA

NDAAs I have continued to advise startups and other businesses over that last few years, I have seen a common theme arise: startups and entrepreneurs asking me and others to sign an NDA. I will first say that I understand the need to protect your intellectual property (IP). I also understand the fear that someone may try and steal your idea. However, I personally feel that an NDA is mostly useless and is the telltale sign of an amateur.

There are a few things to remember about your idea that may help you in the future and steer you away from asking investors and partners to sign an NDA.

  1. Your idea probably isn’t that good.
  2. If it is good, there is a really good chance that multiple people or teams are working on a similar idea.
  3. Most people are too lazy or caught up in the there own lives and businesses to steal your idea.

Your Idea Probably Isn’t that Good

Most people have an inflated sense of how good their ideas are (I am guilty of this every day). Some of it is due to the superstar status that successful startup founders can now achieve and the belief that one idea is the ticket to stardom. What many entrepreneurs need to understand is that ideas in themselves are not what is valuable. It is the ability to execute on those ideas. History is filled with teams that had an initial idea and another team came along with better execution (see Facebook vs. Harvard Connect; Google vs. Bing; Microsoft vs. Sun). My advice is always to just focus more on the execution of the idea and less on getting signatures for NDAs. How long do you think you could survive if all of your energy goes to enforcing an NDA while your competitor is closing more deals, winning more customers, and acquiring more users?

If it is good, there is a really good chance that multiple people or teams are working on a similar idea.

There is a quote that I will paraphrase that says “Every good idea has at least 10 other people working on it somewhere else in the world. Every great idea has at least 100 people working on it.” For proof, just look at some of the greatest inventions in the history of mankind. Calculus was invented simultaneously by Sir Isaac Newton and Gottfried Leibniz in the 17th century. Charles Darwin and Alfred Russell Wallace discovered that they had developed theories of natural selection separately in 1858. If some of the greatest discoveries in history were being worked on simultaneously, you can bet that your social cloud image-sharing app is not unique in the world.

Most people are too lazy or caught up in the there own lives and businesses to steal your idea.

Most people really have no interest in stealing your idea. I truly believe that after almost 20 years of technology, consulting, and advising. I attribute most of this to pure laziness. In addition to laziness, people have their own lives and work to deal with that have nothing to do with you or your idea. If more people had the drive or real interest, they might steal your ideas, execute on them, and become the next startup billionaire. However, it is more likely that you will share your idea, they will tell you how great it is, then move on to the next topic. If they truly want in on the idea, they will ask you what you need from them and proceed to tell you how they can help bring your vision to reality (through funding, introductions, coding, design, etc.).

I say all of this simply to show you that an NDA is not the path to protecting your idea or success. It simply shows potential investors and partners that you may have talent, but you are still playing JV ball. I follow James Altucher’s advice and simple life strategy to just give ideas away to others every day with no expectation of anything in return. If you are coming up with new ideas every day, then no single idea will hold any significance for you. You get rid of the fear of someone stealing your ideas and focus on executing only on the ideas that give you pleasure and match your interests.


Daniel is a digital consultant specializing in IT advisory on technology strategy, investment, and implementation. He helps companies solve complex and strategic problems across multiple industries and domains. His drive to find solutions for clients and attain personal growth for himself is what keeps him at the forefront of innovation and helps him guide teams and organizations to cultivate amazing products and services. He can be found on Twitter at @dewilliams.