Why Most New Businesses Fail

According to the 2010 Bureau of Labor Statistic, roughly half of all businesses fail within their first 5 years. Within 10 years that numbers jumps to 65%. Lack of planning, business experience and under-capitalization are major contributors to these statistics.

It does not matter if you are self-employed, owner of a company or the employee of a company. Understanding the 5 parts to every business is key to your financial survival. The simple realization that each one of us are in the business of marketing and selling our services to someone willing to pay for that service.

The key to being in business is the ability to make someone's life easier, happier and better.

The 5 Parts of Every Business

Creates and delivers something of value...(value creation)
That other people want or need...(marketing)
At a price they're willing to pay...(sales)
In a way that satisfies the customer's needs and expectations...(value delivery)
So that the business brings in enough profit to make it worthwhile for the owners to continue operation. (finance)

When all of these parts are in place and working effectively, you have a successful business. If any of the parts are missing or not working properly, the business will fail.

Value Creation

"Strive not to be a success, but rather to be of value." - Albert Einstein

Your ability to be very clear about the skills, talents, resources and expertise that allow you to improve another person's life is the basis of all value creation. If you do not operate from this perspective, at the very least you will have dissatisfaction in the workplace (the classic lament of all bureaucracies) up to and including, being laid off, fired or down-sized.

The simple fact of the matter is that people will hire you to make their life easier. Keep that in mind or forget it at your peril.

The key to value creation is targeting what you have of value to the audience that is more open and receptive to the service or product being offered.

Marketing

"The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself." - Peter Drucker

Communication around the value that you offer is key for reaching out to those you wish to do business with. Why is LinkedIn and resumes so important in the corporate world, it is the standard method of communicating value that can be brought into a company.

Why are there billboards and market placement in television and movies, so that consumers will be continually reminded about products and services that are available for purchase.

No business can continue to thrive and grow without a marketing platform, whether it is through a small group of word-of-mouth advertisers (i.e. network marketing) or through huge ad campaigns (i.e. Superbowl commercials and billboards).

The key to marketing is being very specific and focused with your marketing resources to your receptive audience.

Sales

"Sales are contingent upon the attitude of the salesman - not the attitude of the prospect." - W. Clement Stone

How can any business survive without the ability to make the sale? If there is no fair exchange of value, no enterprise will be sustainable. That is what all bubbles reveal, whether is it a dot.com or real estate.

A disregard for the fair exchange in value will topple any organization eventually. The ability to present your offering and its benefits to a target market that will value it, allows you to complete the sale.

A sale is made when due to trust and credibility, there is a reasonable belief that what is being offered will fulfill a need or desire.

The key to sales is selling to people who need or desire what it is that you have to offer, simple rule that is often overlooked.

Value Delivery

"Your premium brand had better be delivering something special, or it's not going to get the business." - Warren Buffett

The customer may not always be right but he is never wrong. If you are not able to satisfy a customer's needs and desires, the customer has no need for your products and services. If due to poor marketing there is an unreasonable level of expectation, the importance of customer satisfaction is key to continuing revenue.

You are only as profitable as your last customer. We can see evidence of poor customer service everywhere we go due to ignorance of this one part. You may make one sale neglecting this quality but you will not make the second or third.

The key to value delivery is establishing clear communication around needs and expectations then being very clear that you can fulfill those desires, then, of course, doing it.

Finance

"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones." - Benjamin Franklin

Being in the "black" is simply knowing at what threshold the amount coming in will cover the amount going out. After that simple statement is a whole world of muddled and confusing structures, finances, accounting, regulations, taxes and compensation models.

But ignore the basic rule that what comes in must cover what goes out and you will know more than the businesses who fail. "Financial Intelligence for the Entrepreneur" by Karen Berman and Joe Knight will help the small business owner, While, "All Your Worth" by Elizabeth Warren and Amelia Warren Tyagi will help employees.

A Little Exercise: Create clarity around the business of YOU

Value Creation - what marketable skills and resources do you have that would add value in the marketplace?
Marketing - what group of people would find what you have to offer valuable (target market) and how would it be valuable to them (niche)
Sales - how can you develop relevance, trust and credibility with your target market and niche
Value Delivery - what processes and systems can you put in place to consistently provide your product or service to your client base
Finance - follow the simple ratio of Needs 50%, Savings 20% & Rewards 30% to both enjoy your money and protect your investments

"Success is dependent on effort." - Sophocles