MBA2416 5 Things That Cause Businesses to Fail and How to Avoid Them - The $100 MBA Show

Summary

The $100 MBA Show: Episode MBA2416 – 5 Things That Cause Businesses to Fail and How to Avoid Them

Release Date: January 15, 2024
Host: Omar Zenhom

Overview

In episode MBA2416 of The $100 MBA Show, host Omar Zenhom delves into the critical factors that lead to business failures and, more importantly, provides actionable strategies to circumvent these pitfalls. Drawing from over two decades of entrepreneurial experience and insights gained from assisting thousands of business owners, Omar identifies five primary reasons businesses falter. This comprehensive summary encapsulates the key discussions, insights, and practical advice presented in the episode, complete with notable quotes and timestamps to enhance understanding.

1. They Simply Don't Start ([01:11] - [08:30])

Key Points:

Fear of Rejection: Many aspiring entrepreneurs invest time in ideation and planning but never transition to execution due to the fear of rejection.
Making the First Dollar: Omar emphasizes the importance of converting an idea into a revenue-generating venture, defining business success as "making your first dollar."
Taking Action: He encourages entrepreneurs to actively seek their first sale by asking at least ten people to purchase their product or service, even if it means facing multiple rejections.

Notable Quotes:

“Starting a business has to mean making a dollar. So that's my definition. You’ve got to make your first dollar.” ([02:45])
“Guess what? Business is a contact sport. The more contacts you make, the more interactions you have, the more likely you’re going to be successful.” ([07:10])

Strategies to Avoid Failure:

Pre-sales and Deposits: Encourage potential customers to pre-order or place a deposit, mitigating the fear of rejection by securing initial commitments.
Volume Approach: Embrace a high-volume sales tactic, leveraging technology and online platforms to reach a broader audience without the intimidation of face-to-face selling.

2. Lack of Capital ([08:31] - [13:00])

Key Points:

Cash Flow as Oxygen: Omar underscores that cash flow is vital for sustaining business operations, likening it to oxygen for survival.
Profitability Over Funding: He argues that even well-funded companies can fail without profitability, citing WeWork as a prime example.
Importance of a P&L Sheet: Maintaining a Profit and Loss (P&L) statement is crucial for tracking financial health and ensuring that profits exceed expenses.

Notable Quotes:

“Cash is oxygen to your business. Having capital, having funds is how your business is able to sustain itself.” ([10:15])
“Don’t fall in love with your idea. Don’t fall in love with your cause to the point where you’re just spending without making.” ([12:50])

Strategies to Avoid Failure:

Regular Financial Monitoring: Implement and regularly review a P&L sheet to monitor profitability and manage expenses effectively.
Increase Profit Margins: Strive to enhance profit margins incrementally, aiming for higher percentages as the business grows to buffer against financial uncertainties.

3. Founder Loses Interest ([13:01] - [18:30])

Key Points:

Misinterpretation of Boredom: Often, when founders claim to lose interest, it masks a deeper issue of fear of growth and change.
Pain Line Concept: Inspired by Dan Martell, Omar introduces the "Pain Line"—the threshold beyond which entrepreneurs hesitate to push their businesses further due to the anticipated challenges.
Innovation and Risk-Taking: To sustain interest, founders must continuously innovate and take calculated risks, avoiding stagnation.

Notable Quotes:

“What it really means is that they didn’t push themselves. They didn’t challenge themselves, they didn’t actually put themselves out there enough.” ([16:40])
“It’s not that you’re bored. It’s that you just got boring.” ([17:50])

Strategies to Avoid Failure:

Self-Reflection: Engage in honest self-assessment to identify and address the underlying reasons for waning interest.
Delegation: Delegate tasks that are burdensome or uninteresting to other team members, allowing founders to focus on areas that reinvigorate their passion.
Continuous Learning: Embrace ongoing education and mentorship to stay motivated and equipped to handle new business challenges.

4. Poor Marketing ([18:31] - [22:50])

Key Points:

Marketing as a Priority: Effective marketing is non-negotiable for business growth, requiring consistent investment of time, money, and resources.
Visibility Equals Success: Without marketing, even the best products or services remain unnoticed, hindering sales and profitability.
Investment in Marketing: Successful businesses often allocate a significant portion of their budgets to marketing to ensure continuous customer acquisition and retention.

Notable Quotes:

“Marketing needs to be a top priority in your business. Just as much as you focus on your products and services, you need to focus on telling other people about that.” ([20:10])
“Marketing, marketing, marketing. You got to make it a priority.” ([21:35])

Strategies to Avoid Failure:

Dedicated Marketing Budget: Establish a dedicated line item for marketing in the P&L sheet to ensure consistent funding.
Diverse Marketing Channels: Utilize a mix of marketing strategies, including content marketing, paid advertising, social media, and sponsorships, to reach a wider audience.
Measure and Adapt: Regularly assess the effectiveness of marketing campaigns and be prepared to pivot strategies based on performance data.

5. They Don't Adapt ([22:51] - [27:00])

Key Points:

Evolving Customer Needs: Businesses must stay attuned to changing customer preferences and market trends to remain relevant.
Example of Coca-Cola: Omar illustrates how even a successful product like Coca-Cola must innovate (e.g., Diet Coke, new flavors) to maintain market dominance.
Long-Term Vision: Entrepreneurs should forecast future trends and anticipate shifts in the market to proactively adapt their offerings.

Notable Quotes:

“You can’t just continue to do the same thing over and over and consider yourself done. No, you have to keep adapting.” ([25:10])
“Start to think and anticipate where your business and the needs of your customers will be one year, three year, five year, 10 years from now.” ([26:15])

Strategies to Avoid Failure:

Future Planning: Implement the "1, 3, 5, 10" strategy—anticipate and plan for customer needs and market conditions one, three, five, and ten years into the future.
Innovation Culture: Foster a culture of innovation within the organization, encouraging continuous improvement and responsiveness to change.
Customer Feedback: Actively seek and incorporate customer feedback to stay aligned with their evolving expectations and preferences.

Conclusion and Recap ([27:01] - [30:00])

Omar concludes the episode by summarizing the five critical reasons businesses fail and reiterating the importance of addressing each to ensure long-term success:

They Don't Start: Take decisive action to launch your business and secure your first sale.
Lack of Capital: Maintain a healthy cash flow and focus on profitability through diligent financial management.
Founder Loses Interest: Continuously challenge yourself and your business to prevent stagnation and loss of passion.
Poor Marketing: Invest consistently in marketing to build brand awareness and drive sales.
They Don't Adapt: Stay proactive in adapting to market changes and evolving customer needs.

Final Notable Quote: "One of the things I learned in the last 20 years is that it doesn't actually matter how hard you work and how much time you put into your business if you don't face these five challenges." ([29:45])

Closing Advice: Omar emphasizes that addressing these five core challenges is paramount for any entrepreneur. By focusing on actionable strategies to overcome these common pitfalls, business owners can create sustainable and thriving enterprises without relying solely on hard work or hustle.

Additional Resources

For more insights and practical business training, visit The $100 MBA Show and follow upcoming episodes where Omar continues to share invaluable lessons for aspiring and seasoned entrepreneurs alike.

This detailed summary encapsulates the essence of Omar Zenhom's episode on the five factors leading to business failure and offers a roadmap for entrepreneurs to navigate and avert these challenges effectively.

Transcript

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Omar Zenhom (1:11)

Oh. Welcome to the $100 MBA show, giving you the skills, the knowledge, the insights to help you build a better business. I'm your host, your coach, your teacher, Omar Zenholm. And in today's lesson, you will learn five things that cause businesses to fail and how to avoid them. I've literally helped thousands and thousands of entrepreneurs build successful businesses. I've also have tried to help thousands of people that have failed at it. Now, failure is a part of success. You have to fail to learn so you can move forward. But if you can avoid some failures, some costly failures, big failures that stop your business from growing, stop your business from actually being a success, then we want to do that. So I'm going to share with you the five reasons, the five things that cause businesses to fail that I've learned from working with other entrepreneurs in the last 10 years and as an entrepreneur myself the last 20 years. But more importantly, I'm going to give you the instructions on how to avoid these mistakes. Some of this is much harder than it seems and I'll explain why in today's lesson. So let's get into it. Let's get down to business. As I go through these five reasons why businesses fail, I want you to have an open mind. I don't want you to judge. I don't want you to think about how this applies to your situation right now because it may apply to you in the future. It's easier for us to dismiss and say, this is not for me. I'm not in this situation. I'm much smarter than this that won't possibly happen to me. No. Hubris is the precursor to failure and falling on your face and being embarrassed. So let's have an open mind and let's get started. The first reason why businesses fail is very simple. They simply don't start. I cannot tell you how many people I know will think of a business idea, will planning out research, will do so much legwork and then never actually get it off the ground, never actually start it, and then just move on to the next idea. I'm sure many of us know somebody like this. In my book, starting a business has to mean making a dollar. So that's my definition. You got to make your first dollar. You actually have to exchange value for money in order for this to be a business. Otherwise you're just playing business. And there's so many people out there who want to play business over and over and over. And there's a reason why this happens. It's not that they're quitters. It's not that their ideas are not good enough so they don't take off. It's because it's safe. Because if you never actually put yourself out there and ask somebody, hey, would you like to buy this thing? It costs X amount of dollars. If you never have to do that, then you never get rejected. You never actually get a no. And to avoid that feeling of rejection, many people never start. And that's really deep down inside. That's a big fear. Now you might have made your first dollar, you're probably listening to this and you've made money. But, but this fear still exists for making bigger asks, for raising your prices, for launching something that's more expensive than you ever offered before, for demanding more of yourself and your team. So this is a real fear. So many people just fail right off the gate because they never actually start. And the best way to avoid this is something that I recommend is to ask 10 people to buy your thing. Even if your thing is not ready yet, they can pre order it, they can put some money down as a deposit. I, I know this sounds scary, but you gotta get over this fear and you gotta be okay with people saying no, this is not something I want. Thanks, but no thanks, not for me. That's okay, keep asking. Even if all 10 people say no, that's fine. But after 10 rejections, you're gonna start to realize it's not that bad. I'm still alive, alright? Nothing has changed. Except maybe your pitch. Maybe you have refined the way you sell your product or service or offer your product or service so that the 11th person you ask will be a yes. I know Noah Kagan has a great challenge. Noah Kagan is the founder of AppSumo and actually we have a great extended interview coming up very soon with him. But one of the challenges he has in his upcoming book, Million Dollar Weekend is asking for a dollar investment in your business and getting your first dollar, getting a dollar from anybody. The point of this exercise is not being afraid of being rejected. And most people fail because they're afraid to be rejected. Guess what business is a contact sport. The reason why they say contact sport, cuz the more contacts they make, the more, you know, interactions you have, the more likely you're going to be successful. If you make a thousand phone calls in a week, a thousand phone calls, you're going to make some sales just by sheer numbers. It doesn't matter how poor of a salesperson you are or how unrefined your pitch is, you're going to do it because of the volume. So you got to get used to getting reps in and asking people for the sale. And now with technology and the Internet and email marketing and ads and social media, it's so easy. You're not even actually asking somebody in person in real life. So there's no excuse. You gotta avoid this like the plague. You gotta get started and you gotta make your first dollar. Reason number five, businesses fail. And this is a big one and it's a serious one and it's running out of capital. I've said this at least 40, 50, 60 times on the show. Cash is oxygen to your business. Having capital, having funds is how your business is able to sustain itself. Whether it's to pay the costs of doing business or to pay yourself so you can do the work and spend your time on the business or paying others. The point here is that if you don't make a profit, if you don't make money, if you're not in a profitable position, it's very hard for you to have a sustainable business. You can lose and lose and lose. But even well funded businesses, businesses like WeWork, who just went bankrupt despite the billions of dollars they received in funding, they couldn't manage to be profitable. And that just all caught up to them and they were able to do it. So they went out of business. So what makes you think your independent, self funded business is immune to this? If a huge business with billions in funding like WE work wasn't able to sustain itself without being profitable. I am all for fulfilling a mission, fulfilling a goal, adding value to the world. That's how you become successful in a business. But the purpose of a business is to make money. You cannot convince me otherwise. You have to make money so you can live, so you can live another day to do another day of business. Don't fall in love with your idea. Don't fall in love with your cause to the point where you're just spending without making. This is why I'm always preaching how important a P and L sheet is. And this is number one way to avoid this problem is to have a profit and loss sheet. This is a simple sheet, Google sheet, Excel sheet, that lists all your profits and all your expenses. And as long as your profits are more than your expenses. And when we say expenses, we talk about also your salary. If you are working on the business full time and you need to sustain yourself, then you're good if you are profitable. Now, the name of the game is to be as profitable as possible. You don't want to just be a dollar profitable every month. You want to be hundreds and thousands of dollars in profitability, if not more, if you can. But a more reasonable goal is a higher percentage of profitability. So maybe you start out being 10% profitable, then you move up to 15 to 20 to 30. Why is it so important to do that? Well, because business doesn't stay the same. We're going to talk more about this later. There's going to be ups and downs, there's going to be peaks and valleys, and you need to weather all the storms that come ahead. And if you are not saving your acorns for those stormy days, then you're asking for trouble. You're asking to go out of business. And if it sounds like I'm being really stern here, it's because this is so important. You have to have to have your numbers right. So many entrepreneurs I know lose their baby, lose their business, don't do well, are crushed, and sometimes never recover because they kept their eye off the ball. They didn't focus on the finances, they didn't focus on the numbers. And guess what I learned over the years, sometimes the hard way, that this is not hard. It's actually not hard to have a simple P and L sheet. It's not hard to be financially sound. The hardest part about it is just owning up to it and just being like, okay, I have to be responsible. I can't just pawn this off to somebody else. By the way, I am talking about regardless. If you have an accountant, you have a bookkeeper. I have both, but I still have a P and L sheet that I look at weekly, if not daily, so that I can make sure that I am on track to increase my profit. Otherwise, I'm setting myself up for failure. And this should be the guiding light to making all decisions. Because if you are profitable, if you are making good margins, you can do a lot of incredible things in your business. You can reinvest in your business, you can do creative marketing, you can hire the best talent because you are making good profits. So when I say it's the guiding light, you should always reference this. You should always think about this whenever you're making decisions in your business, whether it's doing a promotion, are you making enough profit with this promotion, doing a launch, releasing a new product, whatever it might be. So the number one reason why businesses fail, they don't start. Number two, lack of capital. They don't make sure that they're always profitable. Reason number three, the founder loses interest. Now, hear me out. This is what they say. They say, oh, I lost interest in that business. Yeah, I was making money, it was okay, but, you know, it got boring. And I just decided to move on to something else that really I was passionate about. And I see founders, I see entrepreneurs do this over and over and over, and they keep saying the same thing. I lost interest. I got bored. My heart wasn't into it anymore. Now, that's what they say, but that's just code for something else. What it really means is that they didn't push themselves. They didn't challenge themselves. They didn't actually put themselves out there enough. They didn't take enough risks with their brand, with their business. And what I mean by that is people get bored when they just do the same thing over and over and over, and they don't innovate, they don't change, they don't push the envelope. They don't realize that in order for the business to grow, they're gonna have to do that. And usually the reason why they get bored is because they're really scared. They're actually scared of growing, of having to hire more people or having to hire people, period. And I'm afraid what that growth will come with different challenges, different demands, and therefore, they just keep it safe, and they just keep doing the same thing. And it might be making them money, and they're just trucking along, but then they say, oh, this is boring. I'll move on to something new and start something fresh where it's exciting. And they take it to a certain point and they realize, oh, I'm bored. Again, because they're not pushing beyond that point. This is actually something I learned from Dan Martell, who was my SaaS coach for a very long time. He's the author of Buy Back youk Time, and he has this thing called the pain Line, where most entrepreneurs will not go past their pain line. Something's happening here where they just don't grow past that point because there's something painful on the other end, whether it's dealing with more people in their team taking on challenges they're unfamiliar with, maybe having to put themselves out there in marketing and branding, and they're not really comfortable with that. There's some sort of pain they can't get past, and therefore they just stay where they are. They get bored, they quit. So what do you do? Well, like everything else in life, you got to face those things head on. Now, the good news is that a lot of the stuff that you're maybe avoiding to do because maybe you feel like it's going to be painful or maybe just monotonous or hard, you can get somebody else to do. You don't have to do it. That's the beauty of entrepreneurship. You can get somebody else to do the things that you're avoiding, but you got to recognize the fact that you are avoiding them and you need to get them done by somebody else. This is quite subtle and takes a little bit of soul searching, takes a little bit of time for you to reflect. Why am I quitting things? Why am I not finishing things up? Why am I not growing things and just scaling as I go? And it's probably there's one or two things you just are trying to avoid and you just don't go past that pain line as Dan Martell talks about. So it's not that you're bored. It's not that things are not exciting anymore. It's that you just got boring. Because the exciting stuff is risky, it's hard, it's a bit scary. And one of the best exercises I can recommend, and I've recommended this recently in a recent episode, is to evaluate your business as if you were to buy your business, let's say you bought your business tomorrow. What are the changes you would make to this business, to the management, to the team? These are the hard decisions you would make. It's easier to think objectively that way. And those are the things that are holding you back and keeping you from getting beyond this point and working on more exciting, challenging things.

Summary

The $100 MBA Show: Episode MBA2416 – 5 Things That Cause Businesses to Fail and How to Avoid Them

Release Date: January 15, 2024
Host: Omar Zenhom

Overview

1. They Simply Don't Start ([01:11] - [08:30])

Key Points:

Fear of Rejection: Many aspiring entrepreneurs invest time in ideation and planning but never transition to execution due to the fear of rejection.
Making the First Dollar: Omar emphasizes the importance of converting an idea into a revenue-generating venture, defining business success as "making your first dollar."
Taking Action: He encourages entrepreneurs to actively seek their first sale by asking at least ten people to purchase their product or service, even if it means facing multiple rejections.

Notable Quotes:

“Starting a business has to mean making a dollar. So that's my definition. You’ve got to make your first dollar.” ([02:45])
“Guess what? Business is a contact sport. The more contacts you make, the more interactions you have, the more likely you’re going to be successful.” ([07:10])

Strategies to Avoid Failure:

Pre-sales and Deposits: Encourage potential customers to pre-order or place a deposit, mitigating the fear of rejection by securing initial commitments.
Volume Approach: Embrace a high-volume sales tactic, leveraging technology and online platforms to reach a broader audience without the intimidation of face-to-face selling.

2. Lack of Capital ([08:31] - [13:00])

Key Points:

Cash Flow as Oxygen: Omar underscores that cash flow is vital for sustaining business operations, likening it to oxygen for survival.
Profitability Over Funding: He argues that even well-funded companies can fail without profitability, citing WeWork as a prime example.
Importance of a P&L Sheet: Maintaining a Profit and Loss (P&L) statement is crucial for tracking financial health and ensuring that profits exceed expenses.

Notable Quotes:

“Cash is oxygen to your business. Having capital, having funds is how your business is able to sustain itself.” ([10:15])
“Don’t fall in love with your idea. Don’t fall in love with your cause to the point where you’re just spending without making.” ([12:50])

Strategies to Avoid Failure:

Regular Financial Monitoring: Implement and regularly review a P&L sheet to monitor profitability and manage expenses effectively.
Increase Profit Margins: Strive to enhance profit margins incrementally, aiming for higher percentages as the business grows to buffer against financial uncertainties.

3. Founder Loses Interest ([13:01] - [18:30])

Key Points:

Misinterpretation of Boredom: Often, when founders claim to lose interest, it masks a deeper issue of fear of growth and change.
Pain Line Concept: Inspired by Dan Martell, Omar introduces the "Pain Line"—the threshold beyond which entrepreneurs hesitate to push their businesses further due to the anticipated challenges.
Innovation and Risk-Taking: To sustain interest, founders must continuously innovate and take calculated risks, avoiding stagnation.

Notable Quotes:

“What it really means is that they didn’t push themselves. They didn’t challenge themselves, they didn’t actually put themselves out there enough.” ([16:40])
“It’s not that you’re bored. It’s that you just got boring.” ([17:50])

Strategies to Avoid Failure:

Self-Reflection: Engage in honest self-assessment to identify and address the underlying reasons for waning interest.
Delegation: Delegate tasks that are burdensome or uninteresting to other team members, allowing founders to focus on areas that reinvigorate their passion.
Continuous Learning: Embrace ongoing education and mentorship to stay motivated and equipped to handle new business challenges.

4. Poor Marketing ([18:31] - [22:50])

Key Points:

Marketing as a Priority: Effective marketing is non-negotiable for business growth, requiring consistent investment of time, money, and resources.
Visibility Equals Success: Without marketing, even the best products or services remain unnoticed, hindering sales and profitability.
Investment in Marketing: Successful businesses often allocate a significant portion of their budgets to marketing to ensure continuous customer acquisition and retention.

Notable Quotes:

“Marketing needs to be a top priority in your business. Just as much as you focus on your products and services, you need to focus on telling other people about that.” ([20:10])
“Marketing, marketing, marketing. You got to make it a priority.” ([21:35])

Strategies to Avoid Failure:

Dedicated Marketing Budget: Establish a dedicated line item for marketing in the P&L sheet to ensure consistent funding.
Diverse Marketing Channels: Utilize a mix of marketing strategies, including content marketing, paid advertising, social media, and sponsorships, to reach a wider audience.
Measure and Adapt: Regularly assess the effectiveness of marketing campaigns and be prepared to pivot strategies based on performance data.

5. They Don't Adapt ([22:51] - [27:00])

Key Points:

Evolving Customer Needs: Businesses must stay attuned to changing customer preferences and market trends to remain relevant.
Example of Coca-Cola: Omar illustrates how even a successful product like Coca-Cola must innovate (e.g., Diet Coke, new flavors) to maintain market dominance.
Long-Term Vision: Entrepreneurs should forecast future trends and anticipate shifts in the market to proactively adapt their offerings.

Notable Quotes:

“You can’t just continue to do the same thing over and over and consider yourself done. No, you have to keep adapting.” ([25:10])
“Start to think and anticipate where your business and the needs of your customers will be one year, three year, five year, 10 years from now.” ([26:15])

Strategies to Avoid Failure:

Future Planning: Implement the "1, 3, 5, 10" strategy—anticipate and plan for customer needs and market conditions one, three, five, and ten years into the future.
Innovation Culture: Foster a culture of innovation within the organization, encouraging continuous improvement and responsiveness to change.
Customer Feedback: Actively seek and incorporate customer feedback to stay aligned with their evolving expectations and preferences.

Conclusion and Recap ([27:01] - [30:00])

Omar concludes the episode by summarizing the five critical reasons businesses fail and reiterating the importance of addressing each to ensure long-term success:

They Don't Start: Take decisive action to launch your business and secure your first sale.
Lack of Capital: Maintain a healthy cash flow and focus on profitability through diligent financial management.
Founder Loses Interest: Continuously challenge yourself and your business to prevent stagnation and loss of passion.
Poor Marketing: Invest consistently in marketing to build brand awareness and drive sales.
They Don't Adapt: Stay proactive in adapting to market changes and evolving customer needs.

Additional Resources

For more insights and practical business training, visit The $100 MBA Show and follow upcoming episodes where Omar continues to share invaluable lessons for aspiring and seasoned entrepreneurs alike.