How to Avoid The Seven Biggest Causes of Business Failures


Friday, November 7, 2003


I've never seen or heard anyone identify the true
reasons for nearly all business failures. 

Especially misleading in my view are university
courses and statistics published by the government.

The following article could be entitled,
"What They Don’t Teach You About Business
Failure at Harvard, Wharton or Stanford."

Here are the biggest causes of business failures and
how to avoid them as I see it.

1. Putting the product first, with marketing second. 
This is the exact opposite of what's necessary for
success. Smart and successful entrepreneurs identify
the market first.  Then they create and/or focus on
the product.

Tip: To succeed, you must find out whether people
actually want your product, can or will pay for it,
and how much.  The very best proof is not a focus
group or survey but an actual market test.

2. Overemphasis on image. A fancy office with
high overhead or an expensive logo will do little or
nothing to facilitate success. And it could drive
you out of business fast, as many businesspeople
painfully discover.

Tip: Keep overhead low. Operate from a home office
or very modest one when you start out. Most of your
prospects and clients couldn't care less.  Carefully
invest every available penny in marketing. This
dramatically increases your chances of success.

3. Bad business partnership.  Many entrepreneurs
rush into partnerships with little knowledge,
communication, or diligence.

I submit that a business partnership is even tougher
to make work than a marriage.  Most fail in
misery.  And in bankruptcy.  And if this isn't
bad enough, lifelong friends often wind up
hating each other and estranged forever.

Tip: Avoid partnerships completely if you
possibly can.  But if you have strong business
reasons to form a partnership, make sure right
from the start you know your future partner's
strengths and weaknesses very well.  And, most
importantly, clearly define in detail exactly
what you and your partner will be responsible
for in the business.

4. Business model is too complex. The best business
models are simple. Employees, customers, even
suppliers, should be able to immediately understand
the nature and goals of the business.  For example,
"When it absolutely, positively has to be there

5. The business attempts to pioneer a new product
or industry. Entrepreneurs are often attracted to
businesses that are pioneering a brand new product
or industry. (I personally must resist this tendency
as well.)  While a precious few are successful, most
fail.  Businesses that are radically different from
existing known businesses can even scare off
customers rather than attract them.

Tip: You can achieve extraordinary business success
when, instead of being a pioneer, you simply do
something far better, faster and/or cheaper than
existing businesses.

6. You and the business are driven into bankruptcy
by a lawsuit.  You can be fully and personally liable
in the event of a lawsuit which goes against you.  You
could lose all your assets, including your home,
savings, cars, etc.

Tip: Never operate a business without the protection
of a corporation.  Operating through a corporation gives
you a "corporate shield."  You actually keep your
personal liability limited to whatever assets you choose
to put into your business. Worst case, in the event of
a lawsuit simply fold your corporation and start another

Talk with a good lawyer and accountant and
discuss your personal situation including tax aspects.
You can probably eliminate close to 100% of all
potential legal threats which could go against your
personal assets.

7. Divorce. Untold businesses come to a halt each
year when marriages fall apart.  In many cases
financial disagreements wind up in court.

Tip: Before getting married, and no matter how
unlikely it may seem at the time, have a good attorney
prepare a prenuptial agreement which spells out
exactly what will happen in the event of a divorce.

Avoid the above pitfalls and the path to business
success will become much smoother for you.

Warm regards,

Ted Nicholas

P.S. "The secret to success, in life and in
     business, is to work hard at the margin.
     Relentlessly.  It's as powerful as compound
     interest, the eighth wonder of the world.
     Those little marginal extra efforts will
     inevitably grow into something big."
                             --Bill Bonner

     Little things mean a lot.

     "God is in the details."

Copyright 2003 Nicholas Direct, Inc.