Top Reason Why Businesses Fail & What To Do About It

The top reason why businesses fail is the lack of need in the market. Four in ten businesses (42%) fail because there is no need for their products, according to a 2014 study by CBInsights. Things have gotten worse as the fail-fast mantra is spreading rapidly with “agile everything.”

Big & Small Businesses Alike

First, many entrepreneurs believe in Steve Job’s view that customers don’t know what they want, so why bother asking them. Go direct to market and test it! Trust your gut!

Second, start-ups often rise from their founders’ personal experiences and needs, which for the most part they never validate beyond the founders’ inner circle of family and friends, before investing in them.

As a result, these ideas are their babies.  They are committed to seeing them grow as caring parents. There is too much pride and ego involved in the effort. The result? They tend to become victims of confirmation bias have eyes only for examples (e.g. iPhone, Uber, etc.) that confirm their beliefs, totally ignoring the countless cases that end up in failure.

On the other hand, there are businesses that make it for a while, even make it big, and then collapse (e.g. Blockbuster, Radio Shack). There is no such thing as “Too big to fail” in business. These companies lose track of what’s happening in the market. Above all, they lose sight of how their customers are changing as technology, cultural, economic, and political trends change the landscape of attitudes, needs, and shopping behavior.

In both cases, the market research necessary to identify market needs, and keep monitoring them, is considered a cost that can be easily cut, not an investment.

Fear Of Research

Most noteworthy, among start-ups, there is fear the research will come back with bad news. They can handle the idea of wasting time and money, but not that their products are useless. This is nonsensical, but a reflection that emotions influence business decisions. As business buyers, we go through similar shopping decisions we all make as regular consumers. Emotions are always in the equation, even if we don’t want to admit it.

By the same token, in big companies, research results can threaten the status quo. This creates cognitive dissonance and a lot of anxiety. These companies fall often through the hole of the sunken cost fallacy. Hence, they feel they invested already too much in certain ideas to let them go. Again, human nature in action.

Consequently, the solution is to be aware of these biases and use market research to minimize their influence. I’m not talking about doing internet searches for free information. Probably it is not enough. I’m not talking about doing a couple of focus groups and thinking you are done, either. Focus groups are only good for exploration, not for decision making.

Needed Research

Research that can really help you avoid business failure includes:

• Concept testing: Product idea’s appeal, likelihood to purchase, unmet needs it fulfills, barriers to purchase.
• Product testing: How the product meets expectations, how real users use it, what problem it solves, what obstacles users face using it.
• Market segmentation: What segments your products/services attract, if any, what their market potential is.
• Pricing research: What the optimal price is in the context of the competition and the needs the product meets.
• Positioning research: What the main selling point is, how it should be presented, what the benefits are.
• Brand health tracking: Brand awareness, usage, and perceptions about your brand, and competitors.
• Customer satisfaction research: Customer satisfaction with your product, drivers to stay or to leave you.

In short, if you are involved in business decision making, be aware of what emotions are tugging at your heart. Whatever they are, take some distance and invest time and money to check your gut decisions with market research.