Business is a “trap word”. Statistics say most businesses fail!
Here are a few optimistic facts:
- You and other people participate in a free market of goods, services, labor, attention, and information.
- Most other people don’t know how to handle all this value flow.
- To give the world something with a demand that won’t be copied by many others, makes you win big in The Game of Life.
- The existing options are almost infinite. Try ideas wisely following the speed and scale rules.
When it comes to businesses, there are two main goals: happiness (doing what you love) and success (making money).
Key Success Factors in Business:
- Focus on accumulating assets over time.
- Don’t trust the future. Projects that require constant investments or hard work will fail when you feel low or times are bad.
- Don’t have a single point of failure in a big project. Always have backup plans.
- Don’t rely on any person, equipment or resource that once gone, your business cannot go without.
- Don’t depend on others in the long-term. Don’t launch with an indispensable co-founder.
Side note: If I suggest you do X, I limit your freedom significantly. If I tell you don’t do X… you still have thousands of other options that actually exist and do not contain X.
There are many paths to success. Sometimes the craziest solutions can be the most effective!
A key reason why business ideas fail is the existence of the wrong kind of dependencies
Short-term dependencies are perfectly fine. You must in fact learn to lean onto employees, trust them, and delegate.
Long-term dependencies are very tricky. This usually involves your business co-founder if you have one.
Are you both equally and fully invested? Do your long-term visions coincide? Are there any other big projects any of you engage in? Does one of you still have a day job? Or has to look after his four children and seven pets? Or looks lazy and half-motivated? Or burned out? Or just desperately wants to quit something and start anything new right now? Or drinks too much or does drugs? Or has a poor previous record of their joint ventures?
The questions are many and any single one of these is enough for your business idea to fail.
Most people are aware of the risk of a long-term dependency (they don’t marry every person), yet they still often choose one to realize their idea. Why?
- You came up with the idea together
- You want someone to share the responsibility or the joy and enthusiasm with
- You need someone to discuss their ideas with
- You need financial support
But the first three are all about the Game of Self factors, rooted in obsessive morality, lack of self-love and resulting insecurities.
But what about money, a Game of Life factor?
If you feel you are the senior partner (more experienced, more resources), always consider whether you couldn’t simply hire the junior one.
If you feel you are the junior partner (less experienced, fewer resources), ask yourself whether you would have any control over the whole project at all. Also, a common trap is that you expect your senior partner to contribute time and know-how. Meanwhile, they might rather contribute only resources, and have more of an investor-like role.
Once, our (very honest) investors had to evaluate the rare case of a company with four founders. Their exact words were “a recipe for disaster”.
Unexpected Reasons Why Businesses Fail
You try to make people happy too much while neglecting the money earning part. The most important predictor for your business idea’s success is your industry. The entertainment industry, the food industry and the retail industry are all at the top of business ventures most likely to fail.
Let’s look at 2 real businesses – running a restaurant vs running an SEO consultancy.
SEO (Search Engine Optimization) is a type of digital marketing service that provides advice and resources on how to get more visitors from Google search. It’s a ~$100 billion industry.
Running a restaurant makes people happy, creates value and contributes to society.
Running an SEO consultancy is zero-sum in terms of creating happiness, value and contributions to society.
You’d think that society would reward the restaurant industry more than SEO. Think again…
60% of restaurants fail within three years.
Everyone thinks they will be the outlier to succeed, due to natural entrepreneurship optimism and survivorship bias. But you can’t argue with statistics.
In reality, it’s a tough business with endless working hours, responsibility for the clients’ health and a number of required licenses. You cannot really pick your customers. You need a great location which means huge rent expenses.
Meanwhile, it’s just about impossible to fail as an SEO consultant while billing clients $100+ an hour while paying no rent, licenses, education or any other expenses. You do your own marketing almost for free and you can easily offer the service remotely all over the world. And it takes only six months of full time training to provide 80% of the value and 2-3 years to be almost perfect.
The number two reason why business ideas fail is… the desire to create something that doesn’t exist.
There is just one problem. The mathematical nature of the free market doesn’t account for these emotional human desires. You should spend some time googling whether your idea does or doesn’t exist.
If creating cool stuff is not financially sustainable, you should call it a hobby. Just don’t live with the idea, the expectations and the resulting pressure that it has to become a business.
The number three reason why businesses fail is… you create more liabilities than assets.
Let’s define the two extremes.
- Assets that create money over time with no extra cost (passive income).
Most people’s road to passive income seems kinda backwards:
They want to have a normal income, then make it passive. This means achieving two things one after another:
- Create a successful sustainable business
- Delegate it to a trusted manager so you don’t have to work 24/7 for it
I’ve found another path to be easier, especially in the digital world.
Start with almost-zero-but-passive income. Say earn $100 every month for something you do in 5 minutes a week.
Then scale.
Now let’s look at the ugly extreme opposite.
- Liabilities that drain money over time with no extra benefit (burn).
Any loans fall into this category but we’re not talking only about money here. Time is actually the most valuable asset. Typical drains of time are annoying customers. Being able to choose your customers is a huge advantage in business.
A side note on experience and time:
Experience is the most precious thing in The Game of Life as it’s deep, intuitive learning with no extra effort.
When modern Silicon Valley culture glorifies failure as a learning experience, what they actually value is not failure, it’s the diversity of experience that failure always brings.
Finally, reason number four for the failure of a business is… having no idea, yet desperately wanting to have one.
Hello, Franchising.
A franchise is a hybrid of having a day job and having a business, taking only the very worst from both – lack of freedom, lack of diversity and high liabilities.
This is the closest you can get to actual slave labor.
Remember, according to supply and demand rules, the best business ideas are not the mainstream ones.
A business does not exist. Instead, think of its two components separately:
- You should be happy – by making others happy or creating cool stuff (The Game of Self part)
- You should be profitable (The Game of Life part)
Life is unfair to many businesses but actually it is to your advantage. Enter industries where success exists. But don’t forget to share back.
Life is circular.
