Do You Know Why Most Online Businesses Fail?

Discussion in 'General Advice' started by A8ch, Dec 22, 2009.

  1. A8ch

    A8ch Gold Member

    There are hundreds of reasons that can be blamed for business failure today, and it really doesn't matter if the business is virtual or real world. Many of the pitfalls are the same and they all fit into 3 basic categories:

    1. No Comprehensive Business Plan

    Many businesses are doomed to failure even before they get off the ground. That's because they don't start out with a solid business plan. And by business plan I'm not talking about some rhetorical mumbo-jumbo that sounds impressive but means nothing.

    I'm talking about crafting a plan that clearly defines the market niche, identifies an opportunity in that niche, outlines specific goals, as well as strategies for accomplishing those goals.

    Think of your business plan as your online GPS. Its job is to move your business towards the selected destination. If you should stray off course, you can use it to recalculate your position and revise an alternate route to get you back on track.

    Yogi Berra puts it this way: "If you don't know where you are going, you will end up some place else."

    2. Inferior Management

    A business plan has to be executed effectively, and that requires astute management of resources, ideas, finances and people. If you don't know anything about these things, you should start learning about them, or surround yourself with a team of people who do.

    The daily operation of your business should function as harmoniously as an orchestra under the direction of a skilled conductor.

    3. Insufficient Operating Funds

    Money is the major lubricant that keeps the wheels of commerce grinding along. Careful budgeting and reinvestment is critical to the growth and sustenance of any business. Make sure you always have enough money available to cover costs and support the income-generating systems of your operation.

    Not having sufficient money to cover operating cost is equivalent to putting a gallon of fuel in your car's tank and expecting it to take you on a 200-mile trip. It just aint gonna happen!

    Avoid the above traps and you will significantly boost the odds of growing a successful business in your favor.

    Plus, it always helps that you:

    1. Know your market.
    2. Know your product.
    3. Know how to market your product.

    Hermas
     
  2. mountainmom5

    mountainmom5 Gold Member

    Great advice once again Hermas - man I wish I had your touch with words.... sigh.... mine always come out hard and lumpy while yours flow soft and chewable...
     
  3. Vishal P. Rao

    Vishal P. Rao Administrator Staff Member

    Well said Hermas!

    Regarding insufficient operating funds, one more thing I would like to add is that even though it's possible to start an online business with minimal funds, it's not easy to sustain it without proper re-investment. Majority of people who start with zero or minimal funds online expect to run their business that way throughout. It simply will never take off.

    A shrewd businessman will always try to find opportunities where he can put in 1 cent and make 1.5 cent or more with least amount of effort. Whereas an amateur business man will try to make 1 cent out of nothing putting maximum efforts and time. If you start seeing things from this point of view, you business will start growing by leaps and bounds.

    To make a business a real Business, you have to treat it like a real business.
     
  4. BobFirestone

    BobFirestone New Member

    Right on target as usual Hermas.

    I have found 1 & 2 are often the cause of #3.

    Money goes a lot farther when used thoughtfully.
     
  5. residualcash

    residualcash New Member

    good insight
     
  6. yasser

    yasser New Member

    Vishal P. Rao: o make a business a real Business, you have to treat it like a real business.

    I completely agree.even with the same business is you have to adapt to changes or otherwise you will start getting off the track
     
  7. Jim Gillum

    Jim Gillum New Member

    I believe that failure to take action and move forward....even after the plans are made, causes many to crash before they get off the ground....
     
  8. shubh

    shubh New Member

    I agree with you that 'No Comprehensive Business Plan' is the main reason for the failure of business. Apart from it, many business owners or the mangers fail to assess future threats to this business well in advance. That's why, most business owners are hiring the services of 'fintel' like companies that provide business analytical tools and comprehensive reports.
     
  9. connor_zen

    connor_zen New Member

    Great advice! Thanks for posting.
     
  10. amberp

    amberp New Member

    I think this stands to be heard again! AMEN!
     
  11. PavelBecker

    PavelBecker New Member

    All due respect, Hermas, I find your selection of the reasons behind business failure rather random. I also didn't expect from you to say that "it really doesn't matter if the business is virtual or real world".

    Ultimately, any business concept consists of three major tasks (which is pretty much what you said in the end of the post):

    1. Identifying the product.
    2. Identifying the customer.
    3. Identifying the marketing strategy.

    Failure to complete either one of those tasks will eventually cause the business to fail. In a brick-and-mortar world there is a lot of "business owners" who believe that if they know how to clean floors they can start a cleaning business and if they like dogs they can open a dog training facility.
    Obviously having any knowledge regarding the production process of the product, or even simply "liking" the product is not enough to start and successfully run a business. We all know examples of it.

    But at list in a brick-and-mortar world there is a certain commitment that is not going to be questioned even by a future failure - you have to commit full time, you have to come up with an initial investment, you have to get personally involved in all the details and aspects of your business immediately. So, a failure in a brick-and-mortar case is a person who at list actively tried and failed.

    Another thing - "virtual business".

    I would actually want to ask you regarding your definition of a failed virtual business. Would it be somebody who actually committed full time and completed all the necessary research regarding the market and product they are marketing and after doing all the right things for a significant amount of time they still failed or is it a wannabe, who just clicked "Join now" button on a flashy sales page promising "an automated system that will be making thousands of dollars for you 24 hours a day without any involvement"?

    The first kind of an entrepreneur has a very high chance of succeeding and the second kind - they are not even anywhere close to the business owner status to call them a failure when they end up not making any money on this "virtual business". They just had heard about some mysterious "Internet business" and decided to give it a try by pushing above mentioned "Join now!" button.

    They didn't have a chance to begin with. They weren't going to spend any time to come up with a "comprehensive business plan", they weren't going to "manage" anything, they weren't going to contribute any "operating funds". They were just waiting for a miracle for some reason! And that's most of those who claim that they "failed" at making money on the Internet.

    On Internet marketing-related forums I see a lot of people discussing how they work at their "business" a few hours per week making a few bucks here and there. Would they be an example of a successful virtual business in your classification?

    I think generating at list $50,000 per year could be called a business, anything below - it's just a hobby, like fixing cars for your neighbors after work or mowing your uncle's yard for $10 on the weekend.

    I think if we stop trying to distance the "virtual" business from "real world" business we will scare off all those wannabes who run up the count of failed "virtual businesses".

    Internet-based business requires exactly the same commitment that is unquestionable in a brick-and-mortar business. Forget about the word "Internet" - it's still a business and one would have to perform exactly the same steps in exactly the same amount in order to succeed.

    1. Identifying the product.
    2. Identifying the customer.
    3. Identifying the marketing strategy.

    We used to market our travel business to anybody and everybody and the quality of prospects was extremely low. Most of them were professional losers waiting for a miracle without any desire to make an effort to re-arrange stars on their own sky.

    Now if a prospect tells us about yellow Lamborghini and a house with an ocean view as a goal that he wants to reach by getting involved with us - we say "Next!"

    Now we are focusing on realistic people, who can commit a significant amount of hours per week and who wants to replace their current income while gaining a self-employed status - that's the goal. If you can go further - good for you, but replace you current full-time income first and maintain food on your kid's table and mortgage payments current first.

    So, ultimately, the main reason of a failure in any Internet-based business is being unrealistic in one's expectations about time and effort commitment in order to make any money on the Internet.

    Pavel
     
  12. A8ch

    A8ch Gold Member

    Hi Pavel,

    You make some very interesting points and I'd say that we both feel the same way about many of them.

    PavelBecker: All due respect, Hermas, I find your selection of the reasons behind business failure rather random.
    I don't disagree with your random observation. I started out by saying there were hundreds of reasons for business failure today. So, if one accepts that each of those 100s of reasons is legitimate, then one could select any group of 3 reasons, deliberately or at random, and make one's point.

    In this case I focused on 3 areas of failure where there was a lot of supporting statistical data. Plus, many of the other reasons on record for business failure can be traced back to the three I highlighted.

    PavelBecker: I also didn't expect from you to say that "it really doesn't matter if the business is virtual or real world".
    When I use the term "virtual business" I'm simply referring to a business that uses the Internet to generate the bulk of its revenue. But whether you call it a virtual business or real world business, it is still first a business, and the same principles of business and marketing must be applied to make it work.

    Actually, I like the way you expressed it below:

    PavelBecker: Internet-based business requires exactly the same commitment that is unquestionable in a brick-and-mortar business. Forget about the word "Internet" - it's still a business and one would have to perform exactly the same steps in exactly the same amount in order to succeed.
    We agree!

    PavelBecker: So, ultimately, the main reason of a failure in any Internet-based business is being unrealistic in one's expectations about time and effort commitment in order to make any money on the Internet.
    Here you went two steps further than I did and selected a single reason (intentionally or randomly) [​IMG] -- "being unrealistic in one's expectations" -- as the main cause of business failure.

    I agree that "unrealistic expectations" can lead to failure. But that can be avoided at the very beginning by doing the necessary research and preparation that goes into crafting a comprehensive business plan. The expectations would be based on facts, not speculation, and people would have a much more realistic chance to "re-arrange stars on their own sky." (By the way, I do like that expression!)

    Hermas
     

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