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Top 4 Reasons Why Entrepreneurs Fail

Top Four Mistakes Why Entrepreneurs Fail - ibuildcompanies.com by Jeanne Heydecker

My entire career has been focused on startups and small to medium-sized businesses that are anxious to take their company to the next level. IMHO, I have been quite successful in setting strategy to ensure that we take the necessary steps to take the company to the founder’s exit strategy, whether that be selling the business, going IPO, or just growing the business to the next level as a private concern. My strategies usually coincide with investor deadlines – three to five years.

Why Entrepreneurs Can Be Fun or Cause You to Have a Nervous Breakdown

Entrepreneurs are different from the rest of us. I’m not an entrepreneur, but I’ve co-founded a company and I understand their psyche. They’re risk takers and they’re willing to give up most of their life – family, reputation, and money, to make their concern viable. They’re focused on a particular idea that means something to them personally. Other entrepreneurs pick their moment, building a company in one direction, nimbly changing their entire strategy when they see things aren’t going to be successful. They make hard decisions, take calculated risks, rented out part of their office space in order to make payroll, anything to keep their business profitable. I admire these gentlemen (and they’ve always been gentlemen for me) because I’m not that type of risk taker and I’m jealous of that, because, while I have an entrepreneurial spirit, I prefer to work with my heroes throughout these long years. I’m a good partner for them because I’m completely in tune with them. I want to help them succeed and have the track record to prove it. Since 1991 or so. But you have to be flexible. You have to be able to work in chaos. I am sometimes called the Goddess of Chaos. I can handle it. A lot of people can’t. These guys can be ferocious, temperamental, and abusive, but also highly creative, engaging do-ers. It also helps if they have personal charm and a sense of humor. 🙂 They’ll need it to make it past Mistake #1.

#1: Dealing with Employees

I’ve worked with maybe 100 companies overall, in the U.S. and India, and there is a distinct juncture where I’ve seen them fail, and it has to do with employees. They started their companies by themselves and did everything. They think they know what they’re doing and feel they know best what is good for their company. But now that they have employees, it’s not just them anymore.

They fail when they don’t take the leash off their senior staff that they hire. They need to trust them to do their jobs effectively. Good entrepreneurs aren’t ego driven. They hire the best, and as my first CEO said to me, “You’ll get enough rope to hang yourself.” He threw me into a job I did not have much experience in and I learned while running. We did great work and he has always been the entrepreneur that I compare all the rest to. He was a serial entrepreneur. He wanted to sail the world with his family and I helped him get there. He wanted to sell the company in order to make this dream happen. We succeeded, but as all people know during an acquisition, your internal Finance and Marketing people go first. Everyone who buys a company wants control over finances and the marketing strategy. They always think they know better. I know, when this is the CEO’s exit strategy, that this is the death of my future for the company and it’s okay. He protected me and I survived another year beyond him. I love that guy to this day.

Entrepreneurs need to hire the best possible people as their second-in-commands across their company, Finance, Operations, R&D, Marketing. They need to trust these people, who typically are experts in their fields, with experience beyond the CEO’s companies, to provide strategies for growth and containment of costs while producing the maximum return on investment. They’ve learned best practices. They know how to hire the right people to meet objectives. Even with an MBA, an entrepreneur can be a fool. They can be total control freaks, focusing on small purchases instead of the big picture. Focusing on introducing new product lines that that don’t work with all the investment in branding done over the previous years.

#2: Focusing on Ego Instead of the Business

I’ve had CEOs who wanted speaking engagements on the world stage that could not speak proper English and that English was in a heavy accent. They did their presentations as sales engagements, angering the people I convinced to add him to their agenda. They were unfit for this limelight, yet insisted on being the voice of the company in spite of it consistently hurting the company’s image. What do you do with a boss, who was once described as “just a farmer in a fancy suit”? He’s your boss, he’s ego-driven, surrounded by sycophants who tell him he’s always right – there is no way to constructively discuss his personal issues.

Other entrepreneurs leave people in positions that they’re really not capable of accomplishing and this has to do with longevity and loyalty, which are probably the hardest aspects for a CEO. If a person comes on board as your first employee, sharing your risk, believes in you, wants to do their best, but doesn’t have the experience to take the company forward, it’s hard on all sides. CEOs are loathe to replace these people, but they have to consider it a business decision. Businesses have no emotions. They look at the numbers. They look at the skill sets. If the CEO doesn’t have that particular skill set to mentor them in the position and the person hasn’t taken formal training to move themselves forward, it’s time to part ways. Many people in traditional, large companies rely on this, and stay successful while impeding the progress of the company.

#3: Short Term Thinking

Entrepreneurs are best at making it happen and sometimes, when trying to make payroll for example, they’ll take on a customer that is not part of their core business. While in some instances, this can create a whole new revenue stream or radically change the company’s core business, it usually backfires in the long run. It ends up using valuable resources of the company in areas of expertise that may not be on par with customer expectations.

Whenever cash flow becomes an issue, many entrepreneurs cut back on marketing programs that support the sales staff. Sales is the life blood of the company. Without sales revenues no one has a job for long. Marketing needs to support that sales funnel and ensure a healthy flow of qualified prospects are coming in. Sometimes Marketing has to work smarter, think differently, approach prospects in a different way at a lower cost. Work with your marketing staff before canceling that trade show or that film piece. There may be compelling reasons to keep that in the mix, while discontinuing printing 100,000 40-page catalogs every year. Let the individual departments come up with ideas of ways to cut costs and increase return on investment.

When going IPO, CEOs can focus on the short term gains in order to “make their quarters”. In the States, going IPO means a series of quarterly growth showing continuing gains. I spent a lot of time convincing CEOs that we need to take a hit now and focus on the product development before we do another marketing thrust, because “you don’t want to invite people to dinner, in a dirty home with no food to offer.” These CEOs ended up in difficult situations, lots of bad press and reviews, SEC warnings about their communications during the “black period”, all considerably hurting their initial offering price. Sometimes they need to wait, fix what’s broken, then move forward, even if it means taking a bit longer to achieve their dream.

#4: Know-it-All Syndrome

As I said before, entrepreneurs started their companies by themselves and did everything. They think they know what they’re doing and feel they know best what is good for their company. At some point, with some companies, they’ve lost focus, started facing month-over-month decline, watched newcomers enter the market and gobble up market share, or the industry itself starts to change in unanticipated ways. Sometimes staffing is an issue – too many, not enough. They come to a point where they have no clear answer and they need outside help.

I come in as a game changer. It’s a tough job. Restructuring teams and companies is probably the most difficult job you can have in business. Entrepreneurs need outsiders, advisors, people not inside their company, that can look at their business without any emotion. The company will tell me their goals and challenges, which is what I have to work with, and I need to put the right people in place across the teams to ensure we meet those goals. It’s never pretty. It’s always tough saying goodbye to people you genuinely like and wish you had a place for. You have to thank those who accepted positions that were less than they had before and see them become stellar in those new positions. You have to strive to be the best and be that role model for your teams and respect your entrepreneur. He took the most risk. He made this happen. He’s responsible for your job. In the end, if he/she trusts you, it can be very, very successful. It’s all up to him (or her!).

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