Your Business Failed – Now What?
No one ever said starting a business and guiding it to success was easy, but you took the chance. You invested time, money and hard work to create and grow your business. However, for whatever reason, it wasn’t enough and you couldn’t make it work.
Now what? Should you throw in the towel and return to working for someone else?
You had the vision, courage and commitment to be an entrepreneur. It would be a shame to let those good qualities go to waste building someone else’s company with limited compensation or control. So get your entrepreneurial hat back on and try again.
What to do after your business fails
It can be very emotional when your company goes out of business. You may feel sad, discouraged, disappointed, anxious, angry or a combination of emotions. That’s OK. Give yourself a little time to grieve for your venture.
But remember that you can apply your hard-earned wisdom and lessons to your next business, giving it a greater chance of success. Conduct a postmortem to determine what went wrong, learn from your failure and prepare for the future.
1. Examine your product demand and pricing mistakes.
Did your product receive less-than-enthusiastic demand? Did your pricing turn off prospects? Determine the product and pricing mistakes that contributed to your business’s downfall.
- Lack of market demand for your product: If you experienced product failure, it’s possible there wasn’t enough demand in the market. According to CB Insights, a lack of market need is responsible for 42 percent of business failures. Just because you love your business’s product or service doesn’t mean others will agree.
- Pricing issues: Pricing issues can lead to product failure. It can be challenging to set prices for services and products. For example, if you sell handmade custom clothing, you’ll likely have to raise prices or charge a high price initially to cover the labor involved. While prospective customers may love the product, they may not be able to afford it. In this case, there is a mismatch between the product, its price point, and the market’s ability and willingness to pay.
How to apply product and pricing lessons to your next venture
Gather the lessons from your product failure or pricing mismatch and apply them to your next venture:
- Do a feasibility study. Before your next company introduces a new product, create a market research plan that includes a feasibility study. Research what it would take to create the product or service, the costs and how much you would need to sell it for to make a sufficient profit margin.
- Test a product prototype with consumers. If you sell a physical product, create a prototype. Let prospective customers try the product in a controlled setting in exchange for customer feedback. Explain the product’s purpose and design; ask them about their purchase intentions, the price they’d be willing to pay, and what they think of the product quality and design. Get their assessment of the product against competitors so you can differentiate your product from the competition. You can use these insights to position your offering correctly in your marketing or make necessary tweaks.
- Test services in a focus group. If you have a service idea, conduct a similar process with a focus group. Explain the service, how it works and what problems it will solve for customers. Answer participants’ questions and get feedback about pricing and how your offering compares to competing and substitute services.
- Create accurate buyer personas. Who was most enthusiastic about your product or service? Note their characteristics and use their demographics as a basis for your buyer personas. Next, research the number of people in your geographic area or within easy reach online who match these personas.
- Determine market penetration. Make an assumption about your likely market penetration in the first year, and run the numbers to see if you can make enough revenue to become profitable.
2. Assess your marketing problems and mistakes.
Did you make marketing mistakes that helped tank your business? According to CB Insights, poor marketing accounts for 14 percent of business failures. It’s challenging to identify your target audience, reach them and convince them to buy your offering. You may have the best product in your industry, but if your target audience doesn’t know about it, your business can’t succeed.
Marketing problems may include not identifying or understanding your target market’s needs, ineffective messaging or a too-broad approach that results in a low lead conversion rate.
How to apply marketing lessons to your next venture
Take the lessons learned from previous marketing mistakes and create a plan to market your next venture successfully. Here’s how to apply your marketing lessons in the future:
- Identify your target market. The first step in your marketing plan is to identify your target market. Who is the primary group that will want or need your product? Who will be willing to pay your proposed price? For this analysis, you’ll need a thorough understanding of how your product benefits the buyer. Does it save the buyer money or time? Does it make a difficult process easier? Does it provide status? Does it make the buyer feel more beautiful, cooler, smarter or healthier? Include the price aspect in your analysis; someone who wants your product but can’t – or won’t – pay for it is not part of your target market.
- Discover where your target market is online and offline. Next, determine where your target market hangs out in person and online. Do they like complementary products? If so, consider approaching those brands for a co-marketing arrangement. If your target customers attend specific in-person events or locations, consider becoming an event sponsor or scheduling a pop-up shop. Be very focused on marketing only where your target market goes often – and in numbers – to get the most for your marketing dollars.
- Create appealing messaging. Based on your target market and its primary motivators, create messaging that will appeal to them. Test out different marketing messages by running social media marketing campaigns to see which performs best. Be creative! New offerings must break through the clutter and grab people’s attention. Consider funny, irreverent and even shocking taglines, images or messages. Once you have your target market’s attention, you can sell them on the product’s benefits.
3. Understand the team problems that derailed your business.
Team disharmony accounts for 23 percent of business failures, according to the CB Insights report. Team members without the necessary skills or experience can derail your business from multiple angles, including customer service, management and accounting.
Additionally, your business may have suffered from a toxic workplace culture where employees weren’t on the same page and working together toward a common goal.
How to apply team-related lessons to your next venture
Gather the lessons you learned from the problems on your previous team and proactively avoid them in your future endeavor.
- Choose key employees carefully. Some businesses fail or succeed largely based on employees in certain key positions, such as the chef of a fine dining restaurant or a lead programmer for a software company. List the characteristics and skills critical employees in your new business will need, and note them as you go through the hiring process. Keep a list of promising candidates in case the person you hired initially doesn’t work out.
- Clearly outline expected employee behavior. To avoid workplace culture issues, create a code of ethics and conduct to clearly lay out the behavior you expect from employees. Ensure your day-to-day practices reinforce the values in this document and replace anyone who has persistently shown to be a poor cultural fit.