False Starts - Can a Business Turnaround from a Disaster?

False Starts – Navigating the World of Business by Unraveling the Challenges and Solutions for Businesses.

            This white paper explores the phenomenon of false starts in business ventures. Wherein companies experience initial setbacks and failures despite promising ideas or concepts. I delve into the reasons behind these false starts, the impact they have on businesses, and propose practical strategies to overcome them. By analyzing real-world case studies and expert insights, this white paper aims to provide valuable lessons to entrepreneurs and business leaders on how to effectively navigate false starts and foster long-term success.

 Introduction

The small business administration publishes statistics on typical business failures.[i]  Only 30% of all startups survive to their tenth year of business. The average pre-seed phase raises between $50,000 and $200,000 in capital. Even with sufficient startup capital, 60% of startups fail between pre-seed and Series A funding. During Series A, businesses typically raise between $500,000 and $3 Million in capital. Even with Series A, another 35% will fail within the subsequent 18 months of raising these funds.

            False starts also vary by industry. Some of the highest rates of failure occur in the financial and tech industries. These failure rates can be as high as 80%. Those startups classified as disruptive, those that are forward-thinking and potentially disrupting current market shares, experience as high as a 90% failure rate. Experts believe disruptive startups can be a risky business.

            Even with statistics indicating high failure rates, venture capitalists in the United States, invested more than 333 Billion dollars in 2021. Indicating there are many willing to invest money in the chance to make it big with the next market share grabbing business. This number represents over 15, 500 venture capital deals.

What Causes False Starts?

            Even with the influx in increased venture capital investments, 38% of startups fail due to running out of cash. Another 35% percent fail because there is no market need for their product or service. Why do these startups run out of cash? In my opinion, there is insufficient market research and analysis much of which leads to flawed assumptions.

One of my recent clients hired me to complete a turnaround of their business failure. Selling consulting services to a specific small business industry, included pay for performance contracts, My client was paid, when their client’s revenues increased. However the flawed assumption included that their client was interested in working hard to increase their top-line sales goals. But when many of their clients realized the significant increase in restructuring their organizations, my client began experiencing cash flow setbacks. Basically working for nothing presuming their clients will follow specific revenue goal plans.

Inadequate planning and execution, including poot resource allocation, led to this demise. The real issue was address their client pain points. This included the desire for their customer’s increase in revenue without working more hours and addressing specific challenges. Instead, their clients thought there was a one-size fits all business solution.

Competitive landscape is one part of the external factors that can cause failure of a startup. Have too many competitors or not understanding and analyzing the competition’s role in the market place can also lead to flawed assumptions. These assumptions give startups a false hope of success. One small business owner pursued the purchase of a franchise where competition was plentiful resulting in significant competitive discounted pricing. Unfortunately, even after many warnings not to purchase a small unknown independent franchise, my clients signed and bought the retail picture framing business. Within days, the franchisor filed bankruptcy and the domino effect forced these business owners into bankruptcy too. They were unable to compete against the large enterprise discount providers in the market place.

The Impact of False Starts

A false start can lead to financial implications and potential long-term damage to a company’s reputation. When a negative reputation arises, this leads to loss of investor confidence and reduces access to funding. Such as in the prior example of the small business retail picture framing business, the owners were forced to abandon the idea and unable to raise capital to continue operations. This also leads to negative effects on employee morale and overall organizational culture. In addition, the psychological toll was significant on the entrepreneurs and leaders of the business.

A Well-Known False Start

More than 30 years ago in an attempt to capture a younger market share, Coca- Cola [ii] replaced its signature drink with a sweeter version. It quickly became a national disgrace. But as the leaders of Coca-Cola claimed, they were desperate to win the “cola wars” against Pepsi. Prior to their launching New Coke, Coca-Cola had been losing market share to Pepsi for 15 years. The company claims to have performed more than 200,000 taste tests before launching New Coke. Their mistake was the tests actually conducted did not represent how consumers actually drank soda. The tests were conducted with small doses, not in larger quantities such as 2-liter bottles were the extra sweetness was overwhelming. In a rush to launch New Code into the market, Coca-Cola failed to measure customer satisfaction in real-life settings.

Strategies to Overcome False Starts

As sited above with the New Coke example, it is important to complete comprehensive market research and customer validations before launching new products or services. This should include agile and iterative approaches to product development and testing. With staff and vendors, it is important to build a resilient organizational culture that embraces learning from small failures. Quickly adapting to lessons learned, can alleviate significant losses of funds.

Contingency plans, risk management frameworks and establishing quality control measures early in a startup business plan can help prevent a total loss and false start.

The  Role of Leaders

Typical startups require adaptable leaders and those visionary that can manage in turbulent times. They should encourage a culture of innovation and experimentation while mitigating as much financial risk as possible. This requires a leader with effective communication skills, ability to create strategies and change plans quickly. This is especially important to turnaround a false start with the skills to build a recovery phase.

Learning from False Starts

There are many lessons learned from experiencing a false start. This includes developing a more growth mindset and building learning-oriented cultures within the company. Many leaders experience false starts by trying to please everyone in the firm. These actions are not always in alignment with the long-term goals of an organization.

Once a leader learns from a false start they are more prepared to recognize early warning signs of potential conflicts and challenges to prevent future failures.  These business owners also learn to embrace failure as an integral part of their entrepreneurial journey.

Case Study of a Successful Recovery

One example of a successful business that turned around after a false start is the popular photo-sharing platform called Instagram. In its early stages, Instagram was initially launched as a location -based social network called Burbn in 2010.[iii] The older version of the app allowed users to check-in at various locations, post photos and share their activities with friends.

However, they failed to gain significant traction in the market. Realizing the limitations of Burbn and the growing popularity of photo-sharing features within the app, the founders decided to pivot their business strategy. They focused on improving the photo-sharing capabilities and simplicity of the platform. This ultimately led to rebranding under the name Instagram. With its sleek new features and new name, its followers led to rapid growth.

Its turning point came in 2012 when It was acquired by Facebook for $1 Billion. Since them, Instagram evolved into a global social media giant boasting over a billion active users worldwide.

Conclusion

Instagram is a perfect example of how businesses should view false starts as opportunities for growth and improvement. If leaders are willing to change and learn from their mistakes, they have unlimited opportunities for growth. Resiliency and adaptability are key skills every business owner must have to survive and turnaround from the difficulties and challenges experienced from a false start. Businesses should view false starts as opportunities for massive growth and improvement.

        Written by Darlene M. Ziebell 

[i] https://www.luisazhou.com/blog/startup-failure-statistics/#:~:text=16.,survive%20more%20than%20ten%20years&text=The%20SBA%20reports%20that%2070,fail%20before%20their%2010th%20birthday.

[ii] https://www.vox.com/2015/4/23/8472539/new-coke-cola-wars

[iii] https://www.theatlantic.com/technology/archive/2014/07/instagram-used-to-be-called-brbn/373815/