I have been CEO of a technology company, advised major Silicon Valley technology companies, been a large buyer of technology products and services for the governments and I now run the ScaleUP USA Business and Career Growth Accelerator. Throughout my career, I have seen lots and lots of entrepreneurs build mostly failing businesses and occasionally very successful businesses. 

 

The question is why do so many entrepreneurs fail while few succeed? 

 

I’m going to try and synthesize my thoughts here and provide a pathway of how you can fix your route to success for entrepreneurship in the US. I’m also going to link some of the resources that we offered to entrepreneurs in the US for growing the startup or the small businesses. Be sure to check them out. 

 

Why do Entrepreneurs fail?

 

1. Terrible Business Idea:

 

Most entrepreneurs start with what they think is a terrific idea which later in hindsight turns out to be a terrible business idea for various reasons which I won’t get into now. Suffice to say, the business idea being terrific or terrible is not something that you can decide as an entrepreneur, but which will be decided by the customers and investors. So, before you think of spending a ton of time trying to execute this “terrific” idea of yours, take the time to discuss it with lots and lots of potential customers and investors and get their frank feedback before you get going. You will save yourself a lot of time, effort, and money. If I were you, I would advise you to only start working on ideas which someone is willing to fund you to execute into production. Now you know, there is some real “dollar” value behind this idea. 

 

 

When you are an entrepreneur getting a start-up or a small business off the ground, it is like swimming in an ocean with all sharks swimming around you. If you want to be successful you want to understand the basics of building a successful business including how to write a great business plan, do an immaculate project and product management, learn how to price a product or service, understand the fundamentals of finance and accounting, learn Microsoft Excel, learn to write winning proposals to secure funding and finally how to do strong customer support. Let’s face it you are a one-man show and if you don’t have the basic skills to get the program running, you are done! So, if I were you, I would start preparing, by first saving funds in your prior job as you will have none coming when you start your company. This will give you a more lasting power and a longer runway. You should also learn the basic skills of growing a small business. How do you do this? By talking to other small businesses in your business area and seeking their mentorship and help. They have years of (good and bad) experience in this field, you can learn from this experience, you don’t need to get your own (bad) experience. 

 

3. Abysmal Team: 

 

Everyone talks about creating a quality team for your start-up or small business. The big problem is it’s difficult to figure out who are the best team partners to join your team unless you have known them earlier and worked with them extensively. Of course, if they are such terrific teaming partners, the next step is to help them get recruited into your company, which is very difficult if they are really good players as they have lots of other opportunities. Finally, the big issue with finding successful players to join your team is that they will ask for a large amount of equity and a handsome salary, both of which you may not be able to give at the very beginning. If I were you, I would start working with a close family member, friend, or colleague whom you can depend on and has skill sets, moral integrity, and experience you’ve come to value to get your company started. Typically, in my experience, a team which has three founding partners, one with the technical expertise to build the product or service, one with operational expertise to run the company effectively, and finally one with the marketing and sales expertise, who can bring in the business works out to be ideal for business growth. 

 

4. Inferior Product:

 

Most entrepreneurs start with the idea of creating a product versus a service. Products are difficult to create, costly to fund, and ultimately complex to maintain and support. Services on the other hand can be started with almost nothing, do not take much time to create, and can be adapted as the customer needs changes. However, the big value is the products are typically much more profitable than services and typically product companies are much sexier and deliver a higher valuation than a services company. But make no mistake -- services companies can be very profitable and can lead to very valuable products. If I were you, I would start in a services area where you think you’re going to build a product. Let’s say you have this unique idea of building a cloud-based construction project management system, I suggest starting with a consulting service for construction companies to help manage their projects/systems. Do that for one or two years, understand the nitty-gritty of what your product specs will be required to entail, and then when you are ready start building the product. Your product will be better than others because you have worked where the rubber meets the road and then are building out the product based on the experience you’ve gained by doing consulting in a similar area. You will also have a network of construction companies to work with to get your first pilot customers and potential your strategic investors! 

 

 

Startups and businesses will require funding either in form of equity or debt. It is potentially possible to bootstrap the entire company, I’ve seen that happen occasionally but for real fast growth to happen, especially while creating a complex product, external funding is required. So, when you come up with your idea for a product or service, it may not be a bad idea to talk it over with potential investors and bankers and see what their take is on your idea and whether they will be willing to fund you in the form of equity or debt. There is virtually no chance you will get funding initially just on an idea, but their insights will help you understand what features your product or service must have for future funding. Of course, if I were you, I would look for free money from the government. More about this later. 

 

 

Most businesses don’t fail because they have a terrible idea, lack of preparation, abysmal team, inferior product, or unavailability of funding. They fail because of poor market development, business development, and sales. Market development is the creation of a business opportunity. Business development is the finding of the business opportunity. Sales development is the closing of the business opportunity. In my experience, if you create the business opportunity you have a much better angle to close it. Market development is an art and a science. Master it. If you don’t know how to do it get some advisers on board when you have a product or service to launch. You can pay them through a combination of cost-plus revenue share or cost-plus equity. Market development is very costly. Here is the big issue, you either have an innovative product/service or you have a commodity product/service. If you have any innovative product, you’re going to need a lot of money for educating the marketplace. If you have a commodity product, you won’t need the dollar amounts for educating the marketplace, but your profit margins will be bumped down due to competition. In my opinion, it is better to have an innovative product or service and a unique market development capability to educate the marketplace at scale. This is especially important if you are an international company trying to breakthrough in the US marketplace. 

 

How to Fix Entrepreneurs Failures:

 

We have a unique formula for helping US entrepreneurs build a startup or small business with the surprisingly low failure late. This formula is based on the Federal Business Accelerator program we run. Here are some of the steps we encourage entrepreneurs to take:

 

1. Successful entrepreneurship is a marathon and not a sprint. The entrepreneur should be ready for the long haul. As discussed earlier, they should define the business area they want to build their company (whether it’s a product or service) and then set up a part-time consulting practice in that same area to gain experience, expertise, and a network.

 

2. Once the consulting practice is registered, the entrepreneur should look at securing funding through grants and contracts through the various government resources, whether it be local government, state government, or the federal government. Check out the Federal Business Accelerator program on how exactly to go about doing this. 

3. Make sure to focus on securing government funds for doing work in the business area that you are building your consulting practice in. Don’t stray away into other unrelated areas. Once you have the requisite funding, move from a part-time consulting assignment to a full-time government contracting work in your own company.

 

4. Use the government funding to slowly build up your consulting practice in your business area from a small 1–2-person shop to a 50–100-person government contracting company. Along the way find a reliable executive team that will be your core for building a strong business. Get control of proposals, operations, projects, and product management along the way. 

 

 

Economic Development Organizations Role:

 

Economic development organizations have a significant role to play in helping local entrepreneurs and small businesses grow their companies through government funding. Economic development organizations should check out this case study and workshop how federal funding impacted the economy of the Commonwealth of Virginia and aim to replicate similar programs in their regions. 

 

About the Author:

Nitin Pradhan is an educator, technologist, and social entrepreneur based in the Washington DC metro region. He is the former award-winning CIO of the US Department of Transportation and an Obama-Biden Appointee. He leads the ScaleUP USA’s Digital Growth Accelerator including their Federal Business Accelerator, the Federal Career Accelerator, and the Career Trajectory Accelerator. He also advises Career Trajectory Live and All GSA programs. Business and government leaders can connect with him on LinkedIn.