A study of why small businesses fail is quite helpful for the entrepreneur to understand before he/she starts a business but it can also help an existing small business understand why their business is not as successful as he/she hoped for. A full investigation of why startups fail is reported in the CB Insights article “156 Startup Failure Post-Mortems”. One of the major reasons found was the owners did not understand the complexity of the business before they launched. When the real complexity of the business is not understood, the owners will experience all kinds of problems. Among the problems are missed deadlines, inefficient systems, financials issues and customer acquisition and retention.
Roger Sessions, author of “Simple Architectures for Complex Enterprises”, estimated that Information Technology company failures cost about $1 trillion dollars in loses for the U.S. economy. His report analyzed IT enterprises and their software projects only, but not being aware of the complexity of the business occurs in various types of startup enterprises across the board.
This situation can be avoided by basically doing your homework before you put too much effort and money into your business. Of course, there are many things that you can include in your pre- business homework, but I’ll highlight two here that will help you begin to understand the level of complexity you will be working with.
Prepare Benchmarking Targets – A benchmark is a reference for checking your business operations against your industries best practices or standards. You will be doing this before you design your systems or if you are already in business, you can use what you learn to make the necessary adjustments that can fortify your enterprise. In other words, check to see how the most successful enterprises in your field operate. This may be time consuming because all of your research may not be available on the internet; you will need to actually visit similar businesses to understand how they operate. This kind of study can help in so many ways. It might help you determine whether or not you really want to go forward with you venture; but it could also help you realize the uniqueness of your business idea and how your brand will be different form the others. Most of all, this study will help you realize the level of complexity that you will be dealing with.
Conduct Pilot Studies – Conducting studies to determine what your customers need and how you will deliver your product/service can serve various purposes. First, it will help you to see whether or not your product/service is something that customers want and will pay for. This is what is called “product market fit”. It’s determining if your offering is valuable to the customers or does it solve a problem for them. As entrepreneurs, we see the value of our business idea but sometimes the value of a new offering is not evident to potential customers. Second, the studies will let you know what procedures are needed to get your product/service to the customer quickly. It will also allow you to simplify and enhance the experience of your customers as you serve them. Customers want a system that is easy to use and hassle free when dealing with your company. The complexity of both of these processes will be revealed when you conduct tests or pilots.
Developing and simplifying your business systems will be one of your most important tasks. Learning about the inherent complexities of your industry systems will help you determine your readiness to work with and simplify the necessary systems for your successful business. Simplification could be your most important contribution to the industry!
“The first problem (for entrepreneurs) is not fully understanding what they are letting themselves in for. It’s important that you go into any new venture with your eyes wide open. In all honesty you cannot do enough research and homework before you start. The more unfamiliar the territory is to you, the higher the implementation risk.” David Mellor