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Why Entrepreneurs Often Fail

businessmanEntrepreneur is an interesting word. It conjures up thoughts of bravery and superior business wisdom. It’s a person who sees in something what most of us fail to see.

Take that idea, develop it and in turn found a business on it. When it works, it’s pure genius, and we’re in awe of their aptitude. However most businesses fail so most Entrepreneurs are less skilled than we give them credit for.

Bravery in launching a new business is really just a higher level of risk taking and with good debt it’s more acceptable. Good debt is a loan that used to create a revenue, i.e. it’s an investment used to generate and grow an income. Here’s a more extensive definition of good debt.

So the Entrepreneur or business will increase its borrowings via a line of credit, or even a home loan to invest in its products or people with the objective of earning more revenue.

The risky part of borrowing is the end goal is speculative i.e. its usually a well thought out plan but it’s not actually happened and numbers have to work out, i.e. the increase in revenue due to the loan, far exceeds the costs of the loan and other additional expenses, like more staff or systems.

Entrepreneurs have an appetite for risk and as mentioned it sometimes works out but mostly it doesn’t so it’s important to understand the pros and cons of business loans.

Once the good debt options run out, then the only way to go is bad debt loans and this is when it can all spiral downwards for businesses. Bad debt loans are essentially non income producing so they’re a liability. The loans can not be leveraged to make money. They can be written off against taxes and there is also bad debt recovery which is another subject altogether.

Startups fail for many of the same reasons including:

  • Lack of working capital – affecting operations
  • Liquidity issues with cash flow – struggling to pay staff, suppliers
  • Business growing too quickly – not enough resources to deliver on orders
  • Ego – too big to fail

Often it’s not just one thing either but a combo of challenges that just become too much to handle alone. The smart operators don’t go it alone though they have mentors.

Entrepreneurs Need Mentors Too

Behind every good Entrepreneur is a mentor. Yes this is not the adage you were expecting but it works.

Mentors keep us in check. They’re our sounding boards, listening to our rants and raves. Offering an objective viewpoint and advice on the direction we should take.

Of course no one person can be trusted to do the lot so more than one mentor is recommended. The experience and trusted authority from mentorship is recognised in just about all great leaders. Think of the big names in business today and they’ll say they have amazing mentors.

Facebook’s Mark Zuckerberg had Steve Jobs, and Bill Gate had Warren Buffett.

Maybe this is where some Entrepreneurs go wrong? They either don’t have mentors or they don’t use them enough.

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