TAS 806 9 Reasons Small “Online Businesses” FAIL (#2 Is HUGE)

Did you know that one of the best ways to avoid mistakes is to learn from the mistakes and failures of others? Don’t fall into the same avoidable traps that other small businesses have faced over the years! On this episode of The Amazing Seller, you’ll hear from Scott as he goes through nine reasons small online businesses fail. In his signature style, Scott also shares some helpful examples that sellers like you can relate to – have pen and paper ready, you don’t want to miss a minute of this informative episode 

Freedom!

Do you remember that scene from Braveheart with Mel Gibson? With his face painted in war color blue, the hero shouts the one-word rally cry, “Freedom!” While their battle was against a terrible and oppressive government – many feel that way about the traditional workplace today! 

For many small business owners, that scene resonates because freedom is the main reason many go into business for themselves. How do you make sure your newly found freedom doesn’t become some money pit that you never recover from? Tune into this episode of The Amazing Seller as Scott shares his expert insights that will put you on the path to success. 

9 Reasons Small Online Businesses Fail 

Have you heard that saying, “Those who don’t study history are doomed to repeat it?” Don’t fall for obvious mistakes that you can easily avoid by learning from others! If you’ve been around the TAS community for very long, you know that Scott is a naturally curious guy. Following his curiosity, Scott found some helpful information from Small Biz Trends featuring nine reasons small online businesses fail. Avoid these mistakes! 

  1. Failing to know your market. 
  2. Running out of cash to run the business. 
  3. Don’t hire someone just because – hire the right people! 
  4. Let the competition grow unchallenged and unnoticed. 
  5. Pricing and cost issues. Know your price point and margins. 
  6. Create a product that is not user friendly. 
  7. Create a product without a business model. 
  8. Practice poor marketing. 
  9. Low-quality customer service. 

Is your business in danger of committing any of these deadly business mistakes? Which ones do you need to look out for? Tune into this episode of The Amazing Seller to hear Scott expand on this list and so much more! 

OUTLINE OF THIS EPISODE OF THE AMAZING SELLER

  • [0:03] Scott’s introduction to this episode of the podcast!
  • [2:30] Creating freedom and working for yourself. 
  • [4:40] Scott shares a story about a couple who built a business and sold it. 
  • [10:00] 9 Reasons small online businesses fail. 
  • [16:15] Keep an eye on your competition! 
  • [19:30] Don’t create a product dependent business! 
  • [23:00] Scott recaps all 9 reasons small online businesses fail. 
  • [25:30] Closing thoughts. 

Speaker 1: 00:00 Some would say that starting a business today in 2020 is actually a lot easier than it ever was. And you know what, I would probably agree there's a lot of great resources out there, there's a lot of opportunity to be able to start a business really online. But there are a lot of things that can go wrong. And what I want to do here in this episode is I want to go over nine causes that really have made small businesses either struggle or that just have totally made them go out of business. So if you're interested in learning about these causes so you can prevent them, well stick around cause that's what we're going to cover in this episode.

Speaker 2: 00:45 Hey what's up everyone? Welcome back to another episode of the amazing seller podcast. This is episode number eight Oh six and like I said, we're going to be covering these nine causes of failed small businesses and we're going to go through each and every one of those. And let me just say this upfront, these are preventable by the way. A lot of times

Speaker 1: 01:07 you just need to understand what they are. And then create the business that is going to have the most chances of succeeding. And that's what I want to go through here on this episode. Now, you know, I talk all about building a brand, not just selling a one off product. Well, as I go through these, you're going to see how these aren't really hard, but you do need to understand what they are. So this way here, you can build that into your business and really start the business off on the right foot or recalibrate the business. Uh, so this way here you have the best chance of succeeding. Now if you're interested in going through my brand creator's playbook in this book, I go through the six parts of building a successful business. And this also goes for validating your market and you're going to hear in one of these, that's one of the big, big reasons where businesses fail.

Speaker 1: 02:04 All right, so if you're interested in that, head on over to brand creators, book.com. Again, that's brand creators, book.com there's my little shameless plug, but let me just tell you, if you have no idea about building out a brand or you think you do, but you want to validate it, you definitely need to grab that resource. All right, so what I'm going to do here is I'm going to give you a couple of examples here, but the first one I want to just kind of go into is, you know, when we start a business, we are starting it for the most part because we want to create freedom or we want to, you know, escape the rat race or the nine to five or the job, right? Any of that stuff. We are trying to escape that. We want freedom, we want the flexibility. When I first started my business, we're going back almost 20 years ago, I started a brick and mortar business with my wife and photography and it was great and it was awesome, but we soon found that running a business isn't easy, right?

Speaker 1: 03:02 There's a lot of moving parts. You got to market it, you've got to have a great product. You've got a good customer service, all of that stuff. But a, when you start going through that process, you start to learn as well, right? And that's what I want you to understand is as you're going through this, you're learning. But the cool thing is is because we have this, this internet thing where we get to listen to podcasts or we get to watch YouTube videos, we have a lot of information and resources, but the problem with that also is sometimes that that information gets confusing or you get misled and uh, we don't want to do that here. So that's why I wanted to kind of cover this, but there's one example here I'm going to share with you. And a lot of people when they start a business, they're immediately thinking about, okay, I'm going to start this business and I'm going to start making money right out of the gate.

Speaker 1: 03:48 And that's generally not how it works, all right? Any business will tell you, and it doesn't matter, brick and mortar online doesn't matter that you are probably not going to be making any profit for a while, all right? But you might be hearing people say, well, you can just launch a product on Amazon and once you start selling that product, you're going to be able to start making money. You will be able to start generating money and revenue. Okay. But really, are you going to be able to profit a lot of things, going to a product launch, sourcing the product, all of that stuff, keeping inventory up. When you're doing a physical product business, it actually becomes a little bit harder. But there's one story I want to share with you, a, which I think is exactly the picture I want to paint for you because this is, this is looking at it from another, uh, another perspective or a, uh, another angle.

Speaker 1: 04:41 All right. So there was a husband and wife and they were both working in corporate at the time. Okay. And the wife had a little bit of a better job maybe. And the husband really didn't like his job at all. So he volunteered once. They had kids that he would be to stay at home dad. Okay. And so now he's going to stay home, but he still wants to be able to, you know, he still wants to be able to contribute and he wants to be able to, you know, bring in some money. But so what they did is they lived off of her income and they started a business online selling products. Okay. And then that's on Amazon and on their own shopping or in their own store on their own using their own shopping cart. Um, you know, different ways that they were monetizing.

Speaker 1: 05:26 But they built this thing up okay. Over two and a half years. But the goal in the very beginning was we're not going to pull any money out of this business at all. We're just going to keep rolling it in to grow it, to keep feeding it. And that's one of the big problems I see where a lot of businesses, they will start pulling money too soon and then they wonder where, uh, you know, the money's going or how they can fund more products. All right. So what he ended up doing and what they ended up doing was just committing to that. And not worrying about profit until the time was right. And they in their mind, they thought, if I can build this thing up, I could probably sell it in two to three years. Okay. So the whole goal is to build it up, to sell it.

Speaker 1: 06:13 Okay. And then anyone that sells, uh, you know, businesses or properties for that matter always tells you you're always going to get more or profit more when you sell, okay. Because either your money's tied up in the deal, like if you're doing real real estate, like, like a brick and mortar, uh, or if you're building a business and you're growing it, especially if you have physical products, you are going to cash out at the end. And so that's what they did. And if my memory serves me right, it was somewhere around a 1.5 to $2 million was the sale price after they also, their inventory was purchased back. All right? So let's just call it $2 million. So I don't know about you. Okay? And I'm not saying that you're going to build a business and sell it for $2 million, right? I'm not saying that at all because everything would have to be in alignment there and everything would have to go pretty smooth.

Speaker 1: 07:08 But the point I'm trying to make here is they didn't go in this thing saying that they were going to start making money out of the gate. They're going to take all the money and roll it back in to the business. Okay. And then they cashed out. I'll think about this. You've probably been raised like I was to invest your money for your retirement, right? And if you invest into a Roth IRA or a traditional IRA and you do it for 25 30 years, there's a good chance that you will have some money to retire with a maybe a million dollars, maybe $3 million, whatever your financial advisor set you up with and had you thinking you're going to need to be able to live at least 20 to 30 years after you retire. Like we all follow that road. Right? And so imagine that though. Let's say that you invested $20,000 into a business, and the only thing that you were doing it for was to cash it out in two to three years.

Speaker 1: 08:02 Okay? And then make $2 million. Now the word there make that is profit. That is what they made on the business. Now if they had loans outstanding, they'd have to pay those off. But for most of these businesses, the, the loans are not that high because they're feeding the inventory with the profit. Now if you start taking out loans, yes, you'll have to pay the loan back and then all that stuff. But we're assuming that that's not the case, right? So you put in $20,000 into a business and you just keep feeding it with the money that's coming in from the business. You keep adding gas to the fire, right? Well then at the end you're going to be able to sell the business for anywhere from two and a half to four and a half, sometimes five X a as far as your, uh, your earnings, your profit, uh, your net income.

Speaker 1: 08:53 All right? And so in this case, you know, he didn't have to wait 30 years to put into an IRA, right? He cashed it out and now they got 2.5 or 2 million, whatever it was. I think it was like 2 million. Um, and, and this is commonplace though, in that world of people that build businesses with the intent to sell. They understand it. Now, you can take this a level, a level below this, and maybe what you do is you build these little Mitch sites, right? And there's a market right now that is being underserved. And, uh, my good friend Spencer, uh, Hawes over at niche pursuits, he's actually got a company now that does this. And they, they have sites that they buy, uh, for between, like I'd say, 5,000 to a hundred thousand dollars, and they're being sold for that price. Okay? And the reason is, is because there's a lot of people that are buying businesses that are bigger.

Speaker 1: 09:44 And the reason why I'm telling you all this guys is because if you look at the longterm, the long game, right, it's going to be easier and you're not going to be disappointed. Okay. So again, that's why I'm sharing this with you, but I want to share with you these, these uh, you know, these causes for businesses failing. And one of them is if I was to summarize everything, it's because they don't have a good picture of the overall plan, right? And they don't stick to that. And that's what I'm going to share with you. Okay. So, uh, this actually came from small biz trends.com. Okay. Small biz trends.com. There are a very, very well known website that publishes a lot of small business news and stuff. And I found this article, I'm going to read you some parts to it or kind of give you my, my highlights from it.

Speaker 1: 10:36 But this really made me look at all of the, the, the different things that I've been thinking and really put it into some facts into some numbers because they did the research. I'll link everything up in the show notes as well. This episode is eight Oh six. So the episode show notes will be@theamazingseller.com forward slash eight Oh six. You can check them out there. Um, but, uh, it's pretty interesting and I looked at their numbers, they're getting like, gosh, like 1.5 million organic searches to their website. So they're a pretty, a pretty big deal. Um, so, um, we wanna we wanna pay attention to that. So let's get to it. All right, so I'm pulling up that article right now. And the thing that I really wanted to talk about first was, and this is actually, you know, this is actually kind of encouraging in a sense that if you are starting a small business, uh, well first off, 69% of us entrepreneurs start their businesses at home.

Speaker 1: 11:32 Okay. So that's happening more and more, so that's awesome. That's actually good news. Um, so let me just get to the, uh, the startup failure rates statistics. Okay. So of small businesses, and this was done over a, let's see here, a four year period. This here, this part of it was from 2014 2018 so they obviously had to run a case study. Um, but from all of the businesses that started in 2014, um, 80% made it to second year, 2015 and then 70% made it to third year. 2016 62% made it to the fourth year, 2017 and 56% made it to the fifth year. So 56% made it to the fifth year. That leaves us with 44% that did not. Okay. So they started and they didn't make it. They failed. Okay. And that happens. It happens a lot. All right. But you know, on, on the upside, 56% made it.

Speaker 1: 12:33 Now we don't know if they're profitable. They made it right. They're paying the bills. Okay. And how many times have you ever watched a show like shark tank and someone comes in and they go, yeah, we've been growing this business for five years and we're making, you know, our top line revenue is like 4 million, 5 million, whatever. And they're all like, great. And they're like, what are you netting? What are you paying yourself? Oh we're not, we're actually in the negative. And they're like, well what are you paying yourself for a salary like 60 grand? So they're making 60 grand over five years to build that business. Is it really worth it at that point? Okay, so that's what you got to actually ask yourself. So here we go. I'm going to go ahead through these nine causes of small business failures. All right? The number one, cause the number one cause is no market need.

Speaker 1: 13:19 The services or the business stuff that they're offering or whatever the products, the services, the content, there's no market out there. They're thinking it's a great idea. They've done no validation. And then that is why it failed. Okay? So you hear me talk a lot about how to validate your market. That's why it's so important. So whether you're starting a and e-commerce, a brand that is going to start on Amazon and you're going to build off of Amazon, or if you're currently doing that, you always, always want to make sure that you validate the market and that there is demand for the market. Okay, I look at all different areas in this. I look at the traffic potential, number one, cause if I can get traffic and eyeballs, then I can figure out next what would they want to buy or what can they buy or should they buy, right?

Speaker 1: 14:10 Or that they're searching for. So that's what we do inside a brand creators Academy, which is also we follow the playbook, which again can be found at brand creators, book.com so definitely go check that out. All right, so number two, running out of cash. Okay, 29% run out of cash. Okay. So if you are familiar with running a either a brick and mortar with inventory or inventory because you have an Amazon so-called business or an eCommerce business, you know that it takes money to keep that inventory up, right? Every time you're getting ready for a fourth quarter, it's stressful because you're just like, I don't know if I'm ordering enough of this inventory, I want to make sure I have enough. And then you order a whole bunch and you hope you sell it, right? So you're sitting on a lot of inventory. My good, my good friend Mike Jackness, uh, he was sitting on $1 million in inventory.

Speaker 1: 15:06 No wonder why the guy couldn't sleep at night, right? Like that's what we're talking about. So a lot of times people run out of cash, it's not managed well or it's inventory, whatever it is, running out of cash. So that's a big one. So if you're thinking about starting with physical products, understand it's going to take cash, all right? And if you're not going to be patient and roll that cash back in, where are you going to get the cash to roll out product? Two, three, and four and five, right? It's going to take some cash, okay. And then you might have to get alone. And then if you get alone and you're stressed that you got to pay back the loan. And hopefully that you don't have, you know, this competition coming in and knocking your, uh, you know, your sales down and all of that stuff right now, number three, I thought this was interesting.

Speaker 1: 15:48 Not the right team. So if they have a partner, if they have someone that's helping them or people that are helping them, not the right team. So it's really smart to that. When you start to grow, you grow slow and you hire the right people. That is a big one too, by the way. All right, let's see. Number four, this is got out competed. All right. Now I don't care if this is up the road and you own a, you know, a, a, a company that is a a, maybe it's a local brewery or something like that and you get someone else down here that's going to have their own local brewery. You're going to have competition, but on Amazon or you know, anywhere eBay, any of the big Etsy, it doesn't matter any of those bigger channels, you're always going to have competition. But right now, we all know Amazon is, I mean, they're coming in, you know, in droves, right?

Speaker 1: 16:39 Like we, I think last year I heard a statistic, there was 250,000 Chinese sellers, just Chinese sellers coming in, which they're closer to the source. So obviously it's gonna be easier for them to launch products. Um, that's your competition. So again, we've got to think about that. And that's why when we're building a brand, we're thinking about diversifying, not just on that one channel, not with just one product. And we're able to really find more, uh, you know, assets to deploy for traffic and all of these different things. Okay. But that's a big one. That's number four. Um, getting, um, basically beat by the competition. Okay. And that was 19%. And then the next one was, and this is number five, pricing and cost issues. So even though you might see top line, Oh, that person says they're doing $1 million, that person says they're doing $5 million, but you don't realize is their profit margins are like 10%.

Speaker 1: 17:27 How do you support a business or even an income on 10% that's a hundred grand for $1 million. Right? Like there's other ways you can make $1 million without having the headaches of $1 million business that is so cost intensive or you know, dependent on, uh, you know, having a lot of cashflow coming through. Now, if you have a blog that is getting traffic, and I'll give you an example, we have a brand right now that we've been building for about three years and we're getting a lot of traffic and we have turned on since last year. A network called AdThrive. That network is paying us now between four and $5,000 just from the traffic that is coming to that site. They don't have to click anything. They don't have to buy anything just from visitors being there. Okay. So that doesn't cost us anything. By the way, the only thing that costs us is about 50 bucks a month for hosting.

Speaker 1: 18:19 Cause we have a dedicated server. The web domain is one time per year that we have to, which we bought a five year. Uh, which is about 10 bucks a year. Right? And then, uh, we have what else to keep the site running. We have our theme that we might have to have updated whatever, right? Like not a lot. And so if that's all we did, four to $5,000 coming in on a regular basis, nothing to do with inventory, right? So that's again, how we can grow and scale, uh, and also diversify our business. All right. So anyway, that's a pricing and cost issues. Um, the next one here was very interesting. That's number six, user unfriendly product. Okay. So basically they get the product and they're like, ah, this doesn't work that great. Right? So again, like negative reviews or feedback or just people telling people, you know, it's not good, right?

Speaker 1: 19:10 So then it's a product issue and if your, if you're, you know, business is, is based off of a hero product, well that is a big problem because then all of your revenue is going to be affected. And this could be, you have a great product and then you have a flaw with it that doesn't get caught in inspection. And then all of a sudden, you know, what are you going to do now? Right? You got to pull all that inventory, whatever. Um, so that when there was interesting, the next one, number seven product without a business model, I can't make this stuff up guys. This is in this report that was done right? A product without a business model. 17% was the reason why businesses failed. That means you said, I'm going to go on and see what product is selling great on Amazon and I'm going to launch my own product.

Speaker 1: 19:55 And then from there I'm just going to do paper click and just get a whole bunch of sales coming through Amazon. That's my business. Okay, that's risky. Okay. That is very risky. There's no business built around that. It's a product. So you gotta ask yourself, is your business rate now product dependent, is it dependent on that one product? What happens if that product goes away? What have you done to diversify? Okay, so that's a big one. Okay. And again, this is everything. It's so funny. Cause when I was going through this, I w I, I didn't do it intentionally to look at this and go, Oh everything kind of applies to my brand building model right in the playbook. But it does a, again, a little shameless plug here, brand creators, book.com grab a copy. All right, so that is number seven, a product without a business model.

Speaker 1: 20:40 Okay, this one here, and I'm, I'm surprised this was this far down the list. Number eight, poor marketing marketing is huge. Guys, I can have the best product in the world, but if I suck at marketing my product or my business, well good is it right? I could have the best brewery in town, but if I don't know how to get the word out, no one's going to know about it. Marketing to me is so, so important. And when you learn marketing, okay, what's your learning here on this podcast? And you know, on this show is really about how do you get traffic? How do you get eyeballs? How do you turn that traffic into money, into sales? How do you convert it? Right? So it's one thing to get the traffic, but then how do you convert it into a sale? Right? And that's where a lot of people drop the ball.

Speaker 1: 21:30 Okay. So that's a big one and I'm surprised it's that far down in the list, but it is, but it's still a big one. Okay. Poor marketing. It was 14%. Um, and then um, nine is ignore customers. Basically just customer service. Like seriously, if you have a business, the best thing that you can do is have the best customer service because that is where you can shine. Okay. I mean I'll give you an example. I was recently looking to get some work done on the house and I called like five people. One person called me back, like that's huge in itself. Then once I had that done, I had a little bit of an issue was actually a fence I had installed. I had a little bit of an issue with a pole, call them up, boom, back, like answered the phone like second ring.

Speaker 1: 22:13 That right there. I'm going to be telling people about that, that business now. Right? It's the same thing goes, doesn't matter if you're online, you're going to tell people about it, okay? Because you had a great experience. Don't under utilize that. So many people, they look at the one sale or the one person that came in and they're gone, right? I want to bring that person back. I want that person to tell people about it, right? If you're building a website and the idea is to have people come there and get good information and tell people like, Oh, you've got to go to the bass fanatics blog, they're awesome over there. There's so many great pieces of content. I've caught more fish now because I'm part of that community, whatever. Like if you do that, that's going to spread the word right? And then on on social media it becomes even easier to share because they make it easy, right?

Speaker 1: 22:57 You have share buttons and you have pins here and you have all these different things, right? Don't underestimate the power in customer service. It is huge. All right, so let me just give you a little recap here. Number one, okay, no market, okay? You think you've got a market, you don't do your research, you find out there's no market. Okay? Number two, running out of cash. Now here, this is a big one. If you're running a physical product business, be prepared to fund it. And the way that you fund it is by any money you make on product one that funds product two and then three, right? And you can see you've got to think about that. So that's a big one. Um, okay, three, uh, not the right team. So make sure that you hire the right people and do not hire people just to hire people either.

Speaker 1: 23:45 By the way, uh, you want these people to actually, uh, be a resource for your business and a, uh, a way to help you grow your business. Um, do it slow, but, uh, do it smart. Okay. Um, so that's the right team. Um, getting, uh, out competed. So basically the competition. So again, if you have not done the brand building stuff, you don't have your own email list, you don't have your own traffic source, you need to start working on that cause the competition is coming. I promise you that. All right. And then pricing and cost issues. So again, here we want to make sure that we have good pricing. We've done the math, that we know that our price point is here, but even if we had to drop it a little bit, we're still going to be okay. Don't figure, uh, that you're always going to be able to get that price.

Speaker 1: 24:28 Um, and if you are gonna get that price, you better have a really, really solid brand. Okay. And then a user, a unfriendly product. So basically a bad product or a product that has a flaw, fix it and make sure that you're always paying attention to that. A product without a business model. That's a big one. Ask yourself, does this product serve a market? Does this product, uh, actually not just stand on its own, but does it allow me to build a brand and a business around it? Um, so that's a big one. And then a poor marketing. So make sure that your marketing is there. Make sure that you're learning about marketing, not too much, just what it will take to get attention in your market. And then how to convert that into sales. Like that's a big one. And then the last one is customer service.

Speaker 1: 25:12 You gotta make sure that your customer service is on point. It's so easy, but so many people don't do it because they don't look at it as that is a way for me to get great, you know, great reviews, great testimonials and just people that are going to talk about my business and come back for more. All right, so that's pretty much what I wanted to share here with you. Uh, this is really, really important because you can just take what I just shared with you and make sure that you're aware of it. So when you do either start your business or take your business to the next level, you consider each and every one of these. You might even want to bookmark this or come back to this or write this stuff down or go to the show notes and, and go to the transcripts and print that out. There's a PDF option there because this stuff is super, super important. And to get the show notes, this is episode eight Oh six so you can head over to the amazing seller.com forward slash eight Oh six and if you want the brand creators playbook, head on over to brand creators,

Speaker 2: 26:09 [inaudible] dot com all right guys, so that's it. That's going to wrap it up. As always, remember I'm here for you, I believe in you and I am rooting for you, but you have to, you have to come on, say it with me. Say it loud, say it proud. Take action. Have an awesome, amazing day and I'll see you right back here. Next episode. Now go get. Hey, before you go, I've got one quick favor for ya and I would love to hear from you and I've also got something that I would love to give one of my listeners and I'm going to tell you how you can get it. So here is the deal. I want to hear from you. So what I would love for you to do is head over to iTunes and leave a review over there. Let me know how this podcast has helped you in one way, shape, or form.

Speaker 2: 26:58 I read every single one of them and they really do energize me and give me the fuel to get back on here and want to just keep creating and keep helping. So I really would love you to do that. Now anyone that leaves a review from today, moving forward, what I'm going to do for anyone that leaves a review and you take a screenshot of that and you send it to me@scottattheamazingseller.com you send me that. What I'm going to do is I'm going to enter everyone once a month into a little contest, and in that contest I'm going to pull one winner and I'm going to send them eight gift, a special personalized gift just for you. So all you have to do, head over to iTunes, leave me a review, and then take a screenshot of that. Send it to me, email it to me@scottattheamazingseller.com and that way there you can be entered to win. Oh, and one last thing. If you haven't subscribed yet to the channel, what the heck are you waiting for? Go ahead and subscribe. That way you never miss one of the upcoming episodes. All right guys, so thanks once again, I'll see you in the next show.

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