A failing business is a tough school. It is not worth attending, but it definitely teaches you a thing or two about entrepreneurship. The culture we live in only praises successful entrepreneurs. This is a great motivator that pushes us to always go forward, but it also makes many failing business owners quickly forget their failure and move on.
Moving on is a good thing in a way, but it also shouldn’t exclude analyzing your business’ failure and drawing conclusions that will save you from making the same mistakes in the future. If your business fails, you should try to determine the main reasons for this to happen and improve your entrepreneurship knowledge with some high performance coaching or lectures in the field that have caused the failure. In this article, we’ve put two and two together and tried to sum up several important mistakes made by the businesses we have all heard of.
This is the end, my only friend, the end
I’m writing this with a heavy heart, but one of the biggest business failures we know of is tied to a social network we all praised and loved in our teenage years. I’m talking about MySpace, the “old Facebook” with a much catchier name that switched from being the number one social network to a network mainly used by demo bands and their most loyal fans.
A few years before the MySpace plunder started, its owner News Corp decided to invest more than $580 million into development. We understand why they did it, it was the beginning of the time when social networks became our main communication channel, but it was also a time when Facebook already reaffirmed its position as the top dog in the social network niche. This News Corp venture ended quickly with the sale of this social network to Specific Media Group and Justin Timberlake for only $35 million.
Realizing that the end is coming is one of the most painful moments for any entrepreneur, but that is also a very critical time, when you need to pull out your resources, realize all of your mistakes and commit to a new, more profitable entrepreneurship project.
Diversification is not always good
Experts tell us that diversification is the king. This process is very important, but only to some extent. Diversification that was wrongly done can easily drive your business to failure. One of the best examples for bad diversification is Kmart. In 2000s when Kmart entered the market, America had Wall-Mart that mainly focused on providing good quality clothes for moderate prices and Target, which on the other hand focused on a wealthier and more fashion-conscious clientele. Kmart fit in perfectly in this scheme, as America’s first discount chain. But then they started experimenting with pricier designer items in order to win over wealthier consumers.
They ended up somewhere in between Wal-Mart and Target, and created consumer confusion that made them lose a huge part of their market share. That’s why diversification needs to be carefully planned and entrepreneurs should know that they can’t cover the whole market with goods and services they are offering.
Don’t chase the quick buck
One of the main reason many businesses fail is the desire of their owners and creditors to get rich quick. One of those businesses is LA Gear that has seen huge growth, and when they tried to make an even bigger expansion and sell their kicks as Wal-Mart’s low end product, they diminished the brand and went into obscurity. This is just one of the examples how fast growth, without any control, can be hazardous for a business.
Don’t change something that sells well
OK, Coca Cola is definitely not a failing business, but its New Coke project is definitely one of its worst episodes in more than a century of soft drink sales. In the eighties Coca Cola executives changed the original sacred formula in order to appeal to the younger crowd, which at the time mainly drank Pepsi.
In order to make their drink sweeter and more competitive to Pepsi, they introduced a completely new formula and called it The New Coke. The hype lasted only three months after which Coca Cola brought its classic flavor back. This episode made them lose lots of funds and raised huge distrust among Coca Cola fans who liked the old flavor.
Businesses shouldn’t make drastic changes on brands that sell well, and that have strong brand identities recognized by a majority of consumers. Another great conclusion of this story is that even the biggest businesses, like Coca Cola, make mistakes.
Whatever happens in business stays in business. You shouldn’t be ashamed of your entrepreneurship decisions, instead you should analyze them and draw useful conclusions and patterns that will help you to ace your next entrepreneurship project. Because, as you can see from this article, even the biggest companies make mistakes.
About the Author
Norah has been timidly exploring the world of marketing for years, finally taking the plunge and becoming a small business owner herself. She is now devoted more than ever to the exploration of the latest trends, and has become quite addicted – she spends way too much time reading up on the latest social media crazes. She blogs at Bizzmark Blog.