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Why entrepreneurs fail

At the recent World Business Forum in Sydney, Yahoo7 Finance sat down with leading strategy expert Rita McGrath to discuss why entrepreneurs fail.

McGrath, a strategic management scholar and professor of management at the Columbia Business School, said the most obvious reason entrepreneurs fail is because they do not have a compelling offer for the customer.

“While that’s probably the dominant one, they can fail for all kinds of reasons,” McGrath told Yahoo7 Finance.

“They run out of cash, they just haven’t really thought through how much [cash] they want to burn.

“The team implodes. They lose a key member of the team and then that causes their value proposition to be undermined. They can lose interest.”

Also read: Branson in Australia: ‘Delegate… and party a lot!’

McGrath says to avoid such a fate, entrepreneurs need to fully understand the job that customers are trying to get done.

“An awful lot of failed entrepreneurial inventions are solving a problem nobody has and they don’t test it beforehand.

“They will sit there looking at their customer and saying ‘would you buy this? You’d buy this wouldn’t you? Isn’t it great?’

“It’s very hard to look at somebody and say ‘no, I really wouldn’t’, so you really have to be very observant.

“You have to really watch what customers actually do, not what they say.”

Also read: Why this founder doesn't like describing himself as an 'entrepreneur'

McGrath said budding entrepreneurs need to be sequencing their sets of activities as they build the business.

“Don’t leap whole scale into hiring staff and getting office space before you really test out your value proposition. Be very parsimonious about resources.

“Then build a team of people around you who you can look to for advice, who can guide you at critical moments, and push you a little bit when you’re going off the rails,” McGrath added.