The top reason why new ventures fail is absence of a clear market need for the product. This is according to CB Insights which cited it as the top of the first twenty reasons for venture failure in a 2018 article. In fact, this source indicates that it accounts for about 42% of the failures in the sample they studied.
Tracking small businesses that started out in 2014, www.smallbiztrends.com estimated that 80 percent of the ventures made it to the second year, implying a start-up failure rate of 20%. Seventy percent made it to the third year, implying a second year failure rate of 30%.
From a Marketing perspective, new venture failure can be divided into two main categories: Marketing and Non-Marketing.
This nugget of knowledge offered by CB Insights represents a major Marketing cause of venture failure. Of course, many may not understand or even agree with this. Why? For the simple reason that in their lexicon, marketing is a synonym for advertising. Therefore, the idea of identifying a viable market for a product as a primary, upfront activity, is not Marketing at all.
The insight is not at all surprising, at least not to this author, because there is a conspicuous ignorance about what Marketing is. The situation reminds me of an observation made by Philip Kotler (1984) in the first chapter of his seminal book, Marketing Management: Analysis, Planning and Control. According to him, the Law of Slow Learning and Law of Fast Forgetting are the two main causes of the slow uptake of Marketing as hammered out by the founding fathers of the discipline.
Thirty five years after this observation, the problem seems as pervasive as ever; or has returned to what it was at the time of Kotler’s writing. Perhaps, it is because a whole new generation seems to have been weaned on what can only be called “popular marketing culture” whose understanding of Marketing is that it begins with advertising and ends with a sale. You are lucky if you get some good customer service in between!
For Z generation- people born circa 1990s – advertising translates into the latest “marketing” craze, digital marketing. No surprise there since the Z-generation has grown up in the era of PC and smart phone. And so it would appear, that everyone who has a computer or a smart phone and a social media account, is now a digital marketing expert and by extension, a marketing expert.
“Traditional” Marketing argues that a venture must begin with a product and an adequate market; the current crop of marketers thinks that it begins with a product and some slick advertising. Therefore, assessing the need for the product is immaterial.
Now I am not going to argue that one must take up clip board and questionnaire every time a new product idea gets under the corporate bonnet. Formal research is not always a necessity. However, due diligence is. And it is the absence of a certain type of due diligence that leads to a significant proportion of product and new venture failure.
Due diligence requires that at the very least, a viable market exist for a product before one attempts to commercialize the product. The Marketing gurus of today say, “No”; all it takes is “good marketing”, by which they usually mean, “good digital marketing”.
Entrepreneurs and potential entrepreneurs are usually aware that lending institutions require financial projections as the basis for offering them funds to develop or expand their business venture. However, many entrepreneurs are unaware of the fact that these projections are predicated on revenue forecasts which in turn, are based on market demand for the product. In other words, these all important projections are based on the most fundamental principle of Marketing: determining the market for the product.
Despite this logical connection, many entrepreneurs devote considerable attention to the development of the product, but very little, if any, to a serious assessment of the market demand for the product. The result is often early failure of the business venture.
Determining the market for the product is not the only principle of marketing. Here at the Caribbean Centre for Marketing Excellence we promote Ten Principles of Marketing. Until entrepreneurs learn about these principles and their importance, not only at the start up phase of a new venture, but throughout the lifecycle of the business, it is highly likely that the new venture failure rate will increase.
Learn how to avoid Marketing failures: http://thecme.org/training/online-courses/marketing-for-entrepreneurs/