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French Version

Why most of new ventures fail?

Entrepreneurship is a way of thinking, reasoning and acting that is opportunity obsessed, holistic in approach, and leadership balanced. But since entrepreneurship is highly dynamic, fluid and ambiguous it involves a lot of paradoxes such as losing money before making money, experiencing failure before succeeding, and requiring planning but at the same time unpredictable.

This article examines reasons why new ventures fail. Once the reasons of failure are clear, we will know how to avoid them and strive for reasons of success. An entrepreneur’s previous experience is of paramount importance. Having inadequate knowledge and experience will lead to uncalculated risks and business failures. Entrepreneurs should take calculated risks and try to a certain degree to anticipate the future, just like a game of chess, and those who depend solely on luck are taking a high risk and are jeopardizing their business.

In addition, the decision to enter into a new venture must include some pre-requisites in order to make sure that the new venture is different and better, without them, it is just as going to battle without a sword; these pre-requisites are, for example, going to trade shows, joining industry associations, and acquiring experience from other entrepreneurs within the industry. “I’ve learned from experience that a company can grow too fast. You have to be careful about expanding into new businesses because if you get into too many too quickly, you won’t have the experience or the infrastructure to succeed.”

These are the words of Michael Dell when once asked about whether he considers taking some billions and branching out the computer business. Therefore, it is essential to have enough control, and avoid compromising quality, productivity and customer satisfaction. Surely, one of the basic requisites of success is the ability to concentrate on a single problem, in Michael Dell’s case, building better computers and selling them at a lower price. The slogan of today is “Grow or Die”, but for a lot of start-up companies the case is “Grow and Die”; these companies shouldn’t be growing that fast, and should focus and grow slowly, and ask themselves an important life or death question: Are they built to grow? If they are basing their business structures on the principles of the industrial revolution, then, they should think twice, it’s not very likely they will stay long. The shift from the entrepreneurial process to the professional process requires a shift in other areas such as the shift from centralized to decentralized decision making, and from informal to formal control systems, and more delegation of responsibilities.

For sure, adopting an entrepreneurial process for an expanding business is more like slow death to the company. Entrepreneurs have to know where and when to let go and give space for professional management. Some entrepreneurs fail because they give up quickly, due to lack of experience. The goal is never to give up, and when plan “A” doesn’t work there’s always plan “B”; also it is the nature of new ventures to have many unpredictable events.

Therefore being flexible enough and determinant at the same time are essential characteristics for the new entrepreneur. Researchers at the University of South Carolina asked an important question: Should small companies attempt strategic planning, knowing that the road to success is not paved and marked but, to the contrary, filled with pits and bumps? The answer is to have both: A strategic plan, and an ability to change and flex the plan as per the new events. Failing to have theses qualities will most probably lead to project failure. One of the most important factors for the survival of the business is the management team.

A type “A” team with a type “B” idea is better than a type “B” team with a type “A” idea; the latter will ensure the success of the business and changing negatives to positives. New ventures that fail, most probably will have a problem with the management team of the venture; they might be missing one of the seven management functions—Marketing & Sales; Operations; Research & Development; Financial Management; Administration; Personnel Management; and Legal and Tax specialists—, the members might not have long term involvement in the project, persistence and the confidence to go through the venture. In simple terms, the venture team should be perfect to some degree and compatible.

A Shakespearian business question is: “To Grow or not to Grow?” If this question is answered wrongly, the chances of companies’ survival are minimal. A study indicates that smaller companies decide to grow in order to deter potential competitors, meet customer demands and decrease overheads, while the decision not to expand is due to retaining the ability to manage the company with the available resources. In both cases, careful examination must be made of customers, competitors, efficiency, knowledge and the aimed growth in order to assess the chances of survival.

When a company expands to a certain level there are certain regulatory rules that will apply, which might deter the company from entering into a new zone, in order to avoid extra liability. In conclusion, the reasons why new ventures fail are numerous. The ability to seek opportunities and match the internal capabilities and competencies with the external market requirement is of paramount importance. If this equation is unbalanced then there is a clear sign of danger and a black flag to retreat or change strategy. However, in order to learn from our mistakes, new methods must be adopted such as surfing web sites developed specifically to tell the stories of failing ventures .The rationale behind this is to increase the learning curve and avoid fatal mistakes of others who tried to swim in the sea of entrepreneurship but didn’t make it to shore.

Amman,10April2006
Redaction
The Star


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