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The only three reasons your business will fail – The Fatal Riskfecta

mainy

Let me hit you with some logic:

If no one will buy your product, you’re toast.

If you can’t make your product, you’re toast.

If you can’t make your product and sell it profitably, you’re toast.

Due to the inescapable demise brought on by any of the three, I’ve come to call this trio the Fatal Riskfecta.

If people will buy your product, and you can make it, and you can make and sell it profitably, you have a profitable business (i.e. not toast). The only question left is how high you can get profits to go.

Operating profitably is what business school is all about. Making things is what the rest of the colleges are all about. Making sure people want your product, however, isn’t talked about much.

 

Fixing lack of profit

If there’s a product that people want, that you can make, but that you can’t make and sell profitably, there may still be hope. Most business books are full of stores about executives who took businesses that weren’t profitable and turned them around.

 

Fixing lack of production capability

If there’s a product that people want, that you could sell profitably, but that you can’t make, there also may be hope. We did walk on the moon, after all. Almost everything is possible, the only problem is you probably don’t have NASA’s budget, so doing something well within your capability is probably a better idea.

 

(Not) fixing lack of demand

If there’s something that you can make, that you can sell profitably, but that no one wants to buy, failure is inevitable.

 

The path of least resistance

Given that Demand Risk comes with the most certain promise of failure, it would make sense to address it first. Why spend time figuring out how to make and sell something no one will buy?

And given that Production Risk could require massive investments to overcome, it would make sense to do something you can actually do, preferably with your own two hands initially.

In my experience, profit is the most flexible of the three early on. You can find new suppliers, a different manufacturer, cheaper office space, operate with lower salaries, etc., and you won’t really run into any of those issues until the demand and production are figured out anyway, but you should go in knowing whether or not profitability is a (very) viable option.

For example, about a year ago we sold some calendars. Initially, I thought our cost was going to be about $15 per unit plus shipping, but after we began selling, I found a different printer and our cost dropped to $4.30 per unit, increasing our profit from around 30% to about 78%. But if no one had wanted to buy any calendars, that would have been irrelevant.

 

What’s the point?

If you want to start a business, start something that people will want to give you money for, that you can actually make, and that you can operate profitably, probably in that order.

This is a thought-in-progress, so I’d love to hear any responses in the comments below!

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