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What to do after your business fails

It can be very emotional when your company goes out of business. You may feel sad, discouraged, disappointed, anxious, angry or a combination of emotions. That’s OK. Give yourself a little time to grieve for your venture.

But remember that you can apply your hard-earned wisdom and lessons to your next business, giving it a greater chance of success. Conduct a postmortem to determine what went wrong, learn from your failure and prepare for the future.

1. Examine your product demand and pricing mistakes.

Did your product receive less-than-enthusiastic demand? Did your pricing turn off prospects? Determine the product and pricing mistakes that contributed to your business’s downfall.

• Lack of market demand for your product: If you experienced product failure, it’s possible there wasn’t enough demand in the market. According to CB Insights, a lack of market need is responsible for 42 percent of business failures. Just because you love your business’s product or service doesn’t mean others will agree.
• Pricing issues: Pricing issues can lead to product failure. It can be challenging to set prices for services and products. For example, if you sell handmade custom clothing, you’ll likely have to raise prices or charge a high price initially to cover the labor involved. While prospective customers may love the product, they may not be able to afford it. In this case, there is a mismatch between the product, its price point, and the market’s ability and willingness to pay.

How to apply product and pricing lessons to your next venture

Gather the lessons from your product failure or pricing mismatch and apply them to your next venture:

• Do a feasibility study. Before your next company introduces a new product, create a market research plan that includes a feasibility study. Research what it would take to create the product or service, the costs and how much you would need to sell it for to make a sufficient profit margin.
• Test a product prototype with consumers. If you sell a physical product, create a prototype. Let prospective customers try the product in a controlled setting in exchange for customer feedback. Explain the product’s purpose and design; ask them about their purchase intentions, the price they’d be willing to pay, and what they think of the product quality and design. Get their assessment of the product against competitors so you can differentiate your product from the competition. You can use these insights to position your offering correctly in your marketing or make necessary tweaks.
• Test services in a focus group. If you have a service idea, conduct a similar process with a focus group. Explain the service, how it works and what problems it will solve for customers. Answer participants’ questions and get feedback about pricing and how your offering compares to competing and substitute services.
• Create accurate buyer personas. Who was most enthusiastic about your product or service? Note their characteristics and use their demographics as a basis for your buyer personas. Next, research the number of people in your geographic area or within easy reach online who match these personas.
• Determine market penetration. Make an assumption about your likely market penetration in the first year, and run the numbers to see if you can make enough revenue to become profitable.

2. Assess your marketing problems and mistakes.

Did you make marketing mistakes that helped tank your business? According to CB Insights, poor marketing accounts for 14 percent of business failures. It’s challenging to identify your target audience, reach them and convince them to buy your offering. You may have the best product in your industry, but if your target audience doesn’t know about it, your business can’t succeed.

Marketing problems may include not identifying or understanding your target market’s needs, ineffective messaging or a too-broad approach that results in a low lead conversion rate.

How to apply marketing lessons to your next venture 

Take the lessons learned from previous marketing mistakes and create a plan to market your next venture successfully. Here’s how to apply your marketing lessons in the future:

• Identify your target market. The first step in your marketing plan is to identify your target market. Who is the primary group that will want or need your product? Who will be willing to pay your proposed price? For this analysis, you’ll need a thorough understanding of how your product benefits the buyer. Does it save the buyer money or time? Does it make a difficult process easier? Does it provide status? Does it make the buyer feel more beautiful, cooler, smarter or healthier? Include the price aspect in your analysis; someone who wants your product but can’t – or won’t – pay for it is not part of your target market.
• Discover where your target market is online and offline. Next, determine where your target market hangs out in person and online. Do they like complementary products? If so, consider approaching those brands for a co-marketing arrangement. If your target customers attend specific in-person events or locations, consider becoming an event sponsor or scheduling a pop-up shop. Be very focused on marketing only where your target market goes often – and in numbers – to get the most for your marketing dollars.
• Create appealing messaging. Based on your target market and its primary motivators, create messaging that will appeal to them. Test out different marketing messages by running social media marketing campaigns to see which performs best. Be creative! New offerings must break through the clutter and grab people’s attention. Consider funny, irreverent and even shocking taglines, images or messages. Once you have your target market’s attention, you can sell them on the product’s benefits.

3. Understand the team problems that derailed your business.

Team disharmony accounts for 23 percent of business failures, according to the CB Insights report. Team members without the necessary skills or experience can derail your business from multiple angles, including customer service, management and accounting.

Additionally, your business may have suffered from a toxic workplace culture where employees weren’t on the same page and working together toward a common goal.

How to apply team-related lessons to your next venture

Gather the lessons you learned from the problems on your previous team and proactively avoid them in your future endeavor.

• Choose key employees carefully. Some businesses fail or succeed largely based on employees in certain key positions, such as the chef of a fine dining restaurant or a lead programmer for a software company. List the characteristics and skills critical employees in your new business will need, and note them as you go through the hiring process. Keep a list of promising candidates in case the person you hired initially doesn’t work out.
• Clearly outline expected employee behavior. To avoid workplace culture issues, create a code of ethics and conduct to clearly lay out the behavior you expect from employees. Ensure your day-to-day practices reinforce the values in this document and replace anyone who has persistently shown to be a poor cultural fit.

4. Note the funding mistakes that led to your business failure.

According to CB Insights, insufficient capital leads to 29 percent of business failures. Sufficient capital lets you buy inventory, cover startup costs like security deposits on locations or equipment, and launch marketing campaigns without relying on cash flow or savings.

Without enough money, your business can meet its demise rapidly.

How to apply financial lessons to your future ventures

Reflect on the funding mistakes that shortened your business’s lifespan, and apply these lessons to your next venture. Here are some tips:

• Create financial projections. Create complete financial projections for your next business plan, including revenue projections (conservative), expense projections (allow a cushion for unexpected costs) and cash flow.
• Plan your funding. Next, plan for upfront funding. Don’t rely on your personal credit cards or bootstrapping to ensure enough money for your new venture. Look for small business grants through Grants.gov and your local chamber of commerce. Organizations like the National Association for the Self-Employed, FedEx and WomensNet also offer grants to small businesses. Alternatively, research business loans, angel investors, and SBA and alternative loans.

5. Make a list of remaining assets from your old business.

Even though your business is no longer in operation, it most likely still has some assets. Assets can include:

• Computers
• Equipment
• Inventory
• Paid-for office space
• Paid-off company car

In addition to physical assets, your old business may have digital assets like customer databases, a website and intellectual property, as well as soft assets like expertise and former employees.

How to reuse old assets in your new business

When starting your new business, consider how you can reuse some of your leftover assets. For example, you might rehire key employees or reignite relationships with vendors or customers who already know you. If your new business has similarities to the old one, you might be able to resell excess inventory or use old equipment; other assets can be used (computers) or sold if you no longer need them to provide additional capital.

How often businesses fail

The reality is that the vast majority of businesses eventually fail. According to Startup Genome’s 2022 Global Startup Ecosystem Report, around 90 percent of all startups fail at some point.

And according to a LendingTree analysis of U.S. Bureau of Labor Statistics data, nearly 20 percent fail within the first year, an additional 10 percent close by the end of year two, and another 20 percent fail by the end of the fifth year. By the end of year 10, nearly seven out of 10 businesses have failed. This may all seem very discouraging.

However, consider that 30 percent of new businesses will last more than 10 years. That’s at least 10 years of your life in which you are building something, realizing your vision, being your own boss and learning a tremendous amount.

Something that all motivated entrepreneurs share is a willingness to take a risk on something unproven. Although very few startups become unicorn companies like Uber, Airbnb or Slack, there’s still a chance. And plenty of other businesses achieve success, filling market needs, providing jobs in their communities and generating ongoing profit for their owners.

Famous entrepreneurs who failed with their first businesses

Many successful entrepreneurs failed at some point. Before you beat yourself up over your business going under, imagine what life would have been like if these famous entrepreneurs had given up after their first business failure.

The following have overcome the challenges of starting a business multiple times:

• Jeff Bezos: Before founding Amazon, Bezos started an online auction business. Although that idea failed, he salvaged some of its elements to create Amazon Marketplace.
• Milton Hershey: Hershey started three different candy companies, all of which closed, before launching the Lancaster Caramel Company and the iconic Hershey Company, making Hershey a household name.
• Bill Gates: While still in high school, Gates and Paul Allen started a company called Traf-o-Data that measured traffic data from counters along roads. It lasted for a few years, even after Microsoft was founded, but then closed its doors once some states started providing this data for free.
• Reid Hoffman: Today, Reid Hoffman is known as one of the founders of LinkedIn and an investor in PayPal and Airbnb. But his first company was an online dating and social networking site called SocialNet, which didn’t make it.
• Walt Disney: You probably haven’t heard about Disney’s first animation company, Laugh-O-Gram Studio. It had success with the creation of a character called Oswald the Lucky Rabbit, but then went bankrupt after Disney lost the legal rights to Oswald and most of his animators quit.
• Evan Williams: A co-founder of Twitter originally developed a podcasting platform called Odeo that failed partly due to bad timing. Shortly after the company launched, Apple announced its own podcast venture.
• Henry Ford: Did you know that Ford tried twice to start a car company and failed both times before hitting gold with Ford Motor Company? His innovation of the first car assembly-line system gave him the efficiency to succeed.