I recently viewed this video created by the University of Chicago’s Business School. It highlights three Professors of Entrepreneurship as they talk about why so many startups fail.
The video is about 30 minutes long but within the first eight minutes it becomes clear that one of the main reasons startups fail is because the business owner or founder is unable to explain clearly what their differentiators are.
There are two types of business startups that fall into this trap and it’s for two very different reasons.
1. The Startup that cannot explain what they do
When you hear the word “startup” you may conjure up a high-tech, high-growth company. There are a lot of these in Silicon Valley all eagerly hoping to scale quickly and attract customers and investors.
For this group, the challenge is articulating the benefits of their product or service.
Professor Craig Wortmann states: The biggest mistake entrepreneurs make “is that they are super passionate about their business … but they have no idea how to talk about it.”
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He continues: “One of the common mistakes we see entrepreneurs make is their inability to really tightly and concisely communicate who they are, what’s their value proposition, what are their differentiators, why are they doing this. It’s tough.”
2. The new business owner who does nothing unique
While we tend to associate the word “startup” with high-tech, high-impact businesses, the reality is that most people start businesses doing exactly what they did previously in their job. This second group of startups are not sexy high-growth companies, these are everyday businesses with low barrier to entry.
Professor Waverly Deutsch explains that when you look at the average American entrepreneur, “over half of them don’t think they are bringing anything innovative to the market. They are just doing, as a new entrepreneur, what they would do for another company.”
She challenges business owners to think about what can you bring to the market that the market can’t get elsewhere.
If there’s no reason for someone to choose you, they’ll go with the known choice.
Even for mundane businesses (that are easy to understand) it is equally challenging for business owners to articulate what makes them different.
All businesses benefit from learning to clearly articulate their benefits
For two completely opposite reasons startups from one end of the spectrum to the other ultimately are likely to fail for the same reason: no clear differentiator that they are able to articulate.