In a couple of months’ time Deep Blue Thinking will be celebrating its 5th birthday.. From a personal perspective, there’s always so much going on) that there’s never really time to take stock of how far we’ve come. But we really should. Recent research from CB Insights demonstrates that a five-year milestone is one that most business owners will never get a chance to contemplate – almost 20% of businesses fail within their first year, and, by year five, nearly half (49.7%) will have gone to the wall. Whilst the rate of decline slows, many businesses still struggle and only about 1 in 3 will make it to their 10th anniversary.
The choppy waters faced by start-ups is not particularly new news but what’s interesting about CB Insights’ is that they have gone a step further to attempt to diagnose why so many entrepreneurs fail to make it to their fifth anniversary For anyone who has started a business, cashflow remains the overriding reason. Many small businesses inevitably find themselves squeezed between their immediate payment terms required by suppliers and the time it takes either to sell through their inventory to customers. In a business to business environment sadly it is often long payment terms or failure of customers to pay on time which are most likely to lead to cashflow difficulties.
However, what’s even more enlightening is the degree to which a lack of market orientation runs as a common thread through most of the other reasons for business failure. Just over a third (35%) of businesses fail due to a lack of market need and, for a further 1 in 10, where the product was deemed to be mistimed. As Back to the Future’s Marty McFly famously said, ‘I guess you guys aren’t ready for that yet… but your kids are gonna love it!
Add in a further 20% of failed start-ups who got ‘out-compete’ and it’s clear a lack of understanding of fundamental marketing principles lie at the heart of many new enterprises’ troubles. Against that backdrop, it still bemuses me that research is often seen as a luxury item – the premise of the big corporate world where formal NPD processes insist on research before the project can move through the next gate
For many founders, they understandably become so wedded to ‘their baby’ that their own confirmation bias screens out any potential signals that people won’t be as enamoured with it as they are. Sometimes even the strongest indications are easily waived away with the now infamous Henry Ford quote: ‘If I’d asked people, they’d have said faster horses’.
We shouldn’t see this as a blind spot of crazed founders, however. Mainstream CMOs appear to be just as guilty of seeing research as a discretionary ‘cherry on the cake’ as anyone else. The pandemic era was unique in that,, for a few quarters at least, the IPA Bellwether report didn’t predict Armageddon for market research budgets! Fast forward a couple of years and things have quickly returned to normal. Indeed, last figures published in January estimated an 8.8% decline in research spending in Q4 2022, following on from the 4.1% in Q3 2022.
Perhaps we should be thankful then that marketing’s self-proclaimed grumpy one, Mark Ritson has been so consistent in banging the drum for market orientation being one of the three central pillars of ‘good marketing’. Having attended his webinar on ‘brands which are smashing it right now’ a couple of weeks ago, he was again making a passionate case for how understanding your market and consumer is central to brand success. Without wanting to blow smoke up Ritson’s back passage (even if he did famously turn his arse into a work of art), Ritson has provided essential practical guidance on how small businesses can conduct great research without having access to the lavish Consumer & Market Insights budgets enjoyed by the likes of Unilever.
Of course, it’s all too easy for those of us in the research industry to blame those pesky marketers/ procurement people/ CFO’s / management consultancies (delete as appropriate).. In a few weeks’ time, the great and good of the research world will gather at London Bankside the MRS Annual Conference. Undoubtedly, whether on stage or in the bar, at some point the same old soul searching will take place with researchers young and old bemoaning the lack of a seat for researchers at the boardroom table.
Perhaps we shouldn’t be too surprised - if we’re really honest, as an industry we’re as guilty of a lack of market orientation as anyone. All too often, we talk in percentages rather than pounds; we use complicated words when simple ones will do and we focus more on the process of doing research rather than the impact it brings.
Indeed, Ritson has probably done more to explain how a small business can build a sensible market segmentation than many a research agency. He’s even managed to demystify Van Westendorp for a whole generation of his marketing MBA students!
So as bad as researchers may have been at landing the message, the evidence is clear. Ultimately when you pick apart why half of businesses succeed – and the other half fail – it all boils down to them understanding their consumers, market and competition. Those that don’t, pay the price.