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Mr. Biz Radio: Ask Mr. Biz - Why Do So Many Start-ups Fail?

Unedited transcription of the show is included below:

Welcome to Mr. Biz Radio Biz Talk for biz owners during the next half hour, Mr. Biz, Ken Wentworth, a leading business advisor, and two time bestselling author will cover topics. That'll help business owners run their companies more profitably and more efficiently. If you're ready to stop faking the funk and take your business onward and upward, this show is for you. And now here's Mr. Biz, Ken Wentworth.

Welcome to another episode of Mr. Biz Radio with me, Mr. Biz, Ken Wentworth. And we are going to, we haven't done this in forever. I've been a little bit remiss in keeping up with some of the stuff. So I apologize, but we are going to do a, an Ask Mr. Biz show. So I've got a whole pile of questions, and usually we get the questions in, and it'd be honest with you. I probably shouldn't even admit this, but I, when we get the questions in either myself or my assistant or whatever, we'll put it into an email box that we both have access to. And if it comes on social media, same thing, she'll pull it off and throw it into an email and we just keep them all into a big giant email folder. Well, perhaps someone, ahem - me, hasn't checked that folder in quite some time.

So I was pretty surprised at the number of questions that have come through via social media or email or whatnot. So, and again, we love the questions and I've, I've literally put a reminder on my calendar now to check them. So it'll pop up on my calendar and remind me to check that mailbox more often. So we can have more of these shows and get to some of these questions. But if you do have questions for the show, you can email them This email address is being protected from spambots. You need JavaScript enabled to view it. or if you want to DM me on, on social media, send me a message on social media. That works as well. We, we pull them off either way, but so we're going to talk about a lot of different things today. We'll see how many we can get through during our time together today, but at a minimum, I think we should be able to get through.

We're going to talk about some key ratios. What are the most key critical ratios that you need to be tracking as a business owner that will drive your success, profitability, et cetera. We've got a question about why businesses fail. What are some of the reasons why businesses fail? And we can avoid those, a question about financial statements, what financial statements should they, a business owner at a minimum be, be reviewing on a regular basis. We're going to talk about the most critical skill, one skill, the most critical skill for an entrepreneur or business owner to be successful. And then I'm, I'm imagine we'll get to this one. So how to profitably set your prices. So this is a big one and you guys have heard me talk about if you listen to the show often, you've heard me talking about this before, but that one's a big one as well.

So I would imagine what leads get through those five, but but we'll see. So without further ado, let's let's jump right in here to the first question that comes from Renee in Chicago, Illinois. And she says, what is the most overlooked ratio? And that one's an easy one. I'm going to cheat a little bit and give you two, but really kind of one. So let me explain. So the most overlooked ratio is retention by far retention. Now, the way I'm going to cheat is I'm going to say two aspects of retention. So not just what most people probably think when I say retention of customer or client retention, but also employee retention. Absolutely the most overlooked thing. Every business I start to work with, we look at both of these ratios and we monitor them on an ongoing basis because a couple of quick things to point out to this.

So as far as customers, if you're out beating the bushes and doing a really fantastic job on the sales front, you're bringing in new business left and right, everything's humming along. You're doing great, but if you're losing customers out the back door, you bring a new ones in the front door, but your existing customers are leaving out the back door. It's just a never ending battle, right. Then you have to constantly be beating the bushes for those new customers. And I don't know about you, but what would you say is easier? Is it getting, gaining a new customer or client, or just maintaining and retaining one of your current clients, right? They've already, you've already gotten over the hump of the initial sale they already know, like, and trust you. If you've gotten over that, hopefully you've given them good service, good value, et cetera.

So it's much easier to hold on and retain those customers. So that's huge. And the other part is, and I've talked about this a few times on the show over the over time, but I think I even mentioned this in my book pathway to profits, but this is a crazy statistic, but when people are looking for new revenue, speaking of sales, 65% of new revenue comes from existing customers. So, you know, again, you're out beating the bushes, looking for new sales, new clients, new customers, when 65% of all your new revenue is going to come from people that are already in the door, they're already in the house, they've already, they're already buying from you. And so if you're losing that and that having to constantly replenish that terrible, terrible impact, so really have good communication with your current clients, make sure they're getting the service they need.

I had a situation back in my corporate days where our incentive plan was too heavily pushed towards new sales. And so what happened is our account managers, our sales folks were focused on new sales and they were neglecting their existing customers. And we ran to the exact scenario. I just mentioned to where they were selling like crazy, because that's what they were getting commissions on, but they were neglecting service on their existing customers. So we were losing them. So, you know, it was we were just kind of running in quicksand. So that's, that's really important. And then on the employee side, again, you're making these sales, your businesses growing, but you can't find the resources or you're constantly having to fill positions back filling positions, et cetera. First of all, it's going to ruin fulfillment, right? You're going to have a worse customer experience for your customers.

It's going to stunt your growth because even if you're able to find resources, which right now the labor market's so tight, it's very, to find good resources. But even if you're able to find them, you're constantly training and retraining and you don't get much tenure with employees if you have a lot of turnover. So you gotta make sure a couple of things as people are leaving, if you have people leaving or before they leave, actually I recommend to do at least an annual employee survey and make sure however you do it, that it's anonymous. So that way you're going to get honest feedback. So if they're filling out a survey and handing it to someone, they're not going to give you honest feedback, because they're not going to risk getting chastised or getting, you know, the Scarlet letter for saying something bad about the company or their, their boss or whatever.

So make sure it's anonymous. The other thing is if you do lose an employee by all means, try your best to do some sort of an exit interview with them. I E asking them why they left, because it might not be what you think. A lot of times we ever went to just assumes it's because of money and it's not because of money all the time. There's a lot of other reasons that folks leave. And depending on your industry what type of company you have, et cetera, et cetera, can be a lot of different things. But those things are really important, but that's, that's the most, most overlooked ratio to me is retention customer retention, employee retention. We're very, very important there. So again, thanks Renee in Chicago, Illinois, for that question let me see here. And we can, we can start on this one.

So Alex from Bloomington, Indiana asks, why do so many startups fail? Well? some of you probably already know what I'm going to say with this, but there was a study done by the U S bank, an 82% of all businesses that fail are due to one reason. And before I tell you what that is, if you haven't guessed already, also small business administration, the SBA. So just to give you a couple of statistics, we all hear these all the time, but you know, I think the SBA is a pretty good source for this type of of, of numbers, right? So only 50% of businesses make it to their fifth anniversary further, only a third of businesses make it 10 years. That just shows you how important this, this is. But think about it this way, that reason that 82% of all the businesses that fail is cash flow.

It is a capital restriction into some sort of cash flow problem. And that's why we talk well, cash flow so much. That's what fire. I wrote a book specifically about cash flow, “How to Be a Cash Flow Pro”. Even the second book, “Pathway to Profits”, talks about cash flow. If you don't have cash, you don't have a business. I mean, we all recognize that, but man, it's, it is as a new business owner, a startup, you get focused on so many other things and you get your attention gets pulled in so many different directions. And sometimes we just lose sight of the most important thing in front of us. And that is we have to have cash, right? I mean, critically, critically important. So, so again, thanks Alex in Bloomington, Indiana for that question.

So we're going to hit a break here, come back. We'll give the Mr. Biz tip of the week. And the next question up is from none other than James from Akron, Ohio. And this question is bare minimum. What financial statements do I need? We'll talk that after the break, when we come back on Mr. Biz Radio

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Check out both the Mr. Biz’s national best-selling books, “Pathway to Profits” and “How to Be a Cash Flow Pro” on Amazon. Now, once again, here's Mr. Biz.

All right, welcome to the show. And it is time for the Mr. Biz tip of the week, as we always do at the start of our second segment of the show. And this week the tip is if you cannot see a measurable 300% ROI return on investment for your marketing spend, you're ready for this. You know, you need to do one of two things, either change your marketing plan or fire your marketer, fire, your marketing team, fire, your marketing head, whatever it might be sounds a little, a little harsh, but you should be able to measure that. And the key part, the key word, and then entire tip is measurable. This is one of the things I see businesses fall short on a lot of times they spend money on marketing on advertising, but they don't measure the return that they're getting. And oftentimes they'll say, gosh, I don't know how to measure it.

I don't know. You know, there are so many different ways you just gotta be even just a little bit creative to be able to do that. You know, for example, I'll just use, you know, we're, we're on a radio show here. Someone says, well, how do I measure? You know, I'm, I'm running some, so an ad on the radio, how do I measure the return on that was, I mean, there's a couple of real easy ways. First of all, depending on what type of CTA a call to action you're giving, whether it's you want them to call you on the phone, maybe you want them to go to a website. Maybe you want to send an email. You can have a dedicated landing page that you know, that you only get on the radio. So anyone who lands there, you know, that came from two from the radio.

You have a dedicated phone line. So someone doesn't have to ask, they know that when phone line three rings that had to come from the radio, because it's the only place you share that as an example all sorts of different ways you can do to build a monitor and trackers, but that is the absolute critical piece. I can't tell you how many owners that are spending, you know, tens of thousands of dollars a month on marketing. And they know some of it, but they don't know, you know, it might be half of their marketing budget. They have no idea what the return they're getting. So very, very important there. You've got to measure it, gotta make sure you're getting the return that you, you deserve and you should expect. So that is the Mr. Biz tip of the week. All right. So as I promised, we are going to go to James in Akron, Ohio bare minimum.

What financial statements do I need? All right, well, you're asking the CFO that, right? So, you know, I'll, I'll spare you. I'm glad he said bare minimum. Cause I probably could have done three shows on, on this topic. Right? But so bare minimum. What I would suggest is you need an income statement, profit and loss statement, another words, a balance sheet, which I know a lot of people right away. I talked to owners and I mentioned balance sheet and their eyes glaze over. And then I can just see them thinking in their head, oh my gosh, accounting mumbo-jumbo and it's not some of it is, but it's not there. I can tell you a couple of things that we need to watch on that. And then of course, as we just ended the last segment with cash flow, we got to have a cash flow projection.

We've gotta make sure that we're not going to run out of money. And so I'll just start with the cash flows since we're there now. But again, as I said, you need a cash rate. You got to make sure you don't run out. But what I like to do is I always run either depending on where we're at in the economic cycle, we run either 24 or 36 month cash flow projections that are rolling. So this a re rolling 24, 36 months, they get up, gets updated every single month. So we know we have an idea of projections into the future. You know, if we have to spend a hundred thousand dollars on a piece of equipment, should we finance it? Should we pay cash for it? If we finance it, how much should we put down? Should we put down the minimum? Should we put down 10%, 50%, 75% best financial sense for us.

So that's an example of that, the balance sheet. I mean, again, there are a lot of counting things on there, but here's three things that you can check for. And these are really basic. So those of you who are financially astute are gonna probably say, oh my gosh, you got to be kidding me. But these are the basic things. When you look at a balance sheet, you can go to the three sections of the balance sheet, assets, liabilities, and equity assets. You want to make sure they're going up. And if they're not, you want to know why liabilities, which are things like, you know, basically your debt. You want to make sure if possible that's going down, or if it's going up, it might be going up because you're investing in the business, et cetera. But you want to know why, if it's going up and then equity, you know, that's essentially the owner's equity is the, is the book value of the company.

So of course you want to make sure that that's continuing to trend up. And if it's not, again, you want to know why income statement critically important. So when you're first starting out, you got to start out putting something together. So put together your income statement, your profit and loss statement, and at least use some industry standards to begin. If you don't know enough, start with some industry standards and create a budget. Well, I'll talk about this all the time. You have to have a budget. So each month you should be doing is measuring that profit loss statement again your budget. So you know where you're doing well, where you're not doing well and what changes need to be made accordingly. And then once you get into business for a bit, you can compare to your prior year. So that helps you be able to compare seeing the same period from this year and the same period last year, which will help you.

You see, are you making progress or are you not? Oh yeah, we're behind here. And we know that's because of X, Y, and Z. We delayed this project, et cetera. So there's a couple of things. And along with those though, the margin management, I call it and it's super, super important. And a lot of people quote them, gross margin, net margin is the granddaddy of them all. And that margin is your net income divided by your revenue, which essentially means all the money you bring in, in sales. How much, if it ends up in your pocket at the end of the day, after all your expenses. So that's the one really important. And just a real quick example, I've been working with, with a client now for three years, we've been working on improving our net margin every year, single year, because think about it.

If you improve your name margin, a higher percentage of your net income ends up in your pocket of your sales. At the end of the day, you can have flat sales and still make more money. And that's what everyone wants, right? You want to, you want to increase your profitability. And they, we have improved that so much that our highest revenue year was 2018. And we've got the margin, our net margin up to the level now. And I, it was, it was good and bad to explain this to them in a recent meeting. If we had the same net margin in 2018, as we have now, the net income would have tripled. They would have ended up with three times as much money in their pockets at the end of the day. And it was, I told them that one to show progress and to congratulate them on the progress we've made, but also to demonstrate to them how much, why I've been having so much to to make those improvements, because, gosh, it's just so darn important.

All right. So thanks again, James and Akron, Ohio for that question.

Okay. Let me see. I think we can cover this one Rob in Austin, Texas, by the way I freaking, yeah, love Austin, Texas. Love it down there. I've been down there. It's been too long. I've been there. But so Rob's question is what is, in your opinion, Mr. Biz, what is the number one skill that a business owner needs to succeed? All right, this one honestly, is an easy one for me and I I've referred to it before on the show as well. I call it consistent perseverance. And that is the number one. You probably thought I was gonna say something financial and being naturally astute that no it's consistent perseverance because that covers the whole gamut of everything. It doesn't matter how intelligent you are. It doesn't matter who, you know, doesn't matter.

You know, any of that stuff, you will get knocked down in the game of business. It will knock you on your booty and you have to have the consistent perseverance to continue getting up. Oftentimes the folks, especially with startups and sometimes you just have a bad idea and, or you don't execute well, but oftentimes what separates successful business owners and entrepreneurs from the unsuccessful or not as successful is this consistent perseverance. You get knocked down seven times, you get up eight, because again, all the successful quote unquote successful people that we know of, they have all taken their losses. They've all taken the L's over time. The Bill Gates of the world, the Steve Jobs, Steve Jobs got fired from his own company. I mean, come on, right. You know, Warren Buffet has suffered this Oprah Winfrey. All of these guys have they've taken their L's along the way, but they had consistent perseverance.

They kept getting up. They figured out a new way to do things a new way to do it better. Hey, I know now this way doesn't work, let's brainstorm and figure out a new way. And you know, if you need to have some advisors around you to help, you know, come up with those new ways and brainstorming, et cetera. But that is what I would say. Robb and Austin, Texas is the number one skill that an owner needs to succeed is consistent perseverance.

All right. So we are out of time up against the break here. Again, we're going to come back and we're going to have Sarah from Portland, Oregon talking about how to set our pricing levels on Mr. Biz Radio.

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To submit questions to the show, email them to This email address is being protected from spambots. You need JavaScript enabled to view it.. Now, once again, here's Mr. Biz.

All right.

Welcome back to Mr. Biz Radio. And we are going through having an episode of Ask Mr. Biz. And so, so far we've heard from Renee in Chicago, Alex in Bloomington, Indiana, James and Akron, Ohio, and Rob in Austin, Texas. And again, if you have questions for the show, we love to get questions and I promise I will, we will monitor that better. So we don't go so far between with answering some of the listener questions, but you can email us This email address is being protected from spambots. You need JavaScript enabled to view it. or if you want to direct message us on social media, on Twitter, on Instagram, on Facebook, any of those we, we, we picked those off as well, and I we'll put them into a folder and answer some of the most common questions that we think will benefit the most people. And even if I don't answer it on air, oftentimes what not oftentimes almost every single time, unless I do get some silly questions that are non-business related that might make you blush a little bit.

But aside from those questions, I do answer all questions that we get. As long as they're not, you know, silly, goofy questions, whether it's on air or directly to the person who asked the question.

So that being said, the next question is from Sarah in Portland, Oregon. And she said, how should I set my price levels to optimize profits? And again, this is another one of those questions w in the interest of time, I'll, I'll try to summarize this and give you a couple of key points to make sure you consider, but this was man, this is a big topic. Pricing is one of my I have Three Pillars of Financial Success, and those pillars are cash flow, budgeting and pricing. And so as you can imagine, I can talk about all three of those. You have to get those three things correct.

And if you don't, as you scale your business, that's the foundation. As you scale your business, it will begin to crumble. At some point it might not be at 2 million or 5 million, but at 10 million, you're going to start to see cracks in the foundation, and then you're just going to crumble. So you got to make sure you get that right. So here's some of the mistakes that I see often was price level. So a lot of people start a business, and frankly, you know, for lack of better term, they use the back of an envelope to do their pricing, which sounds kind of funny, but I think you guys know what I'm talking about. Another thing that mistake that people do is when they're going to start a business, they just compare to the competitors. Of course, that's an important element to it, but that's not the only thing.

So, and where that can really get you into trouble is you can have a competitor that has a lower cost base than you base, not based. I'm not basing a Turkey here. I'm not pasting anything. So a lower cost base. And what can happen is, for example, in that scenario is you open a pizza shop and your competitor charges 10 bucks for pizza, and you go, I'm going to undercut them charge nine. But in reality, with your cost, you have maybe the pizza costs you 10 bucks or nine 50. So literally for every pizza that you sell, you're losing money because you just really didn't do the correct due diligence. And you're trying to comprise just based on your competitor's pricing again, that has to be an element to it, but it should not be the driving factor on that. And that's an error I should have mentioned.

And again, liberal listeners have heard me mentioned as the silent business killer, that is a product or service you have in your business that is either break even at best, or is losing you money. And oftentimes if it's priced too inexpensively too cheap, that's, it's a high volume product or service. So you're selling like crazy, but like, think of that scenario where you're, you're selling a bunch of $9 pizzas, but they cost you $10. So your sales are going through the roof, but your net income, you're losing money. And just, again, intuitively on the surface, it doesn't make any sense whatsoever. You go, gosh, how am I selling more? Well, I'm actually losing money. And again, I hate to say this, but almost every single business I've ever worked with has at least one of these products or services. So if you haven't identified one of those in your business, it's probably lurking.

And if you don't know how to exactly to do that, you know, get, hire someone. I might know a guy who can help you with that. But seriously, it's very, very important. The other thing you've got to make sure that, you know, along those lines, and I mentioned this a little bit with a question earlier from, I think it was James is you need to make sure that you're at the proper margins. So, you know, I've, I've said this before, but you know, if you have a business, unless you're in the food services industry if you have margins that are net margins, net margins, as we talked about earlier, that are less than double digits that are single digits, you have a hobby, not a business and you're working way too hard for not enough money. So you gotta make sure that you've, you're pricing your products at the proper margins.

And sometimes what that means folks is you have to discontinue a product and, or you have to offer it at a price that makes sense for you that you might not sell a lot of, but maybe it's a complimentary product to something else that you sell. So you want to continue to offer it, but you have to make sure that you're offering it at a price that is profitable for you. So you don't end up with the silent business killer lurking in your business because men are men. I'll tell you. It's just, Ugh, it's terrible. It's terrible again. And it's very, very common. So hopefully that's helpful. Sarah in Portland, Oregon, thank you for your question.

Let's move right along here and see, I think we can get through this one. Michael in Dublin, Ohio here, close, close to where we're at right now.

So Michael asks as an owner. I'm constantly putting out fires. Yeah. I think all of you guys can relate to that. How should I allocate my time? Wow. All right. So this is a common challenge. Again, something, especially if you started as a newer startup, you may have started as a, as a solo preneur. You've grown now, what happens is it's solopreneur. You're doing all those tasks and as you grow and hire people, it becomes sometimes difficult to delegate. That's the number one thing you gotta do. You gonna have to have to learn how to delegate. You gotta hire the right people. If you're hesitant on delegating, delegating something, you probably haven't hired the right people. And that's on you as well. And we'll cover that topic another time. But so one of the things I mentioned all the time is you have to do an honest assessment, especially if you're a small enough business to where oftentimes the owner is the only salesperson.

And in that scenario, you don't have time to run around, putting out fires all the time. Again, you need to delegate a lot of that because you have to be doing sales. So I tell folks to do an honest assessment of their time and focus on what I call RPAs revenue producing activities. RPA is very, very important, especially if you're only the only sales person, look at your time, assess your time. If you need to, if you're you're way off kilter there, don't be afraid of blocking time on your calendar. And saying, tell them folks in, in your office or in your, your building or whatever it might be that work for you. Hey, I've got these times blocked. Do not bother me with anything unless like someone's got their hair on fire because you're going to focus on RPAs during that time. You can imagine what happens.

If not now I'll give you, I think I've got enough time. I'll give you a quick example here, where I had a friend of a friend, who's a realtor who was suffering from this type of situation. He said, man, I've got business, but I can't get out there because I'm bogged down with a lot of administrative work, which by the way, I don't like doing. And I said, do you need to hire at least a virtual assistant? If not assistant. He said, Ken, I don't think I can afford it. I said, you can't afford not to. And so here are the numbers on around us. It's it's staggering. I mean, I hope I can get through them all, but let's say you hire a virtual assistant, a VA. They work for you one hour a day, Monday through Friday. So five hours a week doesn't sound like much, but that's 260 hours a year.

Think about that in regards to a 40 hour work week, those 260 hours equate to you guys know this. You can do the mental math, that's six and a half weeks of time over a year that will free up for you. And if you pay that person again, just make the numbers easy. 20 bucks an hour. It only costs you a hundred dollars a week, right? Five hours a week. So it's going to cost you just a hair over $5,000 for the year. And in this scenario again, it was a realtor. I said, gosh, that's going to free up. Literally, as I mentioned, six and a half weeks of a 40 hour week, how long does it take you to make a sale? Right? How much, how many sales can you make? If you just focused on sales for six and a half weeks, solid 40 hours a week, six and a half weeks.

And what's your average commission on a sale to pay for itself, put that resource to pay for itself. It just has to make $5,200 in a year, right? A hundred bucks a week. So my gosh, think about ROI on that, right? You sell an extra 10 houses and your average commission, let's say it's 4,000, $40,000 and it costs you 5,200 and it gets you out of the crap. You don't want to do a lot of administrative work in this scenario that you don't want to do. So that is absolutely super important. So that's a way to get in. That's a difficult thing for business owners to do, but you gotta, you got to delegate and you gotta get yourself out of the weeds, especially as you continue to grow, or it will absolutely stunt your growth and you will lose hair, or it will turn gray like Mr. Biz’s. So that's all we have, Sarah. I'm sorry. That was Michael and Dublin Ohio. Thank you for the question.

That's all the time we have for this episode of Ask Mr. Biz, appreciate everyone’s questions and everyone who's listening. Again, thanks for listening to everyone. Have a great week. Thanks for listening to Mr. Biz Radio and don't forget as always cash flow is king.

This has been Mr. Biz Radio to learn how to become part of Mr. Biz Nation. Visit www.MrBizSolutions.com for access to free weekly content, subscribe to the Mr. Biz YouTube channel and follow him on Facebook, LinkedIn, Instagram, and Twitter, to listen to archive shows. You can find them on the Mr. Biz Solutions website.