6 Things I Learned From Watching My Friend’s Business Fail

Use these important lessons to avoid your own missteps when launching a business.

A year ago one of my closest friends, we’ll call her June, was in the middle of launching her dream business — the opening a health and wellness center for new moms.

For as long as June and I have been friends she’s been driven by a passion to have a center where women could go to have all their mental and physical health needs met under one roof.

After her own struggle with postpartum depression, she had designed the center and its services based on what she wanted when she was in the middle of her illness.

Earlier that year she’d finally found a business partner, that we’ll call Nancy, who had the cash to invest in building out a leased storefront space.

Nancy seemed really enthusiastic and could relate to the project as she had four of her own kids all under the age of five and had also been depressed. It seemed like a match made in heaven.

Before her going after the storefront business model, June had established a phenomenal reputation in her community as a doula and advocate for women’s health during and after pregnancy. There was a lot of buzz going into the grand opening, with previous clients gushing over the concept.

I had done some work for June previously on a freelance basis — mostly communications and social media planning.

She had a tight budget and limited access to credit so much of what we worked on was based on organic growth strategies and earned media. It was a slow yet steady uphill push, but little by little we seemed to be getting traction.

If we go back to last September, I had been convinced to do more social media and communications support remotely for June. I was excited to see her dream become a reality and wanted to be a part of it despite us living eight hours apart.

I was upfront about the limited time I had to commit to it and that I wouldn’t be able to give it enough, or at least the right kind of attention, that a big grand opening really needed.

She was fine with this and just happy to have me on board.

Either You’re All in or All Out

This is where I learned my first lesson — either you’re all in or you’re all out. You can’t half-ass your marketing and expect consistent, stellar results.

I poured in as many hours as I could off the side of my desk to coordinate and advertise the grand opening.

By all accounts, it was a big success with several hundred people attending in person. We grew our email list and our social media following. There was media coverage from five local outlets.

We killed it that day.

What I didn’t know is that there wasn’t any plan in place to onboard new clients at the grand opening or any plan for the following week once the doors were open.

I had very little extra time to give as I was working a full-time job and had other side hustle commitments going on. What the center needed was full-time communications and marketing support, along with a solid business plan.

Unfortunately, we had none of these.

There was a haphazard service model that wasn’t even fully written down, and the sales funnel that was sort of in the works was over-complicated and had too many steps in the process.

It was a total turn off.

Have a Sales Funnel and Client On-boarding System

Lesson number two is here. Client on-boarding and your sales funnel are your lifeblood. Have these nailed down, written out and fully developed long before you push go.

By not having these pieces in place, the center floundered as we tried to sort out our marketing messages.

I was working on client personas and inbound marketing, trying to bring a bit of structure to the work, but again I didn’t have the time to do it properly.

Women weren’t coming in the doors.

They weren’t responding to the service offering or the programs, and despite saying the concept was amazing — no one was buying.

While my friend wanted to offer a comprehensive program for new moms that offered 12 months of personalized support postpartum, women just weren’t interested.

Don’t Assume You Know Anything

Lesson number three — and this is obvious to me now — don’t assume ANYTHING about what your client may or may not want.

The business’s entire model and service offering was based on assumption. We both thought that with having worked with moms for so long, that we knew what they wanted and the model would be successful.

We were dead wrong.

Do your research. Ask your clients what they really want and then build from there. Any other approach is just tempting fate.

I’d expressed my concerns about a storefront model on a few occasions, the main issue is that it required women to leave the house to get services.

While June argued this was the point — to get them out of the house and connected to social support — my argument was based on consumer trends.

We now expect services to come to us, with convenient offerings designed to make our lives easier. It didn’t make sense to try and do otherwise, but June was determined to make it work.

Focus On The Long Game

Lesson four won’t surprise anyone who’s an entrepreneur. With any new business you can’t expect to be profitable during the first few years, and Nancy was well aware of this — in fact, she even said she wasn’t worried about running in the red for a while.

When push came to shove that wasn’t the case.

Within three months of the opening, she had cold feet and rightly so. The business was bleeding like a firehouse, stuck with high operating expenses and loan repayments for the lease build-out.

The programs and services weren’t converting. There was very little money coming in the door.

Things were bad. Really bad.

June became hyper-focused on offering short-term, one-off services to women. Despite running the numbers and showing her that it would require huge volumes of clients due to the very low price she was asking (think between $20 and $50 per visit), she persisted even after it became obvious that it wouldn’t work.

When I asked about her budget and operating model, specifically her expenses she didn’t have a straight answer. She’d been relying on Nancy to keep the books because finance wasn’t her strong suit.

June really didn’t have a clue about what was coming or going and was relying on Nancy to provide the center’s cash flow.

Understand Your Finances

Lesson number five is really simple. Understand your finances and don’t rely on anyone who isn’t arm’s length or providing you paid professional services to do your bookkeeping.

For my part, it was another lesson in assumption making. I thought she and Nancy had worked out a detailed budget and were walking in lockstep.

Again, I was wrong.

The relationship between June and Nancy quickly fell apart. Nancy threatened to cut the purse strings and June had nothing to pay the bills with.

Within a week of Nancy offering to provide a few more months of operating dollars, June decided to walk away, lose her brand and look to offering her services online and via a smartphone app.

There was just too much bad blood at this point.

Protect Your Intellectual Property

Lesson six is painful. When it comes to business relationships, make sure that you have everything documented in an agreement or contract.

Think strongly about your intellectual property — this ended up being the most valuable asset June lost in the whole deal.

The storefront space was subleased, the retail products she carried were sold, but all work on social media, her email list, and her brand were gone.

Nancy took the brand with her as part of the settlement between them. Losing this meant that June had to start over from scratch.

While her reputation in the community remained strong, this was a big hit for a small business in a relatively small, regional city.

Failure is often the best teacher and I know that I can say I learned a lot by watching June’s business fall apart. As a friend who was closely involved it was difficult to witness and be a part of. There were so many assumptions made about the service model, the marketing messages and the ability to generate revenue that it’s almost laughable now that we’re on the other side. Any entrepreneur needs to pay attention to these six lessons, in order to steer clear from what is almost surefire business disaster!

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Communication strategist and writer. Productivity, work, mindfulness and motherhood, and the space in-between.

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