The No. 1 Reason Businesses Fail

06/29/2015 12:01 pm ET | Updated Jun 29, 2016

Often, as entrepreneurs, when things are going poorly, we tend to think the problem is with our marketing, or with our sales process. Latch on to the right marketing plan, goes the thinking, or improve our sales funnel, and customers will start pouring in.

If you've had success (i.e. growing revenue and profitability) in the past, this may indeed be the case, and you may just need some improvements to your marketing or sales funnel.

However, for most struggling businesses, problems with profitability and finding customers usually stem from a poorly thought out business model (for a fantastic, in-depth read on business models, check out this article from Harvard Business Review).

To that end, I've listed four of the most common business model problems, and some suggestions on how to fix them.

The Top 4 Business Model Problems and How To Fix Them

Below are some of the most common business model problems, and how to address them:

1. Problem: No One Wants What You're Selling

I've mentored hundreds of entrepreneurs over the years, and I'm still amazed to this day how many of them simply assume the world actually wants what they're selling.

Too many entrepreneurs start with an idea for a product or service, and get so myopic about that product that they don't actually bother to think about whether they're solving a problem for someone or creating any real value in their customer's lives. The end result is they build something that doesn't actually solve a problem, or produce any desired gains, for a customer.

Solution: Conduct Problem Interviews With Your Target Customers.
Sit down with at least 10 people who fit your target customer demographic, and get to know them, their problems, and their needs, and how you might be of service to them. Knowing your customers and their problems helps you to develop solutions that speak to a real need.

The key to conducting problem interviews is to not treat them like a sales pitch in disguise. Don't mention your business/product/service, and definitely don't pitch your interviewee. You're there to learn about them, and if there are any problems worth solving that you can feasibly solve. Once you start pitching their guard will go up and you'll have a hard time getting the information you need.

2. Problem: Targeting The Wrong Customer Segment.

All the amazing, slick advertising in the world isn't going to work if you're aiming it at the wrong people. Having the right solution to the right problem, but targeted to the wrong people, is also bound to fail.

Solution: Test and Validate Your Customer Segments.
These days, it's easier than ever before the test and validate your business model. There are all kinds of ways to do this, but the easiest way is to set up a landing page that communicates your basic value proposition (see below for more on value proposition), and then send traffic targeted at different customer segments to that page.

Landing Page Tools
Unbounce is a great tool for building beautiful landing pages, and they offer a free 30-day trial (plenty of time to test a business model). I also recommend Clickfunnels for building entire sales funnels (I've built the entire website for The Social Entrepreneur through Clickfunnels).

Example of an Unbounce landing page -- they even have actual 'Value Proposition' templates!

Facebook ads are a great tool for targeting different groups of customers, as they allow a highly sophisticated level of targeting.

I won't go into the nuts and bolts of how to run Facebook Ads, but the gist of it is:

  • Set up a landing page featuring your Unique Value Proposition
  • Set up an ad set that targets one of your customer segments
  • Set up another ad set targeting a different customer segment
  • Set up identical ads in each ad set to the landing page you set up in step 1, with an ad headline that matches your Unique Value Proposition
  • After you've sent a hundred or more visitors from each ad set (i.e. clicks from the ad to the landing page), you'll have good data on click-through rate on your ads from each ad set. The Ad Set with the higher click rate responds better to your offer and is a more promising customer segment.
  • If you want to test additional customer segments, test them against the previous winner and see if you can get higher click rates.

Unless you hit the nail on the head right off the bat with a great customer segment and great landing page with a Unique Value Proposition that really resonates with that customer segment, you can expect to pay up to a dollar, or even more, for each website click.

You should expect to spend at least $200 -- and probably closer to $500 or more -- properly testing your business model (you'll also want to test your Unique Value Proposition, or UVP, in the next step).

Which is better: Investing $500 to figure out your business model so that you can properly market to the right people with the right message, or wasting $10,000 and hundreds (thousands!) of hours of your time building the wrong business?

An example of multiple ad sets under one Facebook Ads campaign.

3. Problem: Your Value Proposition Doesn't Resonate

Okay, so you've identified the right customer segment. You've identified a real problem worth solving, and you've developed a solution that addresses those problems. But you're still falling flat.

Often, this can mean a problem with your value proposition.

A value proposition, or Unique Value Proposition (UVP) as I like to call it, is a short, concise statement that clearly communicates the value of using your product or service to your prospective customer -- along with what makes it different from their other options.

Your product or service creates value for your customers in many ways, and may solve multiple problems for them. Your value proposition should speak to their most pressing problems and most desired outcomes, and in language that resonates with them. If it doesn't, your message may fall flat, and result in disinterested prospects.

Solution: Test Your Unique Value Proposition.
Just as you did with customer segments above, you can test your UVP with landing pages.

As outlined above, landing page software like Unbounce or Clickfunnels lets you quickly and easily set up a landing page, with your UVP front and center. You can then split-test (or A/B test) your UVP by setting up an identical version of that landing page, but with a different UVP (i.e. different headline). Once you start sending traffic to that landing page, the software will show one version to 50 percent of the visitors and the other version to the other 50 percent.

After you send a statistically significant amount of traffic to your landing pages, and set up a conversion goal, like email sign-up or a button click, the version with a higher conversion rate is your UVP winner, and that's the UVP that you'll use on your website, in your email/phone communications, and other marketing materials.

You may need to split test your UVP several times to arrive at the right one i.e. run your first test, pick a winner, then test that winner against another version with a different UVP. Target conversion rates vary from industry to industry, but you should aim for a conversion rate of at least 25 percent before you can feel confident that the UVP is resonating with prospective customers.

Example of a Value Proposition test page (this is similar to what we did when we were testing the UVP for Sacred Rides' new Explorer line of mountain bike adventures for beginners.

4. Problem: Lots Of Traffic/Lead, Few Customers

So you've got lots of traffic to your website, and your website is generating leads (you do have a lead generating system, right?), but you're not getting enough customers.

The problem may not necessarily be with your sales process or sales funnel, but with your pricing model.

Sometimes you're reaching the right customer segment, addressing the right problems, and offering the right unique value proposition, but if your pricing is out of line with the customer's perceived value of your product/service, or if your pricing model doesn't match their needs (eg. you're offering a subscription-based price, but your customers want a one time fee), you may find it hard to get customers.

Solution: Test Your Pricing Model
Am I sounding like a broken record yet? You've probably caught on my now that I'm a firm believer in testing your business model.

One way to test your pricing model -- before you even launch -- is to set up basic sales pages for your product/service via Unbounce or Clickfunnels (mentioned above). Unlike a full website, that has lots of navigation and links, a sales landing page is a one-page, typically long-form web page that communicates the basic value proposition of your business, along with supporting text, images, and/or video to help convince your visitors to buy.

To test your pricing model, you'd then use the software to split-test your pricing: one version of the page offers one pricing model, and the other version is the exact same but with a different pricing model.

For example, if you want to sell your product via a monthly subscription, you could set up one version of the page offering the product at $40/month, and another version at $60/month. Set your page conversion goal as getting visitors to click on the 'Buy Now' button.

After visitors click on the 'Buy Now' button, set up a post-click page that says something along the lines of "Sorry, our product isn't available for sale yet. Right now we're just testing demand and pricing, so we thank you for helping us with that goal."

Example of a test pricing page (this version has multiple pricing levels, which you could test against a version that featured, say, 50 percent higher prices ($15, $30, $75, $150)

I would suggest that you also add a signup form on the post-"buy now" click page, along the lines of "If you'd like to be notified when we launch, and be among the first to get access to ____, please enter your name and email below."

Some people will take their pricing tests even further by having a fake order form, so that users have to actually fill out an order form with credit card information. This tells you that people who fill out the form are actually ready to buy, and aren't just clicking a button to explore further. This will lower your conversions, but give you more accurate data, however for A/B price testing simply having users click on a 'Buy Now' button is usually sufficient.

Your landing page software will show one pricing page to 50 percent of your visitors (e.g. the $40 page), and the other version (e.g. the $60 version) to the other 50 percent. Once enough people have clicked on the 'buy now' buttons, you'll have conversion rate data that will help guide your pricing decisions.

For example, the $40 version may have a conversion rate of 17 percent, while the 60 percent version converts at 13 percent. The $40 version is converting significantly higher, so you should go for the $40 version, right?

If you run the math at 100 visitors, it comes out like this:

$40 model: 100 visitors * .17 conversion * $40/sale = $680 revenue
$60 model: 100 visitors * .13 conversion * $60/sale = $780 revenue

Price isn't the only model test you can conduct. You can also test the type of revenue stream. For example, one version of your page can offer a monthly rate, while another version offers a one-time fee (e.g. $40/month versus $500 for lifetime access).

It may cost you several hundreds dollars (or more) to send enough traffic to your sales pages to get reliable data on your customers' pricing preferences, but that is money well spent: it will help you assess what people are willing to pay for your product, and how they would like to pay for it.

Imagine the example above, multiplied by 1000 (i.e. instead of 100 visitors to your website, you get 100,000). The revenue increase would be $100,000 with the 2nd pricing model, and you'd have 4,000 fewer customer to deal with (i.e. less customer support required, for more revenue).

If you're capturing leads via a signup form, you'll also have your first customer list: these are people who have indicated they want to buy your product, after all.

The Social Entrepreneur

That does it for my thoughts on business model problems and solutions. If you want to take your business model a step further, check out my comprehensive, step-by-step course for social entrepreneurs.

The cost is $48/month (yes, I tested that price) and includes a detailed action plan for building, launching and growing your business. It also comes with a 30-day money-back guarantee, so you can take it for a test drive and decide if it's right for you.

(p.s. the course is not just for those wanting to start a business -- if you already have a business but are struggling, the tips, tricks and tools in this course will help you take your business to new heights!)