Multi-millionaire entrepreneur Codie Sanchez, the founder and CEO of Contrarian Thinking, a financial advice enterprise, has made a name for herself by challenging conventional wisdom and offering unique insights into the business world.
From her experience and keen analytical skills, Sanchez has identified eight types of businesses that are almost always destined to fail. Her observations can be quite valuable for aspiring entrepreneurs, guiding them away from common pitfalls and toward more sustainable and successful ventures.
So which businesses should budding entrepreneurs try to avoid? Here’s a rundown:
1) Restaurants
Sanchez highlights the daunting challenge of restaurant success statistically: a staggering 60 percent fail within their first year, and a grim 80 percent don’t make it past four years. She also emphasises the significant investment required to create a truly remarkable dining experience.
Competition is cutthroat, intensifying the challenge. Even established brands like Cracker Barrel need help. Their CEO recently conceded a decline in relevance due to shifting consumer preferences and an ageing customer base.
This admission resulted in a struggling stock price. In a bid to turn things around, the company unveiled a $700 million revitalisation plan, but its effectiveness remains to be determined.
2) Retail
In her TikTok video, Sanchez emphasises the brutal reality for retail: 70 percent of businesses fail within five years. “Just another competitive brick-and-mortar store selling average products simply won’t survive,” she warns.
Further, Erply’s report identifies weak leadership and management as a critical factor in retail failure. They emphasise that this falls squarely on the shoulders of the business owner.
While passion may ignite the entrepreneurial spirit, effective day-to-day management is essential for long-term success. The report pinpoints a lack of experience and management incompetence as key culprits behind these downfalls.
3) Software
Sanchez underscores the immense difficulty of replicating a tech giant like Facebook. She highlights a statistic suggesting that a minuscule fraction, less than one in a million software companies, even reach the level of a potential contender.
Many of these aspiring companies need help to develop a product or service with broad appeal. Beyond the challenges of replicating tech giants, numerous factors contribute to tech company failure.
A Failory report cites the example of ChaCha, a human-powered search engine founded by Scott Jones and Brad Bostic. ChaCha’s downfall is attributed to increased competition, particularly after Google launched the Panda algorithm, significantly impacting search rankings.
4) Electronics
As Sanchez emphasises, the relentless pace of innovation in the electronics industry is a double-edged sword. While it’s a dynamic and exciting field, failing to keep up can spell disaster for businesses. This rapid evolution is evident in the constant stream of new devices, with rumours about iPhone 15 successors already circulating online.
5) Hotels
Sanchez highlights the significant financial investment required to run a hotel. Adding another layer of complexity, hotels are unique in demanding 24/7 customer service. This relentless nature can deter potential entrepreneurs, making the hospitality industry a less attractive option for some new business ventures.
While Epos Now highlights a concerning trend across various businesses, with 60 percent failing within the first year and 80 percent within five years, the hospitality industry faces even steeper challenges. This 10% higher failure rate can be attributed to factors like a lack of unique concepts, inadequate cost control, poor food quality, or subpar customer service.
6) Newspaper
The newspaper industry is dominated by giant players, making it hard for anyone else to make a name for themselves. The digital revolution has undeniably reshaped the landscape of print journalism.
Across the nation, magazines and newspapers grapple with dwindling revenues and a shifting audience. Readers, accustomed to the immediacy and accessibility of online news, are migrating away from traditional print formats.
A report by Brookings suggests the number of journalists at U.S. newspapers has dropped 39 percent since 1989. The data show that ad revenue spent on print media far outweighs the amount of time readers spend there and will inevitably continue to drop.
7) Autoparts
Sanchez warns that many entrepreneurs in the auto parts industry stumble in their first year due to a lack of clear strategy or a defined target market. Without a well-defined approach, navigating the competitive landscape and attracting a loyal customer base becomes significantly more challenging.
According to Yahoo Finance, underestimating the importance of strategy can be fatal for auto parts businesses. Many entrepreneurs fail to target a niche or conduct thorough market research beforehand. However, there are clear paths to success. Conducting thorough market research and targeting a specific niche is crucial to avoid failure.
8) Luxury Construction
Luxury construction uses top-notch materials, custom designs, and high-end finishes, exceeding building codes and incorporating smart technology, luxury appliances, and fixtures. It caters to affluent tastes with exclusive, high-end spaces. In contrast, normal construction adheres to standard building codes, focusing on functionality and cost-effectiveness to meet typical needs. It prioritizes practicality over luxury features.
Due to its higher costs and smaller market, luxury construction is more susceptible to economic fluctuations and market changes, making it a business with a higher risk of failure.
The dream of building a successful construction company can quickly turn into a harsh reality. Data from the Bureau of Labor Statistics paints a grim picture: only 17.2 percent of construction companies launched in 2001 survived two decades.
The industry is fraught with risks and challenges, demanding careful planning and execution to overcome the high failure rate. If you’re determined to enter this challenging field, be sure to conduct thorough research and planning to increase your odds of success.
Sanchez’s insights into failing businesses offer a critical lens for both entrepreneurs and investors. She equips them to navigate the competitive business landscape by identifying red flags and pitfalls. Understanding these risks is crucial for informed decision-making, leading to sustainable growth, whether launching a venture or evaluating investments.
