The Entrepreneurship and Leadership Series: Part 1

Why Does Leadership Matter for the Entrepreneur?

If you look at the top reasons startups fail, many of them can be traced back to one thing: poor leadership. When I realized this fact, it did not surprise me. Many of the entrepreneurs that I know have never held a formal leadership role before starting their business. Additionally, most people do not realize how leadership skills impact almost everything you do when running a business. This is true particularly when running a business with only one official employee, and that employee is you. Entrepreneurship and leadership go hand-in-hand no matter the size of the company.

Knowing all this, I wanted to do my part to help entrepreneurs understand the importance of leadership. To do this, I have put together The Entrepreneurship and Leadership Series. This series will consist of multiple blog posts that I plan to release over the next few months. Each post will focus on how leadership skills can impact certain aspects of running a business. This first post will start at the beginning with looking at what is leadership and why leadership matters for the entrepreneur.

Read Part 2 Here: Why to Put Your Customer First

Read Part 3 Here: Why Self-Awareness Matters In Business

What is leadership?

In my words, leadership is the ability to effectively guide and communicate to those you interact with throughout every aspect of your life. Leadership is more than just the relationship between employees and managers; you have the power to be a leader in every relationship you have.

Contrary to misconceptions, leadership is also more than having authority. Leadership is about listening to others, making decisions based on the overall needs of those impacted (which might be different from our own needs), and communicating those decisions properly. Proper communication includes making the group understand all decisions and feel comfortable with those decisions even if it is not what they originally wanted.

Leadership is also about bringing others along for the journey instead of expecting others to follow just because of your title.


Why is leadership important for entrepreneurs?

Leadership skills impact every interaction you have with others. This does not just include how you interact with your employees – if you have them – but how you work with freelancers, contractors, advisors, board of directors, partners, and most importantly your clients.

Your leadership skills also impact your ability to plan for and execute tasks efficiently. Great leaders know how to create workable strategic plans and achieve deadlines. This is true whether the work is being done by yourself or by someone else that you are leading.

Most importantly, great leaders can guide adverse situations to positive, or at least more favorable, outcomes. This is important when you must break negative news to partners, clients, board of directors, or anyone else depending on a situation’s outcome, or when you have to communicate with an upset customer. Upset customers can create significant problems for small businesses, and your ability to lead these situations properly will impact your company’s overall success.

The top reasons startups fail and leadership impacts

CB Insights recently released a study containing the top 20 reasons why startups fail. While you can see the full list here, below I have listed six reasons from the top 20 where leadership skills have a direct impact. While other causes can be linked to leadership, I felt that these were the most important to highlight.

No Market Need (42%)

The number one reason companies that were studied failed was because there was no perceived market need for their products. While most businesses failed due to more than one reason, 42% of companies gave no market need as one of their answers. What was meant by this response was even though the company solved a problem with their product, they did not target the market need with their delivery or marketing. An example given in the study said, “Doctors want more patients, not an efficient office.” The company’s product created a more efficient office. While an efficient office can allow for more patients to be seen, the startup failed to make this connection for the client because their communication focused too much on their product and not the market need.

Communication is one of the most important skills of a leader. Through effective communication skills, you can listen to the customer to realize what matters to them. You would then be able to communicate back in a way that shows the client how your product can solve their problem. As a strong leader, you can pick up on and communicate back with the words they need to hear to see that your product fits their needs instead of depending on the client to make the connection. You lead them to the solution instead of just expecting them to meet you there.

Ran Out of Cash (29%)

The number two reason on the list, impacting 29% of companies was running out of cash. Great ideas never could become great simply because they ran out of funds before they could generate the revenue needed to sustain the business.

Budget management is a leadership skill. Knowing that you have limited funds means that as a leader you must be diligent when deciding where the money goes. It is about spending right and choosing what is needed now versus spending on the shiny objects that could wait or might never be required.

Not the Right Team (23%)

Impacting 23%, the number three reason the startups they studied failed was not the right team. What is meant by this reason is that the companies lacked specific skill sets on their starting teams; there was a knowledge gap that was not recognized until it was too late.

Being self-aware of your own skill set is an essential quality of a leader. No one is perfect, and no one has the knowledge or ability to do it all. Even when you have partners, as a whole, you might be lacking the needed knowledge or skills to succeed. Strong leaders recognize their own and their team’s weaknesses and bring in the required support. This can be through finding additional founders, employees, advisors, or freelancers and contractors.

Need/Lack Business Model (17%)

The seventh reason on the list was need/lack business model. Without a business model, startups tend to focus on the now and what is easy instead of focusing on what they need to do to get to where they want to go and continue that path long-term.

When you are a top leader, you know that there is more to being successful than merely producing a product. In addition to creating a product, you must plan. Planning helps you see the bigger picture of what needs to be done to achieve the goals of tomorrow instead of just checking things off the to-do list today.

Ignore Customers (14%)

Customers are what makes an idea a business. Without customers, no business will succeed, and when customers are ignored, they tend to take their money elsewhere. This is why ignoring customers came in at number nine on the list impacting 14% of failing startups.

As a leader, you can impact this is two ways. The first is listening to your customers. Find out what they really want and why they want what they do. Once you know this, you can make the right business decisions to have the most favorable customer impacts. The second way is communicating effectively with your customers to influence expectations and reactions.

Disharmony on Team/Investors (13%)

Reason number 12, impacting 13% of failing startups, was disharmony of team/investors. Leadership is not just about managing down. It is also about managing up (to investors or board of directors) and across (to partners), and maintaining overall positive working relationships at all times.

Great leaders listen to others. When you hear others and consider their needs, you can make decisions that are best for the whole – not just what is best for you. You will not always be right. Part of the reason you have a team is to get the experience that you are lacking. With being a strong leader, you are also able to communicate back effectively when you think something should be done one way and not as others were suggesting. As a leader, you can keep harmony throughout a company even when people disagree.

The Entrepreneurship and Leadership Series

It is easy to see that leadership is a valuable skill for all entrepreneurs. Throughout the Entrepreneurship and Leadership series, I will expand upon why great leadership skills are a must for the entrepreneur. I will also include tips on how you can improve in these areas.

Read Part 2 Here: Why to Put Your Customer First

Read Part 3 Here: Why Self-Awareness Matters In Business

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