Interview: Why Entrepreneurs Fail

This is a blog post by Drea Knufken.

Roth’s new book, The Entrepreneur Equation.

Wanna be an entrepreneur? Think it’s a glamorous gig that will change your life for the better?

Carol Roth will set you straight. Roth, a longtime business adviser and former investment banker, has made a career out of helping businesses succeed through endearingly frank and applicable advice. In a floppy economy full of wannabe business owners, Carol has turned her attention to entrepreneurs–what helps them succeed and, equally importantly, why they fail. I caught up with Carol to learn more about her unique take on entrepreneurship.

BP: What are some of the main reasons that people fail at entrepreneurship?

I have a saying that if you fail to prepare, you prepare to fail. So many people go into business because they are in lust with a business idea. I call it business beer goggling.

They basically see something as a new idea and it looks really good. Then, all of a sudden they wake up one day and go, “Oh boy! That wasn’t what I thought it looked like.”

I think people are in lust with the idea when they’re creative and trying to fill a hole. They go in with the wrong mindset, not really understanding what it takes to run a business, not taking the time to stack the odds in their favor, not pursuing opportunities that have enough upside. Those are the things that make them fail–or some people don’t like that word, so we’ll say “fail to succeed”–in business.

BP: It sounds a lot like a relationship.

It is. I would say they have similar principles. Don’t date anyone before you get married. You would never do that unless you were in Las Vegas and there was a lot of alcohol involved.

People don’t take the time. They want to rush in. They want to marry their idea. They want to put all of their money into a business opportunity, and they haven’t taken the time to test it out. I use that analogy all the time. It would be like marrying a bad kisser because you didn’t take the time to test that out before you committed to marry it.

BP: How can people take the time to test, or prepare in the way that you say, without losing their enthusiasm for the idea?

I think what happens is, a lot of times, they do lose the enthusiasm for the idea, which gives you the feeling that if you’re not going to be excited and passionate about this over the long-term, you shouldn’t pursue it.

But there are a couple of ways that you can test out the businesses. One is really simple and this is usually the eye-opener. You can actually go work in somebody else’s business for a couple of months, on nights or weekends, or you can even quit your job and work there full time.

I had a woman who came to me and wanted to open a restaurant, as about every third person does. She was really passionate. She was in the banking industry and financial services and had been through all kinds of roller coasters over the past couple of years. She just wanted something that she thought was going to be better suited for her.
So she was going to open a sandwich franchise. I said, “Great! How much time have you spent in the restaurant industry?”

“Well, I eat there every day,” she said.

“Well, that doesn’t really qualify you,” I said to her. “Do me a favor. Nights and weekends, go get a part-time job at your local franchise. See if you like it. See if you’re any good at it. See if you can get yourself promoted. Pretend you’re Nancy Drew and take a magnifying glass to learn all the ins and outs and the things that might be stumbling blocks for you and let’s reconvene.”

I really only think it lasted three months and she came back to me and said, “If I never see another $5 foot long again in my entire life, it will be too soon.” It’s because she had really glamorized what it meant to own this restaurant and to have this supposed freedom. When she got to see it up close, the enthusiasm did wane.

Had she said, at that point in time, “you know what, this verifies it. This is great. I learned that you really need to be focused on quick turn time or servicing the customer.” Then she would have been in a really great position. But no, she went right from lust to let’s get married. That’s not a good thing.

Another really great example, and again it happens to be a restaurant, but the Rainforest Café. The gentleman who started that–it’s a big theme restaurant that really looks like you’re in a rainforest–built a prototype for the concept in his backyard, before he built it out. He had people come over to see if it was cool and a place they would go to. He evaluated what kind of food they wanted. He really tested it on a small scale and on a limited budget before he invested the millions and millions of dollars it took to open up the first unit.

I think the key is if you can go through it on somebody else’s dime and someone else’s location, fantastic. If you can set aside a budget, even if you’re baking cupcakes, bake them for your friends and family and people in the neighborhood first. And don’t just see if you can just sell them once because everyone has friends or family that will buy something from you once because they feel bad for you.

Do they call you up the next day jonesing for them; “Oh my God. I can’t stop thinking about those cupcakes,” or do they never call you again? If they never call you again, then guess what? Your cupcakes maybe aren’t so good and you shouldn’t go into business.

It’s these really small things you can do to test something out on a limited budget in a defined period of time to really stack the odds of success in your favor.

BP: I remember when I first started my own business. I kind of got thrown into it. I got laid off from a job the same week I closed on a property and was taking care of somebody’s nightmarish kitten. I was just going nuts. I just felt like I had no alternatives. So I bought a book on how to freelance and I just started doing it. I had no idea what I was doing.

I know there are some people who have become entrepreneurs in similar situations. I know also that a lot of people tend to freak out once they lose their jobs. How do you reconcile that very strategic, rational, “OK, Let’s try it,” mindset with the desperation that drives a fair amount of entrepreneurs?

I think that there is a difference between making money to supplement an existing situation and making a long-term investment and career decision. So absolutely, if you need to pay your mortgage or put some food on the table and there’s a way you can do that, then you do that for the short-term, but eventually, you’re going to need to make a decision on whether you’re going to invest in that path or go back to find a job. That’s when it’s time to be strategic. You definitely don’t want to do it in a state of panic, because chances are, you’re going to make a poor decision.

You probably know from being in this situation, that we’re not just talking about the startup costs for business; you have to be willing to operate it and live for a certain period of time. For a lot of businesses, it can take a couple of years for it to really get going.

Some people are fortunate and they can make some money real quickly. But a lot of times, people aren’t necessarily looking for the product or service or there’s a long sale cycle and not everybody’s ready and raring to go as a customer the day that you’re ready to hang your shingle out.

I think that if you’re in this panic of desperation, you might have to go down this path temporarily. You might do something on the side to make some money or you might even take up lesser jobs to make some money, while you pursue whatever it is you ultimately want to do.

The one thing that really kills me that people always tell me is, “Oh, well, my job is not secure.” Well, neither is your business. They say, “Well, I have to go and I have to convince all these companies to hire me.” Well, you also have to convince all your customers to buy from you on a regular basis.

I think that there was a perception of job security in the past and now people are realizing that nothing is a given. Now they’re just sitting there and going, “oh, well then I can take control of my own business.”

The reality is that you still don’t have control. At the end of the day whether it’s a company or a business, the customers are in charge. And so, I think that there’s a little bit of irrational thinking there. That leads people onto that path without realizing that they have to encounter the same challenges but now their bosses all have different agendas.

BP: Is there a certain kind of person that’s most likely to fail at entrepreneurship?

Yeah, I create a framework that I call ‘The Entrepreneur Equation’ from my book of the same name. I go through motivation, and timing, opportunity and personality.

I always say, if you don’t have the personality for it, it doesn’t matter if you’re motivated by the right reasons, or the opportunity is the best one in the world. If you’re not the right person and then regardless of the rest of it, it’s not the way to go.

There are a probably two different ways that I would categorize that. One is the very scientific test that I call, ‘Are you Santa Claus, or are you an Elf?’ And the thing about Christmas, it takes one Santa Claus that has the vision, and lots of elves to do the execution day in and day out.

Starting a business is very much like being Santa Claus. You have to wear multiple hats, you have to organize lots of different tasks and be good at doing different things. You don’t’ really get to focus on any one thing. And oh, by the way, if the presents don’t get delivered, you get blamed.

If you are somebody who doesn’t really want to do that, but you want to focus on one thing, or you really like to take direction, but you don’t like to take the ball and run with it, or you just like to really go deep into something, or you like to be behind the scenes, then you’re more like an elf. And if you’re more like an elf, then you shouldn’t be running a business, you shouldn’t be playing Santa Claus.

So, Santa has a good chance of success, and an elf shouldn’t quit their day job. I think that that’s one thing right up front.

The other thing is that personality traits can change over time. If you think about entrepreneurship, there has to be the ability to be comfortable with being uncomfortable. You have to be able to tolerate risk. You have to be willing to ride a roller coaster on a day–to-day basis. And really do different things, whether it’s financial risk or just kind of not knowing what’s ahead of you, because some people really just don’t like that.

If you don’t like that, you’re going to be miserable as a business owner, because that is very much what you’re going to endure on a day to day basis. So if you’re the one that just likes the routine, likes to know what’s ahead of you, likes the predictability, great. Good. Know yourself, and know that this is not going to be for you.

BP: What are some of the difficulties that females face in entrepreneurship?

A lot of women go into business based on creativity and passion. It’s something that is, you know, is cute or creative, but they don’t necessarily have a goal for their business. They don’t really know what they want it to be. They’ll end up with what I call ‘jobbies’, which is a hobby that’s disguised as a job or a business.

Or think of a job-business, which is just nothing more than a business which is entirely dependent upon them. And then, if they go on vacation, their business doesn’t make any money.

I think that for women, it’s really important for them to set goals and intentions for the business, and really make some decisions as far as what it is that they want to do. I see so many women over and over again with jobbies, who basically have invested tons and tons of money in a website and business cards and a built up a bunch of inventory for something that really isn’t a viable business, just because they have a creative brainstorm. They don’t really take the time to think about the goals, and to see if it was a viable business and come up with a plan behind it.

If you really want to really build something, if want to be somebody who employs other people and helps the economy grow, and really make a name for yourself, then you have to do something totally different. And I think that just having that intention is so critical because you can’t come up with a plan to get somewhere if you don’t know where it is that you want to go.

Official bio: Carol Roth helps businesses grow and make more money. An investment banker, business strategist and deal maker, she has helped her clients, ranging from solopreneurs to multinational corporations, raise more than $1 billion in capital, complete hundreds of millions of dollars in M&A transactions, secure high-profile licensing and partnership deals, create brand loyalty programs and more.

Carol is a frequent radio, television and print media contributor on the topics of business and entrepreneurship, having appeared on Fox News, MSNBC, Fox Business, WGN TV Chicago (video) and more. She is also signed to LA-based t.v. production company Snackaholic who is currently developing a television show around Carol’s life as a business expert and personality. Carol’s Unsolicited Business Advice blog at was recently named as one of the Top 10 small business blogs online.

Drea Knufken is a freelance writer, editor, ghostwriter and content strategist. Her work has appeared in national publications including WIRED, Computerworld, National Geographic, Minyanville, Backpacker Magazine and others. For more information, please visit You can also find Drea via her blog, Facebook, LinkedIn and Twitter.

Written by Drea Knufken

Currently, I create and execute content- and PR strategies for clients, including thought leadership and messaging. I also ghostwrite and produce press releases, white papers, case studies and other collateral.