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Top Ten Reasons for Business Failures

In a recent article in the Sunday Business Post, 18th November 2012, Pat Sutton highlighted the top ten reasons for Business failure and advice to how to avoid failure;

On the face of it business failures can happen for many reasons such as running out of cash, lack of sales, bad management and so on. Ultimately with many business failures it’s about lack of attention to detail. 50 years ago when Sam Walton decided to build his business Wal-Mart from one store to several stores he started by gathering his employees early every Saturday morning and analysing the business on a weekly basis. What was selling? what wasn’t selling? how did sales compare to previous week? What do we need to do differently next week? The Saturday morning meetings became the mainstay for growing the business into the empire that it is today. He perfected the art of learning fast and acting fast, based on real time up-to-date information. Discipline, rigor, consistency are so important when building a business. It’s about doing the ordinary mundane tasks, brilliantly.

1.Running out of cash
Running out of cash is one of the most common reasons for business failure. This invariably is the end result of poor management, poor margins, poor selling and/or unbalanced cost structure. Some owners try to ignore the developing cash problem. Some do not even realise the problem is emerging due to lack of real time information, while other’s make wrong decisions like using tax to cover up the cracks. Running out of cash is often a symptom of the other nine main reasons for business failure.

2.Poor quality
As a business grows, many poor managers do not give real attention to quality. An owner manager who has developed a product or service often shifts roles, takes on more responsibility or delegates the process responsibilities. Quality problems bring increased costs, lower profitability, customer dissatisfaction and lower employee morale.

3.Ignoring the customer
Amazingly some people effectively ignore customers’ real needs. Business owners get “busy” with staff issues, credit control, production, product development, etc and the customer almost becomes a nuisance. If customers don’t receive top class service don’t expect to retain them. So, get out there and ask customers the question “what do we need to do, so that you unreservedly recommend us?” Unfortunately this doesn’t happen often enough.

4.Lack of innovation
The rate of innovation is accelerating in today’s modern world. Those who move at the old pace of product development or business model innovation get left behind. They no longer meet customers’ needs. And by this I mean ‘needs’. It is not enough to ask customers what they need. Customers themselves may not understand what they will want in the future so research, analysis and deep thinking is required. Keep ahead of the curve. It is your choice, let competitors figure it out and follow them, faster than anyone else or lead yourself. Don’t be in the pack.

5.Poor strategy or none at all
Organisations need a strong, flexible, robust, long term strategy for top line growth and bottom line profitability. This requires continuous strategic thinking. Making the strategy work requires a clear delivery and execution programme. Some business owners who taste initial success forget about long term strategy in the glow of short term success. Other business owners who come under pressure revert to targeting short term wins at the expense of long term strategic thinking. Discipline, rigour, robust systems, and real time information are all vital in underpinning strategic delivery.

6.Poor Management / Poor leadership
Business owners can be isolated when there isn’t a good support system in place. Running a business can be a lonely road particularly for small to medium sized companies where there isn’t a big management team in place to support each other. Trying to work things out in isolation is not good and invariably leads to bad decisions. Lack of communication and dialogue with those around you only leads to poor performance.
One cannot overstate the importance of hiring quality, experienced staff, and most important those with the right attitude and value system. People and their capabilities are critical to long term success. Wrong hire’s are expensive but not dealing with the mistake is fatal particularly when replicated around the organisation. Strong leaders make the right decisions delegating responsibilities down the line to top class teams. Poor leaders are either not capable of making those decisions or have a fear of losing control and power. Successful companies always have ‘A’ players driving the business.

7.Bad Time Management
Management spending time on menial non-productive chores instead of concentrating valuable time and resources on tasks that make a real difference to the bottom line. This can happened for a variety of reasons from lack of focus, lack of communication, to not responding well under pressure. Bad time management is often a symptom of poor planning. If there is a clearly defined plan with roles and responsibilities allocated and a consistent monitoring process this helps greatly with poor time management.

8.Poor Decision Making / Not learning from Your Mistakes
This can be described as bad management. Good decision making is critical for any business. Business owners take risks every day which is what they have to do to grow and prosper be it introducing a new product, reducing sales price, offering special discounts, taking on new staff, investment in new plant etc. If decisions do not work out many businesses do not respond quick enough to change the strategy by taking alternative course of action until it’s too late.

9.Lack of real time reporting systems
Businesses can outgrow their reporting systems and in many cases the badly run company does not invest in keeping their reporting systems relevant. Lack of real time information or the wrong information being measured and relied upon are common problems. How many times have companies been told if it doesn’t get measured it doesn’t get done.

10.Personal Issues
There are many business owners who have made bad personal investment decisions in recent years and now expect their business to ‘carry the can’ by funding their personal commitments. This if left unchecked only leads to severe weakening of the business and at times with fatal consequences.
Other factors here are that some business owners are not prepared to step up to the plate to put in the extra effort needed as the business grows. Lifestyle choices come into play. Starting work late and finishing early and expecting it not to have any long term effect on the business.
Lack of investment in personal growth. Whilst you may have started out as an expert in a particular field, day to day tasks take over meaning you don’t invest in personal development with the result that the industry and competitors passes you by.
Pat Sutton, O’KellySutton Business Advisors, Kildare, Co. Kildare. sutton@okellysutton .com, www.okellysutton .com