I
have had a close-up view of numerous business failures —
including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off point, which kind of makes sense when you think about it. If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.
including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off point, which kind of makes sense when you think about it. If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.
In
many cases, the customers — or, I should say, ex-customers — have a better
understanding than the owners of what wasn’t working. The usual suspects that
the owners tend to blame are the bank, the government or the idiot partner. Rarely does the owner’s finger point at the owner. Of course, there are cases where something out of the owner’s control has gone terribly wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small businesses fail.
understanding than the owners of what wasn’t working. The usual suspects that
the owners tend to blame are the bank, the government or the idiot partner. Rarely does the owner’s finger point at the owner. Of course, there are cases where something out of the owner’s control has gone terribly wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small businesses fail.
The
list is not pretty, it is not simple, and it does not contain any of those
usual suspects (although they might come in at Nos. 11, 12 and 13).
1.
The math just doesn’t work. There is not enough demand for the product
or service at a price that will produce a profit for the company. This, for
example, would include a start-up trying to compete against Best Buy and its
economies of scale.
2.
Owners who cannot get out of their own way. They may be stubborn, risk
averse, conflict averse — meaning they need to be liked by everyone (even
employees and vendors who can’t do their jobs). They may be perfectionist,
greedy, self-righteous, paranoid, indignant or insecure. You get the idea.
Sometimes, you can even tell these owners the problem, and they will recognize
that you are right — but continue to make the same mistakes over and over.
3. Out-of-control
growth. This one might be the saddest of all reasons for failure — a
successful business that is ruined by over-expansion. This would include moving
into markets that are not as profitable, experiencing growing pains that damage
the business, or borrowing too much money in an attempt to keep growth at a
particular rate. Sometimes less is more.
4.
Poor accounting. You cannot be in control of a business if you don’t
know what is going on. With bad numbers, or no numbers, a company is flying
blind, and it happens all of the time. Why? For one thing, it is a common — and
disastrous — misconception that an outside accounting firm hired primarily to
do the taxes will keep watch over the business. In reality, that is the job of
the chief financial officer, one of the many hats an entrepreneur has to wear
until a real one is hired.
5. Lack
of a cash cushion. If we have learned anything from this recession (I know
it’s “over” but my customers don’t seem to have gotten the memo), it’s that
business is cyclical and that bad things can and will happen over time — the
loss of an important customer or critical employee, the arrival of a new
competitor, the filing of a lawsuit. These things can all stress the finances of
a company. If that company is already out of cash (and borrowing potential), it
may not be able to recover.
6. Operational
mediocrity. I have never met a business owner who described his or her
operation as mediocre. But we can’t all be above average. Repeat and referral
business is critical for most businesses, as is some degree of marketing
(depending on the business).
7. Operational
inefficiencies. Paying too much for rent, labor, and materials. Now more
than ever, the lean companies are at an advantage. Not having the tenacity or
stomach to negotiate terms that are reflective of today’s economy may leave a
company noncompetitive.
8. Dysfunctional
management. Lack of focus, vision, planning, standards and everything else
that goes into good management. Throw fighting partners or unhappy relatives
into the mix and you have a disaster.
9.
The lack of a succession plan. We’re talking nepotism, power struggles,
significant players being replaced by people who are in over their heads — all
reasons many family businesses do not make it to the next generation.
10.
A declining market. Book stores, music stores, printing businesses and
many others are dealing with changes in technology, consumer demand, and
competition from huge companies with more buying power and advertising dollars.
In
life, you may have forgiving friends and relatives, but entrepreneurship is
rarely forgiving. Eventually, everything shows up in the soup. If people don’t
like the soup, employees stop working for you, and customers stop doing
business with you. And that is why businesses fail. - Jay Goltz
Endorsement
Tokunbo
Akeredolu-Ale (TA) has
read the above article and thinks the writers piece is worthy of dissemination
to his Nigerian Mentees and Small Business Knowledge seekers.
Tokunbo
Akeredolu-Ale (TA)
is an Enterprise Development & Small Business Expert Involved In The
Delivery Of Integrated Small Business Solutions.
Tokunbo Akeredolu-Ale (TA)'s Enlightenment, Trainings, Information Dissemination, And Consulting Services Cut Across Microfinance, Risk Management, Marketing, Planning, Technology, And Integrated Online Marketing Communications (Social Media Marketing, Search Engine Optimization, Online Reputation Management, Content Marketing) As Relates To Small Businesses In Nigeria.
Tokunbo Akeredolu-Ale (TA) Is An Entrepreneur, Small Business Coach & Rural Microfinance Expert That builds successful people and excellent businesses by delivering superior value, personal and business resources, information, advice and Tested practical business solutions.
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BSc/MSc Marketing Communication & Commerce.
PhD Leadership & Organizational Management.
Professorial Fellow, Omnibus Institute For Professional Learning & Development (Prof.FOIPLD),
Doctoral Fellow, Omnibus Global Academy. (Dr.OGA),
Doctoral Fellow, Chartered Institute Of Social Media & Digital Marketing (Dr.FCISMDM)
Fellow, Chartered Institute Of Administration (FCIA).
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Whatsapp:08185000488
BSc/MSc Marketing Communication & Commerce.
PhD Leadership & Organizational Management.
Professorial Fellow, Omnibus Institute For Professional Learning & Development (Prof.FOIPLD),
Doctoral Fellow, Omnibus Global Academy. (Dr.OGA),
Doctoral Fellow, Chartered Institute Of Social Media & Digital Marketing (Dr.FCISMDM)
Fellow, Chartered Institute Of Administration (FCIA).
Email: info@tokunboakeredoluale.com
Whatsapp:08185000488