Basic Business Cents
Ten Reasons Why Businesses Fail
There are many reasons why businesses fail but some of the more common ones are listed below. Note, it is not necessary to have several of these shortcomings; any one can be fatal.
- Lack of a vision of the desired future, communicated and understood by all employees. This should be a memorable, inspiring, and compelling statement of the future state of the business. Every decision in the company should be viewed as to whether it helps to achieve the vision.
- Lack of leadership. This does not mean a dictatorship nor does it mean anarchy by sitting back and letting the employees go in all directions. It means being out in front, setting the example for behavior desired. A leader’s role is a heavy responsibility because employees tend to watch and emulate the behavior of the leader.
- Satisfaction with status quo. If leadership is happy with doing things the way they have always been done; the world is passing them by. Technology and trends are constantly changing and business must be learning and changing to keep abreast, or hopefully in front of competition.
- Lack of a good strategic plan. With the aid of the vision of the future state of the organization, a list of actions necessary to reach that vision is needed to guide activity. Follow-up is required on a regular basis to monitor progress on achievement of the strategic actions.
- Lack of focus. Any mature business typically has room for two competitors to make reasonable profits and one more to breakeven and barely exist. Any business should narrow their focus until they find a niche in which they can dominate.
- Too much waste, rework, and redundancy. Experience has shown typical numbers for waste, etc., of 25% in medical facilities, 35% in manufacturing, 60% in service, and up to 90% in government organizations. A continuous, relentless pursuit of reduction of these numbers is critical for survival.
- Attention to reduction of defective product and service and not on the processes and systems that produced those defects. All work is a series of processes and the output is only as good as the processes. Process thinking is a breakthrough on the road to prosperity.
- Lack of financial projections. Managing by looking at the financial numbers of what has happened in the past is like driving a car by looking in the rear view mirror. A running twelve-month projection, by month, of anticipated revenue, expenses, and cumulative cash flow is a tremendous management tool. The cumulative cash flow projection will reveal how much money is required to sustain the operation.
- Lack of understanding of customers’, and those who would be desirable customers’, true needs and wants. They may not truly know what their real needs are, so needs and wants can be two different things.
- Inattention to growth of employees. Businesses have a large investment in their employees and turnover is a huge hit to the bottom line. By continually investing in skills training and broad education, a happier and more productive workforce will result.
There are other reasons, of course, like the economy, acts of nature, loss of a key person, etc. but the above ten are controllable. Avoiding these pitfalls can go a long way to ensuring success, prosperity, and survival of a business.