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.
