Why Businesses Fail.

| June 29, 2012


“Would you like me to give you a formula for success? It’s quite simple, really. Double your rate of failure. You are thinking of failure as the enemy of success. But it isn’t at all. You can be discouraged by failure or you can learn from it. So go ahead and make mistakes. Make all you can. Because remember that’s where you’ll find success.”  ~ Thomas J. Watson, Founder IBM

 Executive Summary…

New Member Offer Only.

Businesses fail for all the wrong reasons, usually needlessly.

Having built over 20 different businesses — some tremendous successes, some big failures — I can personally attest to the wisdom found in the quote above.

But, that is only part of the story.

If all you do is make a series of “wonderfully enlightening” mistakes — and never get around to producing exceptional RESULTS — you will ultimately fail.

As obvious as this sounds, it seems to escape the millions of small business leaders who file bankruptcy… or worse… slowly lose their market to a hungry competitor and simply wither on the vine.

And die from a lack of relevance.

When we were doing the research for The Golden Game of Business Success Series, we found hundreds of REASONS why over 50% of all businesses started in the last 2 years will be DEAD in the next 2 years (a startling 70% will be gone in 9 years). But, as you will learn in this article, there are only 3 CAUSES:

  • They failed simply because they didn’t understand the RULES of the game…
  • They failed simply because they didn’t PLAN to WIN…
  • They failed simply because they didn’t PLAY to WIN…

If you are not growing fast enough… if you are not making enough money… if you are constantly struggling to find direction and the ideas to grow your business to a cash-cow, read this article, download your copy of The Golden Game of Business Success: Playing to WIN and get with the program!

Business Success and Failure Circa 2012…

Every business like yours sprang from a VISION of possibility and opportunity.

To do something that has never been done before… to offer a highly innovative product or service that provides a truly WOW customer experience… to offer a unique new way of doing business that substantially raises the bar for value and convenience… the dream of creating a whole new industry or discovering a hot new niche in a large established market.

The dream could start as nothing more than a casual conversation between friends that develops into a “why not?!”… or an inspired encounter between customers looking to solve a thorny problem… or a simple “bright bulb” going off in an entrepreneur’s mind, causing him or her to lose sleep from the nagging inspiration flowing through their heads.

No question, you and every other business in the world, opened your doors with high hopes, great confidence in the future and high expectations for success. No one opens a business with the expectation of investing their heart, soul, hard work and cold cash in an enterprise that keeps coming up short… and over time, joins the swelling ranks of business failures and bankruptcies.

Yes, SUCCESS is the big Expectation. But the STATS are anything but rosy… and we don’t want you to be in this fatal group of failures!

To give you something to think about, here are a few facts of business life circa 2012. This should help you better understand the problem we see and you face.

Right now, there are some 415 MILLION business across the globe, some large, but the vast majority are small enterprises with under 10 employees. Some of these businesses have been around a very long time.

For example, there are 7 businesses in Japan over 1,000 years old… a Mint company in the UK that was started in 886… a winery in France started in 1000! (Clearly, these business found the path to enduring success.)

From the most recent IRS stats below, and projected out to 2011-2012, there are roughly 33 million businesses in the United States — with some 550,000 NEW businesses started each MONTH — all begun with the premise of achieving entrepreneurial greatness — by pursuing an incredible new opportunity.

Most start a business to achieve some level of financial freedom/wealth… power… a lush lifestyle… or a tremendous income — the cash flow to do what you want, when you want, with whomever you want… and never worry about money.

That, of course is the big DREAM. However, the REALITY is that of all the new businesses started this year, some 44% will be out of business just three years out. Almost 70% will be dead in the water long before their 10th anniversary. A real nightmare.

The sad truth is a huge number of businesses started 3-5 years ago no long exist. In fact, organizations such as Dunn and Bradstreet, the SBA and the National Association of Small Business reports a 25-35% failure rate in just the FIRST TWO YEARS.

Causes of Business Failures…

For you to fully understand what it will take for you to turn your business into a gold mine, we need to make 100% certain you understand the difference between the CAUSE of business failure and the various REASONS.

As you will see below, the number of reasons are endless. In a way, looking at this list is like listening to a teenager EXPLAIN what went wrong… and why the accident wasn’t his or her fault. Sure they were texting, but that doesn’t matter. Sure, the Big Mac fell on the floor… they had to grab it. Sure, that steamroller just darted out in front of them. It wasn’t their fault they didn’t see it!

The adult in the room would say that those are just excuses and rationalizations. And we ALL know what a RATIONALIZATION is, right? It is nothing more than LYING to yourself.

No one ever rationalizes success. They only rationalize failure.

So let’s cut to the chase and stop the excuses and rationalizations. There are ONLY 3 CAUSES for business failure… and you already know what they are:

1. Failure to create a sufficient number of new customers…

2. Failure to retain existing customers…

3. Failure to make money.

Think about it. If you are in business and you fail at ANY one of these three, over time, you are history. The bottom line is that your failure is 100% guaranteed if you fail to follow the 3 Golden Rules of business and fail to Get, Keep, Make! The converse is also true. Your success is 100% guaranteed when you employ the Golden Verbs and continuously GET, KEEP and MAKE.

A TRUTH for which there are no exceptions…

Both personally and professionally, your success is measured by the RESULTS you produce. Your business survives on the results you produce. Your family depends on the results you produce. Time judges you on the results you produce.

In the end, the prize goes to people who produce the best results. It goes to the company who manages to make money from providing WOW customer service. Reasons are for losers. You are NOT a loser.

To put success and failure in context, we pulled together the following lists of reasons for failure. No question, these are nothing more than SYMPTOMS of failing to employ the Golden Verbs: GET, KEEP, MAKE.

However, they do EXPLAIN — in broad terms — WHY almost one half the business started 36 months ago will be out of business by the end of this year.

Businesses Needlessly Fail for the Wrong Reasons…

We believe business fail for the wrong reasons… and in a large number of cases… the problems are EASILY solved. From our point of view, every business has an opportunity for MAXIMUM success — IF — the business leader (YOU) discovers what’s holding your business back… and quickly eliminates it.

According to a landmark study published by Case Western Reserve in 2004 (Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By,) the author, Scott Shane, found that less than 30% of all businesses make it to the coveted ten year mark. Notice the pronounced slope in the first 36 months (a 44% failure rate.)

Reasons For Failure by Year Brackets…

There are many many things that can keep you from succeeding. Things that get in the way of your best intentions… issues that arise that will pull you off track, causing you to lose your direction… distractions that cause you to lose momentum… and ultimately drive you out of business.

Here is a fairly comprehensive list of “gotcha’s” we gleaned from research we have done over the years. Please take a moment to scan these lists and see if you relate to any of these issues.

In order to help you SEE what it will take for you to create enduring success… to achieve your objective of turning your company into a gold mine… it is good to know what might torpedo your efforts.

Later in this chapter, we will discuss “Why Businesses Succeed” and point you in the right direction. But for now, think about the sobering issues that have caused others, just like you, to throw in the towel well before they realized their business dreams.

Years 1-3…

  1. Bad idea/Jumping in head first without researching the business…
  2. Poor location/Problem child remains problem child…
  3. Fuzzy vision/Lack of foresight or disinterest in the future…
  4. Lost passion for the Mission/Not communicating the company’s goals effectively…
  5. Good Idea but for somebody else, not for you/Thought starting a business would be easier than working for the man…
  6. Management was running away from a job/Trying to be everything to the business…
  7. Fail to properly assess and address the competition/Cannot clearly articulate the top 3-4 major competitors close at hand…
  8. Believes they are unique and have little or no competition/Business is not based on a real problem solution equation in the market…
  9. Does not understand the nature of indirect competition/Cannot clearly articulate how competitors goods/services are different from your company…
  10. Failure to ask for help/Not recognizing your weaknesses…
  11. Never gets to rising star investment status…
  12. Picking a niche that is too small/Mistaking a hobby for a business…
  13. Poor pricing strategy/Poor marketing and promotion…
  14. Lack of respect from employees and clients/Poor people management skills…
  15. Lack of performance measurement of employees…
  16. Breakup of the Founding Team…
  17. Mistreating suppliers…
  18. Not following your business plan after it is developed…

Years 4-6…

  1. Loss of HOPE/Loss of passion for the game…
  2. Burn out/Location turns bad…
  3. Sales stalled on rising expenses/Tougher/New Competition…
  4. Fail to achieve critical mass…
  5. Failed to innovate fast enough/Failure to change with the times…
  6. Interest rates become too high…
  7. Laying off the most talented people to “right size” or downsize/Declining market…
  8. Unrealistic goals/expectations for growth/False economic assumptions governing your plans…

Years 7-8…

  1. Failure to find a new reason for HOPE/Failure to address critical financial issues (especially your debt to equity ratio)…
  2. Burn out…
  3. Reduced PASSION for the business/out of ideas/Death of management — No succession plan or people…
  4. Growth exceeds capital base/Turned into cash cow. Harvested cash, no reinvestment in the future…
  5. Hyper-competition/Lost comparative / competitive advantage…
  6. Failed to create new products or services/Are we leveraging on the new technologies available…
  7. Failure to constantly check to see if you are overstaffed…

Years 9-10 Plus…

  1. Failure to regenerate HOPE/Owners who cannot get out of their own way…
  2. Burn out/Over-dependence on specific individuals in the company…
  3. Loss of PASSION for the business/imagination dead/Lack of crystal-clear quarterly objectives…
  4. Extreme Economic change/Being unprepared for fluctuations in business…
  5. Failure to reinvent business/Failure to ask for help…
  6. Need for the business goes away/Outliving the life cycle of your products and services…
  7. Fewer new customers/Loss of older customers…
  8. Poor business cycle planning/Poor execution of business Functions and processes…
  9. Lack of a well-developed, ongoing business plan…
  10. Government regulations disconnected from reality…
  11. Not paying attention to core competencies…
  12. Forgetting the IN and ON of business — management works IN the business but not ON making the business better…

The following reasons are spread over the entire continuum of business life, and can occur in Year 1 or Year 99.

General Financial Reasons:

  1. Poor financial planning/Costs exceed revenue…
  2. Lack of a cash cushion/Poor cash management…
  3. Poor credit arrangements…
  4. Using business funds for personal use/Not saving enough money…
  5. Unexpected growth/Greed and Impatience in growing the business…
  6. Over investment in fixed assets/Failure to track key business matrixes…
  7. Too much leverage with finances/Poor overall financial management…
  8. Over-expanding too soon…
  9. Lack of adequate and appropriate insurance…
  10. Not putting away money during boom times to prepare for the slow times…
  11. Allowing dangerous or incorrect debt levels in relation to our operation/Not knowing the profit ratios after tax for the company…
  12. Not knowing key profit ratios/Failure to keep overhead costs low…
  13. Insufficient Capital to achieve benchmark objectives/Limited access to credit, inventory or receivable financing…
  14. Costs are higher than expected/Budget was nothing more than a prayer to begin with…
  15. Losing Money and don’t know it…

Poor General Management:

  1. Poor organization/Dysfunctional management relationships…
  2. Poor leadership/Doing busy work instead of the important tasks…
  3. Lack of personal and fiscal discipline using and enforcing the budget/Haven’t mastered the fundamentals…
  4. Lack of experience in running a business or in the industry you’re entering/Haven’t mastered the top 4 business-critical Functions…
  5. Lack of diversification — having only one product or service…
  6. Poor record keeping and financial controls/Mismanagement of company’s resources…
  7. Poor delegation skills/Management plays too many roles…
  8. Hiring the wrong people for the wrong reason/Inability to recruit, hire and train the best people for the job…
  9. Poor people management skills/Failure to adequately train and develop employees…
  10. Lack of time management skills…
  11. Poor supervision of business-critical activities…
  12. Poor inventory management/Fear of stepping out of one’s comfort zone…
  13. Lack of experience in the industry in which you are doing business…

Lack of Customer Focus:

  1. Failure to define the “ideal” customer/Focusing on your needs not the customers…
  2. Cockiness. There is nothing wrong with feeling great about your products, services, or accomplishments but don’t destroy your customer relations…
  3. Customers cannot trust your business practices/Not having customer feedback…
  4. Not listening to clients or customers/No flexibility when it comes to working with customers…
  5. Solving a problem that customers/clients are not willing to pay for…
  6. Failing to properly define your market/Far more difficult gaining customers than expected…
  7. Not properly targeting your customers/Too much focus on one client /customer…
  8. Failure to get customers/Failure to keep customers…

General Marketing Issues:

  1. Not having a great Web presence/Insufficient marketing or promotions…
  2. Not cultivating the market and developing professional and personal connections…
  3. Bad reputation in the business community/Track everything you do and the progress that is being made…
  4. Not making cold calls to introduce new business to your company/Loss of momentum in the sales department…
  5. Poor/Ineffective marketing and promotion/Focusing on a market that cannot sustain you…
  6. Do not have a unique selling point/No viable market share…
  7. Competing Head-to-Head with an industry leader…
  8. Do not have a marketing strategy to identify who might buy from you and why/Inept monitoring of the market and incorrect use of the gathered information…
  9. Making poor sales decisions/Taking action without thinking it through first…

Loss of Hope…

Clearly, the golden game of business is fraught with perils. Sometimes, what you hoped would be a nugget filled mine is nothing but a shaft leading to an endless money pit.

The key is to constantly evaluate your business processes and practices… and eliminate every possible reason for failure that CAN BE eliminated… well before the issue becomes critical.

The sad truth is that virtually ALL of the above reasons for failure can be eliminated well before they cause heart-break and destruction. But you must remain ever vigilant.

Ultimately, the difference between success or failure comes down to just a handful of “prime reasons”:

  • Loss of HOPE…
  • Loss of PASSION…
  • Loss of RESOURCES…

Lose HOPE and it’s Game Over.

Lose your PASSION and it’s Game Over.

Lose some of your precious resources… money, key people, your imagination, your “edge”… and it’s Game Over.

The simple truth is that failure generally doesn’t happen with a big BOOM… a key event that takes you out.

The truth is that failure is an insidious result of the
systematic failure of your Prime Directives.

Regardless of the circumstances, happenstances and reasons, if you fail to GET new customers — for ANY of the above reasons — you FAIL.

Regardless of the circumstances, if you fail to KEEP existing customers returning to you — for ANY of the above reasons — you FAIL.

Regardless of the circumstances, if you fail to MAKE a legitimate PROFIT — for ANY of the above reasons — you FAIL.

It can come in the form of bad financial management, lack of professional marketing, poor people development and talent management, ineffective planning, or your failure to innovate.

REASONS don’t matter.

Again, RESULTS are key.

Success is Measured by the RESULTS you Produce…

Systematically transform REASONS into RESULTS and you will join the ranks of the most successful businesses on Earth. Learn to systematically produce superior results, and over time, you will be highly successful.

Do you have the business smarts to grow money from meat
and potatoes and create the next Fortune 500 company from
nothing more than your dream and vision?

Smarter Business means asking the RIGHT QUESTIONS and addressing the business-limiting issues well before they even surface… PLANNING around, over, through or under them… BEFORE they cause you heartache and despair… BEFORE you start to lose HOPE and burn out.

A Final Thought on Failure…

We have now said this 15 different ways from Sunday, but at this juncture, it is worth emphasizing one more time before leaving failure behind and focusing only on success.

Here is another TRUTH for which there are no exceptions. People who ultimately WIN the Golden Game of Business…

Understand the RULES of the game: They have developed the skills to play the game at the highest possible level.

PLAN to WIN: They are constantly revising their Strategic Plan… asking the all important Golden Questions hour by hour, day in day out.

PLAY to WIN: And they are constantly WORKING their plans and working them hard. They Execute their Strategic Plans… Brilliantly.

They employ their Golden Verbs: GET, KEEP, MAKE!

The LOSERS lose, simply because they
do not EXPECT to win in the first place.

They vaguely understand the RULES. They have low EXPECTATIONS. They have no real PLANS.

Worse, they do not PLAY to win. They merely dabble at it… not fully committed… not putting it on the line day in and day out.

If you DO NOT FULLY EXPECT TO WIN, you are defeated before you start.

So, what Drives Enduring Success?

Let’s take a moment to think about these two huge words: Success and Failure. What’s really behind the insidious failure statistics? To help you better understand business success, it is important to understand what business failure really means.

As we were researching the numbers surrounding business failure, we were astonished to find no real consistency in the term “business failure” between the likes of Dunn and Bradstreet… the SBA… the IRS… various business publications and associations such as The National Association of Small Businesses. They offer wildly different numbers, some saying the small business failure rate is 25-50% in the first two years… or more conservatively, 15-30%.

Some say over 75% of all businesses “fail” within their first five years… where others claim the “real” rate is 70% over a ten year span. So, who’s right?

The startling truth is that no one knows, with any degree of certainty, what the “real failure rate” is, and other than in rare cases, no one agrees on what failure actually means.

Of course, we will resolve this issue right now, as it is important if you want to understand the prime drivers of success.

There are many signs that a business is failing to make the grade: Lack of profitability… never moving from basic subsistence to ongoing sustainability… persistent illiquidity (not enough cash)… bankruptcy… insolvency… high employee turnover… a sudden increase in costs or a precipitous reduction in market share. These are all SIGNS that the business is not the success the owners and other stakeholders had hoped it would become.

However, things change and a business emerges from bankruptcy stronger and better able to compete. Just ask Donald Trump who has filed several of his businesses into bankruptcy… many times.

Is this a failure? Some would say yes, some no.

How about the 6 store furniture chain that profitably grew… over 30 years… only to face liquidation upon the death of the woman CEO who drove it to greatness? (By the way, it moved from Stage-1 to high growth Stage-3 in it’s first 10 years of existence. It stayed at Stage-4 for 20 years. Highly profitable. Fun to run for the owner and employees alike.

Is this a failure? Some would say yes, some no.

Clearly, it no longer exists due to the lack of a succession plan. But you can hardly call the business a failure… or should you?

How about a company that had to constantly redefine itself just to find a way to move from bare subsistence (where owners and employees alike made a lot less than slave wages for 5 years) up to basic subsistence.

The business is still alive. Does that mean it is a success? Or, would the stakeholders wonder why nobody pulled the plug and just let it die from natural causes?!

Is this a failure? Some would say yes, some no.

Obviously, a business that started with great intentions… blew through every dime the owner could plow into it… never achieved critical mass… couldn’t make it’s own payroll… and always came up short in the Profit and Loss department… but ultimately innovated itself into a hot new opportunity… and, six months later sold out for $2 million in cash and stock in a public company would be considered a success, right? (Here, I am speaking from personal experience!)

Maybe, maybe not.

We need to move beyond circumstances to cause and effect relationships. So, let’s see if we can simplify the conversation.

Our definition of FAILURE is simply this: Failing to produce the RESULTS EXPECTED.

Our definition of SUCCESS is: Producing the RESULTS EXPECTED.

“High Expectations are the key to everything.” ~ Sam Walton

Create a successive series of High Expectations… then meet or exceed them… you are, by any definition a success.

Create a successive series of High Expectations… then fail to meet them… you are, by any definition a failure.

“High Expectations demand Brilliant Execution.” ~ E. R. Haas, CEO

Ultimately, businesses, like people, tend to get what they EXPECT. Expect little, you generally get even less than you hoped for.

“The world is full of abundance and opportunity, but far too many people come to the fountain of life with a sieve instead of a tank car… a teaspoon instead of a steam shovel. They expect little and as a result they get little.” ~ Ben Sweetland

Create a constantly expanding series of growing expectations… learn to truly EXPECT success (vs. wish, hope, pray or intend)… and you will ultimately achieve a level of success well beyond your hopes and dreams.

IF and only IF…

You MASTER your 3 Prime Directives.

Consistently raise your EXPECTATIONS with respect to GETTING new customers to do business with you… you grow to greatness.

Consistently raise your EXPECTATIONS with respect to KEEPING your customers coming back to you… you grow to greatness.

Consistently raise your profit EXPECTATIONS… and you systematically turn your hard work into real wealth… the likes of a Bill Gates, Steve Jobs or Meg Whitman.

Yes, this is the CAUSE of business success. WOW Customer Expectations… combined with Brilliant Execution.

Remember, it is impossible to make real money if you fail to create new customers. It is impossible to make real money if you fail to keep existing customers coming back.

It is impossible to turn all the hard work associated with the GETTING and KEEPING customers into real wealth if you fail to grow your profit base.

If you fail at your 3 Prime Directives, you fail. Period.

This is WHY you must continuously ask the Golden Questions day in, day out:

What must I do to GET more customers?
What’s Important NOW… What’s Important NEXT?
What must I do to KEEP more customers?
What’s Important NOW… What’s Important NEXT?
What must I do to MAKE more money?
What’s Important NOW… What’s Important NEXT?

Are you starting to “get it?” I know this is over the top redundancy, but we are GUARANTEEING your success, so it is VITAL that you truly MASTER this thinking.

Can you imagine turning your company into a $150 million dollar
a year company based on a simple idea?

Your 3 Prime Directives are based on 10 business-critical Functions…

As we said above, business (and personal) success is predicated on the delicate ratio between your Expectations and your power to Execute.

High expectations with poor execution leads to failure.

Low expectations with poor execution leads to failure.

Low expectations with brilliant execution leads to frustration… which is, in and of itself, nothing more than slow-motion failure.

(What on earth do you think happens when you expect little and have the power to get it? Not much is the right answer!)

Only High Expectations coupled with the power
to Execute at a similar high level leads to success.

In business terms it means MASTERING the 10
Key Functions that drive your 3 Prime Directives.


 
“Great things are not done by impulse, but by a series of small things brought together.” ~ Vincent Van Gogh

10 Golden Keys of MyBizIQ Success:

In the next 10 chapters we will discuss these Functions in great detail. You will start to see how each Function builds upon each other to CAUSE long-term success.

You will see the cause and effect relationship between each Function and your business development… how each Function drives movement from Stage-1 Sustainability… to Stage-4 Greatness.

In very real terms, you might think of these 10 Functions as the 10 Golden Keys that unlock business success.

No matter what you call them, these 10 Key Functions must — at some point in a businesses evolution — be optimized if you want to achieve maximum results.

New Member Offer Only.

Engage these 10 Key Functions, you succeed brilliantly!

Do this and you will GET the customers you need to achieve true success.

Do this and you will KEEP customers returning to you vs. the competition.

Do this and you will MAKE a lot of MONEY… turning your sweat and smarts into a giant pile of cash.

As you review Chapters 6 through 15, think about the importance of these 10 Functions to your company. Think about your 3 Prime Directives and how well you are currently achieving the results you expect.

Ultimately, the results you produce at your company are totally dependent on how well you execute these 10 Key Functions.

If you want greater success, RAISE your EXPECTATIONS.

Then, EXECUTE these 10 Functions as if
your life depends on it… because it does!

 

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Category: Business Growth, Featured, Manifestos

About the Author ()

E. R. Haas is CEO of the TQ Smart family of web sites including ThinkTQ.com, IntentionalExcellence.com, MyBizIQ.com, MyBelieversGuide.com, MarriageWithPurpose.com and hundreds of others. E. R. is a "serial entrepreneur" and has created over 20 different businesses in software, manufacturing, finance, publishing and many other areas. He is married to Jan Haas who shares his interest in model railroading, gardening, and traveling by train. Together, they have 5 grown children, 9 grandchildren and 5 great-grandchildren.

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