The Top 10 ‘Real’ Reasons Businesses Fail
There are literally hundreds of blog posts where someone is professing the “The Top Reasons Businesses Fail.” I know—we just finished a really big study on why businesses fail…
We’ve done this for a number of years constantly looking for something new that might shed light on why, and more importantly, what to do to ensure it doesn’t happen to me or you. The reasons haven’t changed much over the past 50 years though some new reasons have been added because of culture and technology change. This post is twice as long as normal but that’s because of the list of 10 reasons. Please take the time to read it all—the information is worth a fortune to you—literally.
Study Methodology. We searched the internet for all the information on why businesses fail and compiled all the answers from “Top 10 Lists” or top 3, 5,12—whatever—and put them into the database. Next, we took studies and similar articles reported over the past few years in Forbes, WSJ, Fortune, Success, and several other publications—including specific studies done with business owners whose businesses have failed. We also took statistics from StatisticBrain.com and other stat studies on the net. Finally, we took the results from our own survey over the past couple of years.
We put all the data into our database and sorted each answer into categories—anything on money or cash went into a category called Money. Marketing, advertising, and sales went into a Marketing category. Management and Leadership issues went into the Leadership category, etc. creating several categories for the top 10 most consistent answers.
Albeit, the list is pretty typical, the order changed a bit and some obvious categories, problems, and solutions emerged. As a result, we now have the problems defined and the solutions ready. From the discovery, we are creating a one-day course called, “How To Make Your Business Thrive: Reversing and fixing the top 10 things that cause business failure.” We’re going to delve deep into specifically what causes business to thrive and show you how to excel at it. Watch for more info in the coming month.
The Top 10 in Descending Order.
#10. Customers: Bad Customer Mix—Too Much Reliance on One or a Couple Large Customers.
Many people get started in business because they leave another company they are working for and take a big customer with them to start their own business. Another scenario is we start a business and land a good size customer that makes the whole business viable. Wherein it is good when getting started to go with any customers we gain, it’s not the best medium or long term strategy. Companies come and go as do their budgets. Lose that one customer and we’re dead. We may also find ourselves doing things for that one customer we might not normally do and other problems arise. Plus, if we’re working on big jobs, it may take a long time to deliver and even longer to get paid. Having a good mix of short time delivery smaller customers and a few mid and long time delivery customer is best. Don’t let any one or two customers take you out if they get taken out.
#9. Growth: Expanding Too Fast.
If we take on too much too quickly, we may not have the where-with-all to meet the requirement. Saying yes to one thing is saying no to another. Growing too fast means a stress on manpower, cash-flow, business knowledge growth and a failure at many of the other items in this list. We’re in this for the long haul—choose customers wisely. Slow and steady wins this race.
#8. Records: Failure to Keep Good Marketing, Financial, and Product Develop (Recipe) Records.
Record keeping not only helps us “measure ” our successes and failures, but it also allows us to analyze the reasons we have it. Everything needs to be measured in life so we can make better decisions—records help us do that. We need great marking data—how did they hear about us? Financial records are imperative for tax purposes. Also, how we create our product or service is vital for showing others how it’s done or simply to recreate the exact greatness of a particular product.
#7. Culture: Loosing Sight of Your Core Values—Too many concept changes—No Mission.
Why are you starting the business in the first place? What are the values you bring to the table? Your core values help everyone understand your “why” and allow them to nurture that and pass it on to others both inside and outside of the company. Also, if you’re constantly changing your “why” or your mission, people will be confused and they cannot accurately share the vision.
#6. Unique Value: No Differentiation Between You and Competition—Lacking Uniqueness—Why Change?
How are you different than your competition? Do you know? Is it a guess or the real reason? If you know, do you show that distinction in your marketing and sales? In your customer service? Is your product a “me too” not having any unique value? Why should a customer change from your competition to you?
#5. Pricing: Bad Pricing—Sloppy Pricing—Not Understanding Competition or Market Pricing—Not Cost Competitive.
Not doing the homework to find out what you should charge. Instead, you price it based on what you think it’s worth—not knowing what the market will bare. Not charting out what your competition charges.
#4. Bad Marketing: Poor or No Marketing Plan—Lack of Competition and Marketing Knowledge and Analysis—Failure to Target Customers—Failure to Measure—Failure to Have A Digital Presence.
Only 2% of business owners understand marketing, advertising, and sales when they start a business. Yet, this is in the top two most important aspects of survival—if it doesn’t come in the front door, it can’t go out of the back door (or in other words, just because you build it doesn’t mean they will come—unless you market it, they won’t come). Because most people think it’s voodoo, they cannot or do not market. Then, when they start marketing, they fail to measure and analyze the data. Which in turn doesn’t allow us to target our real customers.
#3. Poor Planning: Poor or No Business Plan—No Vision—Poor Risk Strategy.
Some entrepreneurs are so excited about their “idea” they jump right into producing and fail to test the numbers. On the other side is inability to take risk and fear becomes the the biggest failure mechanism. Some spend too much time massaging the numbers and never get started. How much is enough and when is it time to jump?
#2. Poor Money Management: Poor Cash Flow Control—Not Enough Reserves—Not enough Sales—Spending too Much—Using Business Cash for personal Use.
Most start a business without running the financials (#3 above) and don’t plan what it takes to make it through the first couple of years of low (or no) pay and low or no cash-flow. Do you have the financial strength to do it? If not, how do you get that strength? When are you throwing good money after bad? Don’t quit your day job until your making the cash, flow!
And finally—the envelope please…
#1. Incompetence: Inadequate Management—Poor Leadership—Lack of Understanding How to Run a Business—Failure to Go GET The Knowledge—Failure to Apply the Knowledge.
Another term for this is simply a lack of leadership. Some of us think that we only need leadership skills to lead other people. Understandable. But we also need the skill to lead ourselves! Which, incidentally, is the number one hardest person to lead!! Most starters don’t know how to do the #2-#10 items above and therefore don’t understand business and what it takes. They don’t understand that cash-flow is different than revenue, that permission marketing needs interruption marketing, that pricing too low can ruin you for opposite and differing reasons. We get so excited about getting started that we fail to plan and fail to take the time—which isn’t much actually—to learn how to generally run a business. And then once we get the knowledge, failure to apply it!
I am going to call—and hopefully coin—this collection of 10 items, “Business Incompetence” (as opposed to incompetence in knowing your product or service). We think, “I can do this!” but then we fail to learn how to do it and fail to do it. As author and business consultant Michael Gerber says, “We work IN our business instead of ON our business.”
Main observation: If you look deeply at these items—and even not so deeply—all 10 of these reasons actually boil down to one thing—leadership—or the lack thereof. If you study leadership and learn to lead yourself, you will see that a good leader will get the solutions to each of these and apply them before they become a problem. You’re not a victim—it’s totally up to you to do something about these things to make your business thrive and keep you out of bankruptcy—sooner than later.
The information has been there in one form or another for decades. Even in a distilled format like this. Maybe with different insights and different items, but inability to lead has always been near the top—and even more interesting is that it becomes a crucial reason at every level of business from the solopreneur to the largest company in the world. Growth requires good leadership skills. That’s why I am part of the John Maxwell Team and teach John’s principles. According to Inc. Magazine, John is the #1 expert in the world on leadership.
So how do you strengthen these areas and learn to succeed in each of them instead of them ruling you—and eventually causing your downfall with an otherwise good business idea? Well, don’t ask your family or friends—that was one of the biggest problems in the lack-of-leadership world—getting help from people that don’t know what reality is in the entrepreneurial or business world.
It’s going to take you about 200 hours to get all the information you need to know—which is only about seven months at an hour a day! That’s a cake walk—as long as you invest in yourself and do it. Starting with some general books/podcasts/videos on business, to some great books on leadership, personal development, productivity, marketing, sales, finances, and accountability. You don’t have to be an expert in every area and have “best practices” in them, but you do need to have a general understanding so you can keep each area from biting you and grow as your business grows. Besides, my monthly newsletter (free) has a section “Best Practices” in business and you can put those things into effect—as long as you’ve done your beginning homework to understand these areas and are heading in the right direction.
Knowing that this is not rocket science nor hard in general, should encourage and motivate you to get this knowledge. The fact that we know these things, have answers for them, that these are not opinions but the compilation of actual information, and that we are going to help you understand and practice them, should inspire you to seek and apply these principles. Finally, we’re going to show you how to have positive accountability to get to your definition of success.
I hope this has shed some light on an area that can knock you down quickly. Besides our one-day course, I will be addressing all 10 of these conditions in the coming weeks in this blog.
Reflection: Which of these areas are you week in? Finances? Leadership? Where do I need to spend the time building my ability? Which one of these conditions am I the weakest in?
Action: Reorder this list in your order of strengths. Then start at the top pushing your strengths and making them even better and start at the bottom strengthening your weaknesses. If you can’t do the item, contract someone else to do it. Measure your results in doing better on a monthly basis during your own reflection time. Define & Refine. Repeat.
MAKE it a great day!