The percentage of new businesses that fail within the first 10 years of operation, as cited by many business articles, ranges from 70% – 90%; the figures depend largely on the industry, the operating region and the level of capitalisation required for the business. Approximately 50% of the few that succeed find it difficult to make it past the 11th year. Frankly speaking there is an iota of truth in these statistics and individuals, organisations and institutions have continued to research into the causes of these failures and subsequent ways to mitigate, alleviate or resolve the different circumstances; this is aimed at ensuring that the failure rate for new and fledgling businesses is reduced by a significant amount. Many articles and books on business sustenance have also been published but one may often wonder why many companies end up as victims of the business pitfalls. The questions that individuals and prospective business owners should strive to answer are:
- Is business success really achievable?
- Why do new companies fail despite the availability of business-related information?
- What do I need to do differently if my new business must be a successful one?
With these questions answered, apart from quelling our curiosity, we would have provided a pedestal to cross the first hurdle in the race to business success. What I intend to do is to provide some answers to these questions and hope that the answers trigger a thought process and propel you to act and make decisions that will support the success and sustenance of your business.
Is business success really achievable?
Before I continue with this discussion, I need you to take a step backwards and analyse a mind-probing question/case; once you can honestly answer it, you are a step closer to realising the prospects of succeeding in the business world. Here’s the question:
- You are the owner of a new business that has proved profitable and successful in its early years. After 5 years of operating the business a series of unfortunate incidents occurs (say a fraudulent investment and a fire incident at the office) that causes you to lose everything in the business: the building and complimenting assets, documents, etc. Will you be able to rebuild or recreate your past business success?
My answer to this question is yes; what is your answer? If you can provide an honest and positive answer then I would like to confirm that success in business is truly achievable.
This question has been asked because many people use unfortunate events, mishaps or ‘force majeure’ to technically develop a negative mindset; for someone who may have failed once or twice, he/she would be of the opinion that business success is hardly achievable or that business success is premised on factors that do not rely on the individual venturing into business.
The challenges faced by many business owners are enough evidence to cause negative reasoning towards business success. These challenges vary from misfortunes and losses to bankruptcy; in some cases these businesses are victims of fraudulent and deceptive entrepreneurs (see the case of Bernard Madoff who operated a ‘ponzi’ scheme), you need to understand however, that these factors should not limit your ability to survive and secede in business. I have a colleague whom I spoke with many times; I advised him to start up his own ‘side’ business, learn the ropes and eventually grow/expand his business operations when the business becomes successful. He always gave the same response: “Toyin, I can’t do any business again, I think I am better off as an employee; I have tried my hands in too many businesses and they have all failed, I really don’t see business as real…at least for me. You succeed because you know someone, who knows someone that can give you money, lots of money” to that colleague of mine, business is obviously a myth. Even if you solve his short term funding needs or get an investor that can provide the required capital, without the knowledge of business fundamentals it won’t be long before he is back at ‘square-one’ unless he has a mental shift.
To rise above this mediocre level of thinking, you need to actually change your mentality and approach towards business; search deeply to understand why you have failed and learn from your experiences. A wise man says “taking risks is a win-win situation; if you fail then it’s an experience you are privileged to learn from and if you are successful then the risk was worth taking”. Find a mentor who will be able to guide you through the process (thought changing processes are usually difficult and people do not like to leave their comfort zone). Read books and research on relevant topics; these can help revamp your thinking. You could also read autobiographies/stories of successful businessmen who are involved in businesses/industries similar to your interests and get to know the challenges they faced, how they overcame these challenges and you could structure their experiences into the best way to act.
Why do new companies fail despite the availability of business-related information?
My answer to this question is simple and straightforward: many people do not succeed because they have not yet developed the ability to conceive their business as a “going-concern”; they do not act, practice or believe the available information with regard to business (albeit you have to verify that the information is credible and subsequently study the information). Some do not see beyond 3-5 years (they either lack the vision or are not sure of their vision). Your inability to see the future in your business limits adequate business planning and if you are unable to plan for the unforeseen in the future then you would not be prepared if any event materialises and consequently would be unable to take action. Lack of planning also may be attributed to the “fear of the unknown” (or better yet of failure) and in the business world, fear hinders success; you don’t excel at what you fear. Fear eventually kills belief in one’s self and in one’s business; if you have a little challenge in your business, your ability to stay focused and committed weans out until you eventually shut down and your business joins the endless list of business failures.
To succeed in business you need to plan effectively, overcome your fears and take action. In taking action your plan serves as a guide as well as a conservative benchmark to judge progress, learning from precedence – those who have gone before you on a similar business route – and remaining focused and fully “turbo-charging” your determination and attitude to succeed against all odds.
What do I need to do differently if my new business must be a successful one?
A successful business depends on a fully committed entrepreneur who understands that gearing a business away from success is totally unacceptable. I remember the story of soldiers that went to war and burnt their ships with the hope that they would not contemplate a retreat at any point in time; victory was the only option in mind. This is the type of determination that is required of a business-minded entrepreneur. Besides determination and a strong will, one needs to be very proactive; according to Stephen Covey, to be proactive means having a ‘dogged’ spirit: acting without instruction or taking the initiative to act without waiting for others to act but taking positive actions to get positive results.
The business environment can be likened to deep waters with many sharks waiting to devour smaller fishes. In this type of environment it is only obvious that one has to be “battle ready”; one must be armed with a good strategy which should focus on your immediate, short and long term plans. You must have effective feedback systems that monitor activities and take corrective action(s) where necessary. You should have adequate knowledge of the industrial, economic, political and environmental factors that could hinder or encourage the success of your business; engage in a SWOT (Strength, Weakness, Opportunity and Threat) and PESTLE (Political, Environmental, Social, Technological, Legal and Economical) analyses of your business so that you can determine the level of competition as well as the potential that lies in your business.
There are so many strategic tools that can be used to evaluate your business long before you dive into the ‘ocean’. Take for example the Porter’s’ “five forces” which enable you to understand how a product’s entry into the market could affect your business or the competitiveness of your business and the resulting effect on your new/existing business. McKinsey’s ‘7S’ gives a broader perspective of how your internal business systems could be aligned with inter-dependencies to achieve both internal and external success.
Another point which can never be over emphasised is to find a mentor. A mentor may not even have a personal economic interest in your business but they act as your guide in the business world; they are not deceptive and are frank when giving relevant and required advice. When you receive their advice, be sure to adhere to the guidelines when implementing the advice; who knows you may even be able to embellish and improve on the advice and/or experience – before you know it you could also become a mentor. Let your mentor know that their advice has been of immense contribution in your business journey; this encourages them to offer more assistance. An advice or an experience learnt from a mentor is so invaluable that a moment or opportunity lost in receiving guidance may as well have cost you millions of naira. A very good friend of mine once told me that if he was given a choice to receive a million dollars or spend an hour discussing with Warren Buffett, without hesitating he would opt for the latter.
Be willing to take calculated risks in business – the higher the risks the higher the rewards. However, it is important to note that you don’t just jump into taking risks because you hope for a huge reward as that would be analogous to gambling. You have to understand the strategies for managing risks and making decisions that mitigate negative-resulting risks. Risks can be minimised or managed by following these simple steps: identify the risks by listing the various risks your business may be exposed to; analyse the risks to know the implication or the extent of damage that could occur due to the risk exposure; determine your risk appetite; prioritise the risk in order of its impact to your business and in line with your risk appetite; manage the risk by avoiding, transferring or reducing your exposure; resolve the risks by following a predetermined approach which corresponds with the risk management technique chosen and continuously monitor the risks by tracking your progress and taking corrective actions where necessary.
Monitor, control and manage your cash flow. I want to believe that everybody is aware of the importance of cash/liquidity, especially when running a business. You need to constantly manage the timing of receipts and disbursement of cash so that your organisation can continue to operate into the future. You need to build a reputation that helps to capitalise on the timing difference of revenue and expenditure. One of the basic ways to take advantage of this timing difference is to work out effective payment terms with vendors/contractors, another is to work out an effective credit system that ensures timely receipt of revenue from transactions. This may be achieved by offering discounts for early payments or increase the sales/service price when giving out credit facilities. Expenses are inevitable and therefore you need to ensure that expenses incurred are reasonable and necessary to the benefit of the organisation. Avoiding frivolous expenditure and ensure strict adherence to budget.
Invest in continuous education and learning so that you are not left behind in the race for success. You are only as good as the amount and level of information you have at your disposal, so do yourself a favour: READ! READ!! READ!!!
The answers provided here are in my opinion and to the best of my knowledge but you need to understand that your answers may be more specific to the kind of challenges you face in your business and therefore may not find these answers completely relevant. However, you need to understand that information is important and knowledge is invaluable. Most importantly, find what you love doing and do it repeatedly until you become very proficient at it; what you love doing could fetch you the wealth you seek.
Originally posted by Toyin Aromire: http://toyinaromire.blogspot.co.uk/2011/02/how-to-stop-your-business-from-failing.html