Will Your Business Be There Tomorrow?
In my blog post last week I challenged employees to consider the future of their jobs in the rapidly changing work place. Today, I fulfill my promise to address entrepreneurs.
Studies published in the American Enterprise Institute (AEI) have shown that only 12%, just over 1 in 10, of Fortune 500 (an annual list of 500 most profitable US industrial corporations) remained after just 60 years (1955 – 2015). That is, only 61 out of 500 corporations, which made the list in 1955 remained in 2015. 439 or 88% had either ceased to exist, been acquired or merged with others, or no longer mattered. And we are talking of the best of the best of American corporations. If that happened to the proverbial green tree, what will become of the dry?
George Nicholas Georgano, the famous British author of The Complete Encyclopedia of Motorcars, and former Head Librarian of the National Motor Museum, reported that of 200 U.S. car makers in 1920, only 17 remained in 1940. That is over 90% had failed in just 20 years.
The story of small businesses or start-ups is much worse. A report in Forbes magazine, citing Bloomberg, shows that 8 out of 10 entrepreneurs who start businesses fail within the first 18 months.
The first 60 years of the Ford Motor Company, the American giant with a market share of 46% (North America), 48% (South America), 24% (Asia Pacific) and 68% (Europe) as at Q1 2017 (http://csimarket.com/stocks/compet_glance.php?code=F), makes a very interesting case study.
Within the first two years of its founding, in 1903, it had returned a profit of 300% to its shareholders. In less than 20 years, it had grown to the point where it was producing 50% of the cars in the US and 40% of those in Britain. That is quite encouraging.
However, by 1938, less about 35 years from its birth, its market share in US had plummeted to about 28%. It is reported in the book, The 21 Irrefutable Laws of Leadership, that by 1945 not only had the company not been making profit in the previous 15 years, but also it was running a loss of an average of one million dollars a day.
How does a business fall from such grace to grass? How does a business descend from glory to near extinction in such a short time?
Many experts and authors have advanced various reasons for the high failure rate of businesses. In an interesting essay in the Forbes Magazine, Eric Wagner, outlines five reason why businesses fail. They include:
- Not being in touch with customers through deep dialogue
- Not having real differentiation in the market or lack of unique value propositions
- Failure to communicate value propositions in clear, concise and compelling fashion
- Leadership breakdown at the top or founder dysfunction
- Inability to nail a profitable business model with proven revenue streams.
Another essay (https://en.wikipedia.org/wiki/Business_failure) on Small Business Failure published by the Small Business Administration adduced further reasons why businesses fail. They include:
- Lack of experience
- “Untrusted” sales representative
- Insufficient capital
- Poor inventory management
- Over-investment in fixed assets
- Business’s finance mismanagement
- Poor business location
- Poor credit arrangement management
- Unexpected growth
- Engaging in the wrong business niche
The Turnaround Management Society (TMS), in a study published in 2014, blamed mistakes by top management as the cause of most business crises. They detailed such mistakes to include:
- Continuation with a business strategy that no longer works for the company
- Loss of touch with the market and their customers
- Refusal to adapt to changes occurring around them
Yet another study by Industry Canada concluded that businesses fail mainly because of inexperienced management: “Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses”. I guess that nails it.
Leading experts in the field of management have also weighed in on the matter. For instance, Peter Drucker asserts that the most important reason why businesses fail is that management did not ask, “what is our business?” in a clear and sharp form.
A careful analysis of the reasons advanced above puts a lie to the many anecdotal factors that failed entrepreneurs blame for their failure. They often blame competition, lack of opportunities, inconsistent government policies, politicians, lack of connection to those in power, international politics, colonial masters who left almost 100 years before, fate, lack of luck, etc. They blame just about anybody else and anything else but themselves. Some even blame God!
However, a careful analysis of the causes outlined above show that they are all WITHIN the business and they are all HUMAN or man-made. They are all human problems within the business. It all has to do with the quality of thinking that business leaders or entrepreneurs bring to the business.
I would just like to add that, although I already knew this to be true, I did not carefully select my sources in order to arrive at the same conclusion. It became clear to me in the process of summarizing the data. You need to take it very seriously!
I now assert, in the face of all these incontrovertible evidences, that the real cause of most business failures, apart from war, terrorist attack, earthquake or other natural disasters, is business leadership. In most cases, it is the entrepreneur.
Let me put that another way: The greatest risk to your business survival is YOU. You are the determining factor whether your business will be there tomorrow or not.
Christian Simpson, a renowned coach, has said that your business is only as good as your thinking or the ideas you bring to it. However, if that thinking is not being constantly challenged, then your business is at risk or is severely limited.
George Bernard Shaw is quoted as saying, “two percent of people think; three percent of people think they think; ninety five percent would rather die than think”. This includes entrepreneurs or business owners.
So, the business is as good as the owner or the leadership. Therefore, as John Maxwell, admonishes, “If you want to grow the business or organization, grow the leader”. And as he says, “growth is the only guarantee that tomorrow will be better than today”. Your personal growth is the only guaranty that your business will still be there tomorrow.
While most entrepreneurs blame it on luck, one wise entrepreneur gave the following testimony:
As a business owner of 11 years, most people would have considered me a success story. However, two years ago I found myself at a point where I was frustrated and stuck in my business. I didn’t know how to grow it anymore. And that’s the way it was until I realized I needed to grow myself in order to grow the business.
And after finding a way to improve herself she said, “In just a few months my sales and revenues are up substantially and my business is growing at a pace I never dreamed possible.”
There you have it! Businesses fail because of the leadership or the owner.
Some other ways that small business owners kill their businesses include:
- They stop learning.
In today’s fast-paced global environment, any business owner who stops learning declares himself to be a person in recession (Christian Simpson). Alternatively, as Alvin Toffler says, “the illiterate of the 21st Century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn”. I particularly like the way Eric Hoffer puts it: “In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world (read Business) that no longer exists”.
When was the last time you intentionally attended a training or personal development course? When was the last time you learnt about your customers’ needs? Have they changed or are they changing? Are you aware?
- They rely on technical expertise alone
Many business owners build their business around their own personal technical expertise. However, this is not enough. They need to identify other key skills that are required to run a successful business in the modern world. Key among those are leadership and people skills. Nearly every other skill requirement can be easily outsourced or hired.
- They refuse to empower others
Many leaders, because of personal insecurity, fail or refuse to empower other leaders. By so doing they place a severe limitation on the ability of the business to grow. This was the greatest problem of Henry Ford, the founder of Ford Motor Company.
When a leader can’t or won’t empower others, he creates barriers within the organization that people cannot overcome (John Maxwell).
- They work alone
Many business owners work entirely alone or surround themselves with ‘yes men’. Consequently, all they hear by way of suggestion or advice is the echo of their voices; people tell them only what they want to hear.
Other business owners see every other person as a competitor. They do not share ideas in order to receive quality feedback.
A vast majority of business owners do not have coaches or mentors. They are at the mercy of their limited thinking and limiting beliefs. Most business owners have never heard the word Mastermind. Most do not know who a business coach is and what value he can bring to them. Most mistake a mentor for a coach.
I will, in a subsequent blog, outline the distinction between a coach and a mentor, and how to select one that is suitable for you.
In this essay, I have attempted to identify the reasons why businesses fail and why your business may not be there tomorrow. I have shown that although different people have advanced many reasons as responsible for the failure of majority of businesses, we can boil them down to Human factors within the business. We have identified business leadership or the entrepreneur as the main culprit.
Therefore, the growth and development of the owner of the business is the key guaranty that the business will be there tomorrow. Are you not glad that you are the key factor in the sustainability of your business? That is the only factor that is totally under your control!
