So there are six main reasons why businesses fail.
And I thought if I can help you understand those reasons, then you know exactly what to avoid to make sure your business succeeds.
First thing’s first – #1 – Businesses don’t control cash flow.
A business could be growing and profits can be really healthy, but if you have poor cash flow, the business will be starved of cash. It’s like a fire that’s starved of oxygen, and it will ultimately go out, it will ultimately fail.
#2 – Bad planning.
I see this an awful lot in businesses. If you don’t have a business plan, you just don’t have a direction of where the business is going and it’s extremely difficult to measure the performance against unclear or potentially non-existent objectives. It’s also really difficult to spot problems if you don’t have the vision and a plan of where you’re going. How do you know if you’ve gone off the road a little bit?
Now #3 – Relying on one or two big clients
I’ve been foul of this myself and it comes down to that age-old saying of having too many eggs in one basket!
If you are putting yourself in a position where you’re relying on one or two clients, you’re essentially making yourself vulnerable as a business so if you think this applies to you, definitely try to avoid it!
If you think about it, if you’re in bed with just a couple of big clients and one of those clients wants to renegotiate your prices and if they’ve got a lot of options of other suppliers they could work with, they are holding all the aces.
Try not to put yourself in that situation whereby you need somebody else more than they need you!
Now – #4 – Not keeping an eye on competitors.
To put it bluntly, if you are unaware of market changes, potentially you could just get left behind. Also, as your competitors are changing, there are ones that are going bust that might present opportunities for you to come in and sweep up, take away, take some clients that they might have left behind, but also you want to question why have they gone bust?
Was it bad practices within their business or was there actually not the opportunity in the market for that business?
Now, chances are your competitors, your customers are going to know about them and if your customers know about them, you need to know about them as well. So, you need to keep a close eye on what everyone else is doing.
And then also be really mindful of changes in legislation and taxation, even if they don’t affect you directly, if they are affecting your customers then chances are somewhere down the line they’re going to affect you.
Now the fifth reason I see a lot of businesses fail is they are unwilling or unable to adapt.
I see this a lot. Economic history is littered with companies that absolutely underscore this point. Think about companies like Kodak who completely failed to see the change in the digital market and Nokia, they used to own the handset market until smart devices were around and they got completely left behind.
And, if you think of some of the big car companies that used to be massive in their day, they failed to adapt to changes in the market, people like Rover and Saab, they’re just not here anymore.
Finally, and this is a really, really big one #6 – Poor leadership.
I see this all the time in businesses, you could have a fantastic business and you can think about this, you might have a business that is, it’s really difficult to underestimate the effect that poor leadership can have on any business.
So whilst it might be a lack of ability or unwillingness for a company to adapt, and that might be because of structural limitations but actually, more often than not, it’s because of poor leadership within those businesses.
And all of that is based around a concept called Growth Mindset. Growth mindset is something that we’re going to be digging into in an awful lot more detail because it is critical for any business leader to succeed. There are two types of mindset, Growth Mindset and then a Fixed Mindset.
Growth mindset is all about having the blinkers off and being open to change. You see so many businesses and business people where you question why they do things and they do things because they’ve always done them or they think ‘that’s always worked for us’ so why are we going to change?
If businesses don’t have that mindset of, do you know what, the market’s adapting, things are changing, we’ve got to be able to pivot. If you aren’t able to pivot or have that open mindset to change, trust me, no business is ever going to succeed.
So, if you are the leader within your business, please bear in mind that it is absolutely critical for you to fully embody that growth mindset. Don’t ever underestimate the impact that your leadership has on that business.
The ability of that business to adapt completely rests on your shoulders and I want you to hold that very dear and think about what that possibly means and how you are going to embody that through all elements of leadership within your business.
It is within your gift to make sure your business doesn’t fail. You now know the top six reasons why a business would fail, make sure you go above and beyond to ensure you aren’t one of those businesses!