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PLAN OF ACTION

Robert Craven reveals the real reasons for business failure - and provides some top tips for start-up success

I will now make myself hugely popular (not!) with people who have lost their businesses by stating that business failure is attributable to one key factor in 99.9% of cases - the owner-manager or the management team.  In other words, you.

You hold the key to your business success and you hold the key to your business failure.

the real ale pub list

Next time you are in a pub and you overhear that inevitable conversation about business failure, listen carefully.  Listen to the language.  Also listen to the reasons given for the business failure.  You can assemble the standard list from almost any pub in the country, and it looks something like this:

Pick any five or six of the reasons given below:

• ‘The bank pulled the plug’
• ‘A key customer refused to pay’
• ‘The interest rate on loans’
• ‘Increases in rent/overheads etc’
• ‘Couldn’t get/keep the staff’
• ‘The competition were better/faster/cheaper/nicer…’
• ‘Couldn’t afford to invest…’
• ‘New products of competitors were better/faster/cheaper/nicer’
• ‘Couldn’t get/keep the customers’
• ‘The product wouldn’t sell’

The real reason for business failure, in 99.9% of cases, is managerial incompetence.  The responsibility lies in the hands of the person/people running the business.  After all it is the job of management to look after all of the above.  It is no-one else’s job.

Most business failures tend to blame everyone else but themselves for their misfortune.  (Psychologists call this an ‘external locus’ of control.) 

On the other hand, most business successes tend to take full responsibility for the success and the failures of their business.  This is called an ‘internal locus’ of control.  When push comes to shove, the successful recognise that it is up to them (and no-one else) to make a success of their business.  They don’t use victim language to describe their position and they don’t blame others.  They look, they decide, they act. 

Research in the mid–nineties listed a depressing catalogue of reasons for failure including the usual suspects:

• Costs
• Cash control
• The market/the product
• Pricing
• Red tape
• Sales forecast/over-trading
• Human resources
• Risk taking
• Location
• Drawings.

The most fascinating finding was that when the directors of failed businesses were asked for the main reason for failure, they blamed operational issues (40%) and then strategic problems (24%) 

On the other hand, the Official Receiver (who saw all the failures come through their office) blamed operational management in 71% of the instances of business failure.  In other words the Receivers were absolutely clear that the failure was due to the incompetence of the owner.

AVOID FAILURE

So what should you do to avoid your business going to the wall?

• At the heart of the business needs to be the numbers.  Everything should be tested and measured so that you know what works and what doesn’t so that you can systematically think about how you can do things better.
• You need to know how the 80:20 rule works in your business.  80% of profit comes from 20% of customers.  Do you know who your best customers are?  Where can you find more?  And what about your worst customers, the customers from hell, who make you no money and are a pain in the backside?  Why do you keep them? What would happen if you sacked 50% of your customers!
• You need to streamline and systemise everything so that you don’t keep making things up as you go along – create a works manual that explains every system.  If you can create a system that works in Bristol, then you replicate the system and the same system will work in Liverpool. Like a franchise, you must try to create a model that can be cloned – such a business building system involves more focus working on rather than in the business
• Think of the business as a sausage or a money machine. What do you have to put IN to get how much OUT?  If £100 of marketing generates £300 of profit then presumably £1,000 of marketing generates £3,000 of profit.  Measure, measure, measure…
• Look at every step of your sales funnel and make improvements at every stage. Get more leads, get better at converting them, keep customers for longer, get them to buy more and more often and the results are exponential.
• Use more ways of reaching potential customers.  Most businesses use two or maybe three of the possible fifteen or so available channels only and ignore the rest.  The sales funnel depends on you getting to as many people as you can, so consider all avenues: word-of-mouth, networking, advertising, PR, banner ads, referral systems, seminars. And the list goes on.

 Some Reflections

The really great business are obsessed with three things

• Where are we taking this business (while being aware of the outside environment)? AKA strategy
• How are we going to sell this stuff? AKA marketing
• How can our people get on better? AKA teams and people
  

More importantly, and this is the big issue for the owners, have they got the bottle to overcome some ‘founder fears’? It is often the founders themselves that hold back the growth of their business because they are:

• Frightened of letting go of financial control – sharing ownership with others, taking external funds to fund and fuel the growth
• Frightened of letting go of management control – sharing power with others (AKA delegation).

To grow a business, the owners need to recognise that they cannot do it all themselves, and that they will probably need some more money (because growing a business is like haemorrhaging cash).

A To-Do List For Owners

• Systematise, measure and test everything
• Follow up on all leads
• Create a list of back-end products – other complementary things to sell to existing customers
• Check every step of the customer journey – how can you make it better for them?
• Check every step of the sales funnel – how can you improve the results that you get as potential customers head towards being customers?
• Create a one-minute logo, an elevator pitch – focus on who you work with, and what their problem is, how you can sort it out for them, and what the benefit is to them .

After all, why should people bother to buy from you if you are the same as the competition?

But before you start getting obsessed with all the detail above, remember that at the heart of success is one simple concept - the concept of action. Nothing will happen unless you do something. Do it and do it now.

 

About the author

©2006 Robert Craven, Making Money

publication details

First published in Making Money, June 2006.