Installment 10 in a 10-Part Series by Bruce Anderson, a Business Management Consultant in the Dallas Fort Worth Area.
It’s irritating when the little notice pops up on the computer advising us an unexpected failure has occurred. Our system crashes and we have to restart. Of course, that’s a minor nuisance compared to the “unexpected errors” that sink businesses.
The Bureau of Labor Statistics tracks small business failures. Here’s their latest: 20 percent fail in year one, 30 percent in year two, 50 percent fail after five years. Only 30 percent survive their 10th year.
And get this, 86 percent of the companies that were on the Fortune 500 in 1955 no longer exist. The Olin Business School at Washington University in St. Louis studies this stuff and has projected 40 percent of the current Fortune 500 companies will face extinction in 10 years. Mind boggling.
I went back and reviewed the list of 131 organizations I’ve served as a professional advertising, marketing and/or business management consultant and found 39 percent are gone. I guess that explains why I’m now a little cautious when approached by someone with an idea for a new business that’s sure to change the world (and make them a billionaire).
As I’ve been writing this series, I’ve been compiling this list of things I’ve commonly associated with small business failures:
1. Unbridled optimism and enthusiasm concocting a lethal combination of simultaneously over-estimating and under-estimating things critical to the business, i.e. basically living in an alternate reality, wearing blinders, believing if we build it … they will come, refusing to listen, chasing those who challenge thinking from the inner circle, operating in denial, waiting too late to ask for help, etc.
2. A cookie-cutter business plan loaded with unrealistic market and financial data gathers dust on the shelf, but in reality, it isn’t a practical roadmap for building and scaling a successful business anyway.
3. Being under-capitalized and undisciplined with spending in the early stages of operations leaving a critical shortage of operating funds when the time comes to actually launch, promote and begin to scale.
4. Waiting too long to give serious attention to proprietary issues of a potentially complex nature, i.e. patents, trademarks, service marks, clearance and protection of intellectual property, etc.
5. Choosing the wrong business partners resulting in crippling and defeating conflicts.
6. Micro-managing while being under-prepared and under-equipped to truly comprehend and lead all the important aspects and moving parts of a rapidly-emerging enterprise, i.e. overmatched, overwhelmed, dysfunctional.
7. Poor inventory management and control, i.e. expanding too fast and having too much; or, waiting too late and having too little.
8. Managing for revenue at the expense of profit.
9. Being out on the bleeding edge with a good idea before its time, i.e. burning resources cultivating and fertilizing while making it easier and more efficient for settlers to come in and flourish at your expense.
10. Bad luck.
Believe me, I’m all for starting and developing successful new businesses. The world benefits daily from the innovative start-ups that are now multi-billion-dollar operations. And, if we were all playing Major League Baseball, we’d be making tens of millions of dollars annually if we could hit .300.
As we entered the new century, I was in the middle of the tech revolution as CMO of a publicly-held professional internet services company. We entered the arena via an $880-million IPO. My team led marketing efforts fueling a rocket that consistently produced double-digit quarterly growth before it flamed out and crashed like so many others. But even though that period of history is marked by failure, the business world has been well-served by the technological advancements and massive creation of knowledge that occurred during that thrilling 3-G ride.
The deal is, the more we can learn from failure, the more effectively we can drive success.
This has been a series on strategic planning so let’s circle back to that topic. Developing strategy then making sure it can be implemented with authority is one of the most important responsibilities of the person sitting atop the org chart. There’s a real difference between a business plan created for financiers and a strategic operating plan faithfully and skillfully executed in support of a clear and complete vision cast by the CEO.
There is no separating executive leadership, vision and strategy. They are inextricably linked. Under poor leadership, businesses fail. The best CEO’s position their organization to succeed by having a well-constructed strategic plan that enables them to anticipate and fix problems, identify and capitalize on opportunities, and make correct decisions most of the time.
Put the right planning process in place, support it with the right culture, and you’ll always know where you’re going, how you’re going to get there, and when you intend to arrive.
You’ll still be faced with shifting landscapes, unexpected developments, financial challenges, surging competitive pressures, and motivational and political hurdles; but, because you’ve seen to it that your business is grounded in smart strategy, you’ll be leading an organization that’s better prepared to dodge, pivot and accelerate as it marches confidently into the future.
That’s all folks. Thanks for tuning in.
Bruce Anderson is president and CEO of Anderson Consulting. Contact him at ba@acdallas.com and @bruceadfw.