How can we avoid business failure?
The rate of business failure is a scary statistic. So how can business owners minimize the possibility of failure, making sure that their business thrives and grows?
The causes of business failure won’t be at the front of many business owners’ minds when they start a business. However, with most companies failing within the first five years of operation, it’s worth keeping an eye on the warning signs. This article outlines ways to avoid business failure to give your business a fighting chance of success.
Behind every great company is a great leader
The best way to avoid business failure is to have exceptional leadership. According to McBean, great leaders know how to define their goals and create a plan to direct their company to achieve those objectives. Leaders should have a vision of what that strategy is and how to put it into action. Employees tend to follow the type of work habits, philosophy, and direction of their business leadership practices.
How to become a great leader?
- Build trust through respect and integrity.
- Effectively prioritizes tasks and set clear expectations.
- Be optimistic. Always have a positive attitude.
- Trust the abilities of your team members.
- Encourage innovation and nurture creativity.
- Build productive teams.
- Hold others and yourself accountable.
- Perfect your communication and interpersonal skills.
- Practice continuous learning.
- Be flexible.
- Admit your mistakes.
Know the ins and outs to avoid failing in business
Great small business entrepreneurs must know what every employee does and understand their day-to-day operations. A successful company needs management that can look for ways to make processes more efficient. McBean advises business owners to point out improvements and be clear about consequences when employees deviate from policies and procedures. If a business owner is not strict, he/she will lose control of the company.
Clearly, to become a successful entrepreneur, you must know your business better than anyone else. As an entrepreneur, you should know your team. But being “in the know” doesn’t mean that you have to know everything. Entrepreneurs can entrust the team to share information with them as needed.
Understanding money matters can help you avoid business failure
Your relationship with money has a huge impact on your success or failure in business. The most important factor in how to avoid business failure is protecting the company’s financial assets. Businesses must be aware of their investments and closely maximize their profits. McBean warns if you aren’t aware of your company’s investments, they may unpleasantly surprise you and cause you more hurt than gain.
If you want to avoid failing in business, you should understand the basics of money and finance:
- Familiarize yourself with financial statements. Know how to interpret the three most important financial statements such as cash flow statement, income statement and balance sheet.
- Money is the fuel that feeds your mission. It flows into your business and has the power to propel it toward success.
- You need money to properly fund your business. Some service businesses can be started on a shoestring budget, but others, like restaurants, require large investments.
- Understand the business revenue isn’t the same as profit. Revenue is vanity. Profit is a sign of a successful business.
- Cash flow is the lifeblood of business. While profit is important in business, a company cannot succeed without cash. Cash keeps a business alive. Without cash flow, your business will fail.
- Understand the financial implications of hiring employees. Think about how you can afford to pay wages.
Business success isn’t an accident, it’s planned
Planning affects the success of a business. Business leaders don’t have a crystal ball, but they can make educated predictions and plans for action. McBean gave the example of Ford Motor Company. Before the financial downfall in 2008 and 2009, Ford restructured its debt and raised funds in its cash reserves. McBean says this thoughtful move saved its skin during the meltdown.
Its competitors, on the other hand, GM and Chrysler, ran out of money and needed taxpayer bailouts to avoid bankruptcy. Remember to think ahead and plan for the unexpected.
Planning helps you avoid failing in business
- Focus on the important stuff, but never ignore the small stuff either. Take time for writing a business plan. Resist assumptions. Pay attention to the details. It will help you stay organized and move toward success.
- Analyze your ideas before making decisions. Which ideas are most likely to help you succeed? Understand the resources your will need to implement your ideas.
- Set measurable goals. Write down realistic deadlines for each task required to reach your goals.
- Take time to compare results to aspirations. Reflect on the results and make plans for improvements in the future.
A business that cannot say “No” will fail
Saying “No” is one of the best ways to avoid failing in business. When you say “No” you open your business up for the right opportunities. To serve your customers well, you must focus on the right customers. And that’s only possible if you say “No” to the wrong customers. Going after every business opportunity can be tempting at first, but it’s the wrong strategy going forward. Spreading your business too far drains your cash and reduces profitability. So generally, it’s okay to say no to business so you can focus on quality.
A strong brand will help your business succeed
Branding is a key to business success. Your business success largely depends on how you brand it. Once you’ve built a great product or service, know how to market yourself. McBean encourages new businesses to invest in a solid marketing budget to ensure consumers are aware of the product or service. Take the time and energy to invest your marketing funds into a strategy that works for your target market.
Building a strong brand is one of the most important steps your business can take to achieve long-term success. Branding enables the company to communicate with current and future customers and drive loyalty. A strong brand positions your business in a differentiated position in the market. It will allow your business to attract the right customer. A strong brand turns consumers into raving fans.
Succeed in business by being competitive
A new business must adopt the mentality that its success is contingent on winning battles. You have to fight to the top if you want to succeed. If you don’t, McBean warns, your competition will beat you to the prize.
The best ways to stay competitive in business are:
- Know your customer. You cannot succeed in business without customers. Even if you understand your customers today, your business can still fail tomorrow. Customer demand is ever-evolving. If you want to succeed in business, you must understand changing customer expectations. Understanding your customers will go a long way in helping you succeed in business.
- Hire the best team to help your business succeed. You cannot succeed in business without motivated and skilled employees. Create a pleasant working atmosphere and an attractive benefits package. Happy team members put more effort into helping your company succeed.
- Create a winning marketing strategy. Implement a marketing strategy that hits the right chord with your target customers. The right marketing strategy will help you succeed in business.
- Constant innovation is the key to success. It is the only way to adapt to the changes in the market. Companies that innovate find ways to offer something unique to customers. If you want to remain competitive, you must continue to innovate.
- Understand the competitive landscape. Don’t think of the competition as a threat. Smart businesses use the competition to win. Create a detailed SWOT analysis of the competition.
- Use analytics to keep track of your performance. Analytical tools will help you keep track of your business goals.
Focus on your principles
General business practices apply to all industries. Don’t get too narrow-minded about specific fields and forget common sense. According to McBean, business owners must understand all aspects of the business. If you’re not an expert in accounting, tax law, finance, or management, it might be wise to seek advisement. You don’t want to make crucial mistakes in these areas.
By following his advice, any company can learn how to avoid business failure. McBean doesn’t believe entrepreneurs will succeed if they don’t understand these key concepts and apply them in their business practices. Leaders can learn from those who have gone before them and make wise decisions.
Don’t depend on too few customers to succeed in business
Overdependence on a few big customers is a recipe for business failure. If one large customer pulls out, it will jeopardize both cash flow and profit. The financial hit may be too big for your business to survive. The temptation could be to win back the large customer; however, even if you succeed, this will diminish your margins over the longer term.
The best way to minimize this type of risk is by increasing your customer base. With more customers, you guarantee that each account is a small percentage of your total revenue. In addition, having a larger customer base will make you less vulnerable to losing a customer here and there.