Last time we discussed the importance of performing an autopsy
on a dead business. No, I haven't been watching too many of
those wonderfully graphic, TV forensic investigation shows.
The reason I recommend you do a business autopsy is to uncover
the exact reasons why the business died. This is valuable
information that can not only heal feelings of personal failure,
but also better prepare you for the pitfalls of business should
you ever take the plunge again.
Starting a business is never easy and the odds of your success
or failure are about even money. The fact is, approximately
half of all small businesses fail within the first four years.
And a large percentage of those failures occur within the
first year. These are the statistics that keep many entrepreneurs
awake at night. Like Sisyphus, always pushing that boulder
to the top of the hill only to have it tumble back to the
bottom each time, you never know when you're going to lose
your grip on your business and have it tumble back over you.
OK, so far in this column I have managed to squeeze in references
to modern American television and ancient Greek mythology.
Enough highbrow beating around the bush. Perform the autopsy
and learn from it. Only by knowing the real reasons your business
died can you identify and hopefully stave off those maladies
before they take you down next time, if there is a next time.
And if you're a true entrepreneur there will be a next time,
trust me on this.
There are many reasons why businesses fail, but according
to a recent survey by U.S. Bank, the majority of business
failures can be attributed to three reasons: bad management,
bad financial planning, and bad marketing.
Bad management comes in many forms. The survey showed that
seventy-eight percent of the business failures examined were
due in part to the lack of a well-developed business plan
and a business owner who had no business being in the business
he was in. In other words, the business owner did not have
an adequate knowledge or a thorough understanding of the business
he had chosen to start. This is why software entrepreneurs
like me don't start shoe stores. I have feet, I wear shoes.
That's not enough to qualify me to go into the shoe business.
Next, seventy-three percent of the business failures in the
survey were also manned by owners with rose colored calculators.
These business owners over-estimated revenue projections (the
number of expected sales) and under-estimated the burn rate
(the amount of money required to sustain the business per
month).
It gets better. Seventy percent of the failed businesses in
the study were led by entrepreneurs who were in denial regarding
their own competence, or more to the point, their own incompetence.
These business owners either didn't recognize or chose to
ignore their own entrepreneurial shortcomings. These entrepreneurs
also did not seek assistance from others who might have made
up for their inadequacies. It's sometimes hard to ask for
help when you are supposed to be the one with all the answers.
Believe me, I know.
The final contributing factor to the death of sixty-three
percent of the businesses who died from bad management was
that the owners had no relevant or applicable business experience.
Bad financial planning was the second reason sited by the
survey as to why most businesses fail. In business, it's always
about money. According to the U.S. Bank study, eighty-two
percent of the business failures studied reported poor cash
flow management as a contributing factor to the death of the
business.
Seventy-nine percent of the businesses were inadequately funded,
and seventy-seven percent miscalculated the cost of doing
business. In other words, they failed to take into account
all of the costs involved when setting the price for their
products.
Let's move on to my favorite subject: bad marketing.
You've heard me preach this sermon before. You can have the
greatest product in the world, but if your marketing efforts
are inadequate or ineffective you will end up with a warehouse
full of the greatest product that no one in the world has
ever heard of.
The study showed that bad marketing was a contributing factor
in the death of sixty-four percent of the businesses surveyed.
Many of these misguided entrepreneurs either minimized the
importance of marketing and promotion or ignored it totally.
A vital part of marketing is knowing who your competition
is and always knowing what they are up to. The entrepreneur
who ignores his competition is a fool (gee, was that too harsh?)
and is always destined to fail, as proven by the fifty-five
percent of the dead businesses in the survey who either didn't
even know who their competition was or simply chose to ignore
the competition altogether.
Here's a nice hole in the sand for you, sir.
Please insert your head…
Another mistake made by forty-seven percent of the deceased
businesses was that they relied on just one or two customers
for the bulk of revenues. This is a common mistake made by
many business owners who devote all their energy to one huge
client. What they don't seem to understand is that if that
one customer goes away, so does most of their revenue.
When performing your business autopsy you might identify other
contributing factors that were beyond your control, such as
a down economy, the lack of qualified employees, new government
regulations that negatively affect the way you must do business,
the failure of a strategic partner, etc..
There will always be things you can't control. The key to
business success is to keep control of those things you can
and do everything you can to prepare for those things you
can't.
Next time we'll discuss a few things you should and should
not do to help ensure your business success.
