5 common reasons why businesses can fail
Lessons to learn from business failureNo one likes to fail. In business, there’s money, pride and even livelihoods on the line. However, as we tell our kids when they fail their tests or lose their sports games, there are lessons to be learned in failure. Identifying these lessons and learning from them can provide a shortcut to success.
Here are five of the most common reasons why businesses fail and the lessons we can learn:
Failure to connect with customersIf people aren’t buying what you’re selling, then your product or service doesn’t align with what they want. In order for your business to succeed, you need to know your customer; know what they want, how they want it what it’s worth to them. You need to truly understand them, and to do that you need to listen to them and then respond. And this doesn’t just mean the ones you know and trust - as Bill Gates said, ”Your most unhappy customers are your greatest source of learning.”
By listening to your customers you can discover the answers to two of the most important questions for every business - what service/product should you sell and how much you should sell it for. Get these right and you are on your way to success.
Lesson learned: Engage in a dialogue with your customers, not a monologue.
Failure to communicateOnce you’ve connected, you need to communicate. There’s no point designing, manufacturing and putting to market the perfect product to meet your customers’ needs if they don’t know about it.
Sure advertising costs money but you can be smart about it. There’s social media, networking events and brand champions – all inexpensive yet effective ways of reaching out to your customers.
Then there’s your team. A clearly communicated direction goes a long way towards getting people on board and sharing your vision.
Lesson learned: Learn the language of your customer - that is, don’t speak French to a Russian. Be clear, be concise and be compelling.
Failure to adaptDoing what you have always done is not a recipe for success. Failure to anticipate or react to competition, technology or other changes in the marketplace not just risky, it’s foolhardy. Just look at Blockbuster Video, Kodak and Blackberry.
Anticipating and adapting to change takes good leadership. A good leader will always challenge the status quo and look for better, faster ways of doing things. New technology, new ideas, new competition, new innovations – these are the drivers of change and the right change can propel your business to great success.
Lesson learned: Keep your eyes wide and your ears open. Anticipate changes in the marketplace and react.
Failure to manage effectivelyMismanagement is one of the most common reasons for small businesses to fail. Too often, small business owners try to do it all. They are salespeople, marketers, accountants, investors and cleaners. But the reality is there are few people cut out for this all encompassing role and usually something has to give.
Another trap that leads to mismanagement lies in the transition from dream to business. Often, small business owners start with a dream. The dream becomes a passion and the passion is translated into a business. The danger is that the passion comes first and the business comes second.
Lesson learned: Accept that you can’t do everything and know when to ask for help.
Failure to ensure adequate cash reservesIf you are just starting out, you may go months before the business actually starts making money. Prepare for this by having enough cash reserves or a plan as to where to access more money should you need to. Cash flow is important in any business, but for small businesses, it can be the difference between dying, surviving and thriving. There is a constant two-way tug for cash between suppliers and buyers. The key is to keep on top of your finances and come down strong on late payments.
Lesson learned: Be realistic about your financial position, keep a really close eye on your cash flow, and know when to call in the experts.
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