Is your business at risk?
We live in unprecedented times, it can feel like the circumstances are working against us. The truth is that circumstances are working against us. Since the beginning of written records we have seen that some people succeed and others fail. In fact more business fail, than succeed. In this article we will look at the key reasons for business failure.
Is it just a matter of time?
How pessimistic, you might say. Studies have shown that in the United States “20 percent of all small businesses survive the first year, 30 percent survive the second year, and half survive the first five years” (Small Business Administration 2014). According to Statistics Canada and Fundsquire 2022, Canadian business failure rates are as follows; 13.3% in year two, 33.1% in year three, 57.1% by year ten. The failure rates are 4% lower for good-producing companies (after year 3 compared to service companies). This shows that time isn’t the only factor that determines if a business will fail.
What are the reasons?
You can imagine that businesses that fail have many reasons for failure. Investopedia 2022 had the top 4 reasons as:
Finance Hurdles
Inadequate Management
Ineffective Business Planning
Marketing Mishaps
Canada Startups 2022 recorded the top five reasons as below;
Not enough preparation
Having a bad marketing strategy
Not having the right employees
Bad or No company reputation
Rapid growth
Some of those reasons are a little scary, they sound common to many companies. Who hasn’t hired the wrong employee at some point or been a little unprepared? Rapid growth!? Isn’t that a good thing? Keep in mind that these are answers from company owners and staff after a business has failed. We might have to dig a little deeper to see if our business is at risk?
Reasons beneath reasons?
When we looked at the information from CBInsights 2021 through the lens of a simplified 3 pillar business model (check out our previous blog) we found that Finance accounted for 24% of all failures, Operations for 21%, and Sales for 24%. Alarmingly 31% of businesses failed due to poor or no strategic planning.
We couldn’t help but notice as we went through the various failure reasons, that most of those attributed to finances, operations or sales all seemed to be symptoms of a larger issue.
In fact, in 1997 Statistics Canada published the statement, "the main reason for (business) failure is inexperienced management. Managers of bankrupt firms do not have the experience, knowledge, or vision to run their businesses".
Our research and experience would generalize most failures as a lack of continuous strategic planning, an inability to put the plan in motion or a failure to react to changing conditions.
How do you reduce the risk of business failure?
A logical approach to avoid failure is to do the opposite of the firms that failed. Focusing on failure, or trying to avoid failure is likely to end in the result that you focus on… failure. Use the checklist below to steer your team away from risk;
Make a thorough Business Plan.
Build accountability into your organization structure.
Get the right people working towards a common goal.
Develop significant measurable targets and have your inner circle commit to doing something when/if those targets won’t be met. This prevents inaction when the warning signs appear (ideally because you see them).
Will a coach help?
Coaches can help speed up this process and prevent unexpected detours. Most businesses do not take the time to work on the business. A regularly scheduled meeting with a coach is a great way to make sure there is frequent development of the business. Coaches also have valuable business experience and offer an unattached perspective of your business. Our blog; “3 Benefits of Coaching That Most People Don’t Know” highlights a few more benefits that your team can reap hiring a coach.
