Staring Down Failure

Staring Down Failure

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There comes a time in almost every business’s life when failure seems inevitable, and you fear that you’re unable to continue. Your self-confidence takes a nose dive.

Prospects for success or even survival appear to be extremely limited and a sense of hopelessness sets in. It’s a terrible time, and often happens within your first year of operation, sometimes near the launch of your business.

There is a real basis to this fear. Businesses frequently fail and start-up businesses are especially vulnerable, with many never getting beyond the first year of operations.

Sadly, many entrepreneurs don’t have the skills, knowledge, risk-taking ability or drive to manage their businesses profitably.

Related: How To Expand Your Business To 5 Times It’s Size in 5 Years

Step 1: Be rational

The key to managing through this stage is to decide rationally whether the business is really doomed or whether you’ve just hit that painful wall that left so many others bruised and shaken but stronger and thriving.

 

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Many business owners quit in despair at this stage when, with the right tactics, they could have succeeded. Decisions have to be made only on facts and stripped of emotions, pessimism and blame.

This is extremely difficult to do alone at a time when you’re swamped by doubt about the business concept, your own abilities and your fears of the consequences of failure, including catastrophic financial loss and shame. This is a great time to turn to a mentor.

An old business saying suggests that the best loss is the one taken early. If a rational analysis of the state of the business shows that there really is no likelihood of it succeeding, then plans must immediately be made to close the business with as little damage as possible. It’s not smart to continue to ride a failure into yet more debt and broken promises.

Step 2: Take action

An assessment of the current situation is vital. Write down cash resources, sales prospects, market reaction, product and service quality and fitness for purpose and all the things a buyer would look at if he were thinking of buying your business.These must be compared to the business plan to see what has changed.

  • Why were the expected returns not made?
  • Are the causes fundamental or can they be reversed?

Be certain that the real causes have been identified; this is not a place for rose-tinted spectacles. Once the causes of the distress are identified it’s a whole lot easier to make a close or survive decision.

Often the crisis is brought about by something as simple and reversible as the failure of marketing promotions to attract potential customers, deviating from plans to satisfy unreasonable demands by early customers, trying to attack too many markets, or spending too much time on product development and not enough on selling.

This is where a mentor or fellow entrepreneur can bring an impersonal outsider’s view, especially if they have experience in managing similar situations.

Key questions to be answered are whether the identified problems can be fixed and whether the company has, or can get the resources needed to do these fixes. It’s not sensible to borrow more money unless this is necessary to fix the problem, not merely to prop up a failing venture a few months longer.

In looking at these rational decisions and fixes it helps to remember that many thousands of successful businesses have gone through exactly this stage, so things may not be as dark as they first appeared. Always try to bounce back, but only with good strategies.

Related: How To Identify and Rescue Declining Products

 Make a plan

Make a note of the following to order your thoughts, evaluate your business and make changes:

  • What are your cash resources?
  • What are your sales prospects?
  • What is the market reaction to your offering?
  • What product and service quality do you offer?
  • What matters most to your buyers?
  • Why were the expected returns not made?
  • Are the causes fundamental or can they be reversed?
  • Finally, can the issues be resolved?

 Remember to be as honest as possible. This exercise will help you get your business back on track if done correctly.

Ed Hatton
Ed Hatton is the owner of The Marketing Director and has consulted to and mentored SMBs in strategy, marketing and sales for almost 20 years. He co-authored an entrepreneurship textbook and is passionate about helping entrepreneurs to succeed.