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Business Survival

If Your Business Flops, It’s Probably Due To One Of These 7 Causes

Ninety percent of startups fail within a few years. Be aware of the common sources of failure so you can work to avoid the pitfalls.

Larry Alton

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Businesses fail every day. In fact, statistics show that the majority of new companies will fold within a few years. Why is that? What are the most common reasons for these flops?

Naturally, interested parties have generated a variety of studies and statistics regarding the factors for success and failure among start-ups and small businesses.

A study from CB Insights is one of the most startling. It shows that 90 percent of start-ups fail within just a few years. In fact, if you launch a business today, you have only a 10 percent chance of still being in operation a decade from now. There’s no way around it.

Related: 7 Failures Every Entrepreneur Must Eventually Face

As a savvy entrepreneur, you should be aware of the most common sources of failure in business so you can avoid them. Let’s run through the seven commons causes of failure.

1. Poor cash flow management

The majority of entrepreneurs go into business because they have a sharp idea or a passion for a particular market pain point.

Some of these entrepreneurs might also have a background in accounting or financial services, but this is more often the exception than the rule.

Sad to say, but most new business owners are financially illiterate – or at least start out in that condition. Almost inevitably, this comes back to bite their cherished undertaking.

“Why do most businesses fail? Because they can’t pay their bills,” says Bill Carmody, CEO of an established marketing firm. While vendors and creditors may act like they care about your business, they only care so long as they’re getting paid.

“Companies don’t go out of business because they lack profits on their financial documents, they go out of business because they don’t manage their cash and can’t pay their bills.”

2. Too much pride

It’s absolutely imperative that entrepreneurs learn how to humble themselves before others. One of the worst mistakes you can make is to be unwilling to seek outside help when things get tough.

“The ego. How many times have we argued with someone knowing they were really right, yet we just won’t give in due to that darn ego,” says Donald Burns, a 33-year veteran of the restaurant industry who warns against shutting out other perspectives. “Egos have started wars, ruined economies (the housing bust), and closed the doors of more restaurants than we could list here.”

As they say, pride goes before a fall. Whether it’s business advice, financing or any other form of guidance, business owners must be willing to seek outside help.

3. No market need

According the aforementioned CB Insights study, 42 percent of startups eventually fail because there’s no pressing market need for the products and services they want to sell. That’s the number one cause of small business failure.

It’s important that you study the market and potential demand for whatever you’re hoping to peddle, and avoid fooling yourself.

Is there an actual need for your product, or are you trying to create one for selfish reasons? Knowing when to pivot or bow out is a skill you’d better have, or you may find yourself in a world of trouble.

Related: You Can’t Succeed At Sales Working In Failure Mode

Hiring-staff

4. Making the wrong hires

A handful of bad hires can derail even the most successful brand. According to Mariah Deleon, Vice President of People at Glassdoor, hiring bad candidates hurts in more ways than one.

The risks can involve productivity costs, financial costs, employee morale costs and reputation costs. Even if the person eventually turns into a good employee, the upfront costs mean he or she could pose a drain on resources for many months.

Speaking of financial costs, well-known recruiter Jorgen Sundberg says the total lifetime cost of onboarding an employee is $240,000. In other words, if you’re repeatedly hiring, firing and replacing, you’re throwing some serious money down the drain. Eventually, this will constrict your company’s financial flexibility and could put the entire enterprise at risk.

5. Unwillingness to pivot

After a company has been in business for a few months or years, company leaders may realise their original, brilliant idea wasn’t as great as they initially believed. In fact, they develop a nagging sense that the marketplace is telling them to move in another direction.

An unwillingness to trust such signs and pivot is an almost sure-fire signal of ultimate destruction.

Think about what would have happened if Odeo – the podcasting company founded by Evan Williams – had never listened to the marketplace and failed to pivot into a real-time social messaging platform. Twitter wouldn’t exist! And do you think that original podcasting company would still be around today? It might, but it probably wouldn’t be a multi-billion dollar corporation.

6. Operational inefficiencies

Sometimes the business idea itself is sound, and you have the right people and financial acumen, but operational inefficiencies are the thing that holds you back.

Paying too much for rent, labor, machinery, materials, shipping and so on can put a strain on cash flow and kill the profit margin.

In order for businesses to be successful over the long haul, they must demonstrate a constant willingness to re-evaluate and negotiate rates, terms and contracts with the respective parties at every point on the supply chain.

Related: Your Business Failure is Your Fault

7. Poor corporate culture

Strong businesses have healthy corporate cultures that are committed to hard work, ethical practices and transparency. Sadly, very few companies are able to establish and maintain a healthy corporate culture over many years.

This often goes back to poor hiring practices. But it’s also directly related to executive leadership and management. According to Julie Rains of OPEN Forum, some of the tell-tale signs of an unhealthy company culture include playing favourites, a lack of constructive feedback and criticism, small issues that get repeated over and over again, employees who are defensive and frequent bending of the rules.

Take a proactive stance

Small businesses go belly-up for any number of reasons. Though every organisation is exposed to its own array of circumstances, risks and situations, at least one of the seven issues above is almost always implicated in the downfall of a company.

When it comes to your company, are you sitting back and hoping your activities remain strong? Or do you take a proactive approach in order to avoid the problems that have derailed so many other small businesses in the past? Ask anyone who’s been through failure, and they’ll tell you that the latter approach is the smarter choice.

This article was originally posted here on Entrepreneur.com.

Larry Alton is an independent business consultant specializing in social media trends, business, and entrepreneurship. Follow him on Twitter and LinkedIn.

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  1. Adesanya Gbenga Peter

    Aug 2, 2016 at 08:32

    Thanks

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Business Survival

How To Embrace An Exponential Mindset For Your Business

In the age of exponential technologies, it’s a risk not to take a risk.

Mic Mann

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Think global and exponential

If you’re an entrepreneur trying to establish a successful business, it’ll be dead before it even takes off, if you don’t build it for the future. You have to think three to five years ahead, so when it launches, it’s still relevant.

Think like former Canadian pro ice hockey player Wayne Gretzky, who said: “I skate to where the puck is going to be, not where it has been.” And these days it’s easier for entrepreneurs to predict the future thanks to technology and data insights.

Consider what Singularity University co-founder Ray Kurzweil calls The Law of Accelerating Returns. He says the only thing that’s constant is change and that change itself is accelerating exponentially. As per Moore’s Law, information-enabled industries are doubling their performance and halving their price every 18 months, according to the price-performance ratio. The field of biotechnology has managed to surpass that.

Related: 5 Mindset Changes You Must Make When Going From Employee To Entrepreneur

There’s no time to slow down, your business has to constantly evolve, and you have to keep asking “what’s next”. Encourage experimentation and innovation in your company. Innovation focuses on incrementally improving your already existing products and services, while experimentation allows for fresh outlooks and breakthrough strategies that leapfrog old ways.

We should reprogramme our linear mindset into an exponential one. Don’t aim to grow your business by 10 per cent year-on-year, but rather 10 times. The first thing I learned at Singularity University is the potential of exponential growth. If you take 30 linear steps, you only move 30 places, but if you move 30 exponential steps your place doubles with each step and by the 30th step, you’ve moved over a billion places.

We’ve seen this happen with unicorns – not the magical creatures, but start-up companies that are valued at over $1 billion within their first year – like Slack (cloud-based team collaboration tools and services) and Square Inc. (a mobile payment company). It once took around 20 years for American companies to reach the billion-dollar valuation mark, now it may take less than a year.

In the early stages – until your third step – your progress may seem linear. Many exponentially-geared companies give up at this point – just as their growth rate is about to explode. Persevere!

A few decades ago it was unthinkable for an individual or start-up to disrupt entire industries. Start thinking globally, not locally. Use staff-on-demand and crowd souring to propel your business ahead of the competition. It’s unlikely that you have the world’s smartest minds working for you, however with the power of the crowd, you just might.

If you’re struggling to find a solution, turn the challenge into a game and offer prize money. You’ll have thousands of people attempting to solve your problem, but will only pay for the best solution. Kaggle is a platform for predictive modelling and analytics competitions. It lets statisticians and data miners compete to produce the best models for predicting and describing data. Mining company Gold Corp placed its geological data online and offered money to anyone who could locate gold at their Canadian mine. Four of the five winning entries struck gold. And in 2011 it took a team of gamers 10 days to solve an enzyme riddle that could hold the key to curing AIDS.

The six Ds of tech

As companies become information-enabled they should internalise what Singularity University co-founder Peter Diamandis calls the six-step growth cycle of digital technologies. These Six Ds of Tech Disruption are digitisation, deception, disruption, demonetisation, dematerialisation, and democratisation.

The first step is digitisation. Once something enters the digital realm it gains the potential for exponential growth. Think of the radio and CDs. You no longer need either, instead you can stream online, listen via YouTube or download music. After digitisation, growth appears slow, even deceptive. Sadly that’s when many companies opt out. Be patient!

Related: How To Build The Right Mindset For Start-up Success

No one imagined Kodak would disappear after a century. Kodak thought they were in the business of printing photographs, while they were in the business of memories. Think about the need your business solves. Kodak invented the digital camera, but was too scared to disrupt its own industry. It didn’t realise that people were no longer taking photographs in the same way, so their competitors disrupted the industry instead.

Today, the camera has become part of the smartphone and photographs are predominantly shared via social media. Instagram epitomises the next step in the equation: demonetisation. With time technology becomes cheaper and even free. Instead of printing photographs, many people instantly share them on a free smartphone app like Instagram.

Next comes dematerialisation. The radio, camera, video recorder, GPS, calculator and calendar are disappearing from the physical world as they’re being built into the smartphone. The wallet will dematerialise next with the advent of online transactions and cryptocurrencies.

Finally, democratisation happens when government, corporates and the wealthy no longer hold control and masses of people have access. Just think, the average South African with a smartphone has access to much more information than the president of the United States of America had 20 years ago.

In the age of exponential technologies, it’s a risk not to take a risk.

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Business Survival

Why, When You Fail, You Should ‘Fail Forward’

So, you’ve fallen on your face? Consider that you’re walking in the footsteps of some ‘famous failures,’ like Steve Jobs, Oprah Winfrey and Stephen King.

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Arianna Huffington

5 Inspiring stories to keep in mind

1000 times he failed

Teachers described him as “too stupid to learn anything.” He got fired from two jobs because he was “non-productive.”

Then he tried inventing something completely new. What’s even crazier is that he tried 1 000 times, unsuccessfully. When a reporter asked him how it felt to fail 1 000 times, the story goes, he replied, “I didn’t fail 1 000 times. “[The invention] was an invention with 1 000 steps.”

Through pure determination, Thomas Edison – initially a failure – made the world a brighter place to live in. If such good things come from success, then why do we choose to always look at the brighter days and completely disown the tough times?

Here are five more inspiring stories to keep in mind, should you ever feel that you’re the biggest failure.

The woman whose book got rejected 36 times

Arianna Huffington

Arianna Huffington

You’d think that once one book you’ve written becomes a bestseller, publishing another one would be a walk in the park. But it’s not that easy. At least not for Arianna Huffington.

Having produced that first bestseller, The Female Woman, when she was only 23,, Huffington tried to pitch her second book, but none of the 36 publishers she approached said yes. Still, she didn’t give up.

And that’s just one of a couple of failures from The Huffington Post’s co-founder. She has been dropped from hosting a BBC show, garnered 0.55 percent of the vote (when she ran for governor of California) and been unsuccessful when she called for then-President Bill Clinton’s resignation through her website.

But now The Huffington Post gets millions of visitors every month; she’s had a successful book career; and, if it helps, she’s very rich. Clearly, “failure is a stepping stone to success.”

Related: How Failing Fast was Nomanini’s Ticket to Creative Innovation

The woman who was “unfit for television”

Oprah Winfrey

Oprah Winfrey

Oprah Winfrey is worth more than $3 billion. But it hasn’t always been like that. And, considering that a Baltimore TV producer called her “unfit for television” right before he fired her, it’s telling that the main source of Oprah’s success was a TV show that ran for more than 20 seasons.

Oprah also tried to get into the movie business with the movie Beloved. It lost to Bride of Chucky in terms of revenue and consequently lost the $80 million invested in it. Oprah has said this failure sent her into a state of depression.

But then, in 2013, she got back onto the horse (speaking cinematically) with The Butler.

See? Even when you make it, you’re still at risk of failure. Henry Ford, William Crapo Durant and Walt Disney (among so many others) all went bankrupt after they’d already made it big. But each one sprang back in his own way.

The man who was fired from the company he’d founded

Steve Jobs

Steve Jobs

Not all of Apple’s products have received mass acclaim. More specifically, not all of the Apple products launched by Steve Jobs have been successful.

One such failuret was the Lisa computer. This was supposed to be a desktop computer targeted at personal business users. For a purchase price of $10,000 (about $24,000 today) consumers could buy the first desktop that would allow them to use a mouse to work with a 5MHz processor and up to 1MB RAM. The Lisa sounded like a magnificent idea, at least at the time.

However, the pricey computer sold poorly, and then-CEO John Scully, someone Jobs had chosen for that position a few years earlier (there are so many lessons in this story), helped remove Jobs from the Macintosh division in 1985.

So Jobs left Apple. Then he founded NeXT, and failed again, but sold the software division of NeXT to Apple in 1997. Then he returned and became CEO in 2000, and this time he was determined to make Apple something special. He succeeded.

Related: Why Balls to the Walls Could Mean Failing Fast

The man who almost gave up after 30 rejections

Stephen King

Stephen King

Stephen King was just selling short stories and teaching English when he had the idea to write Carrie. However, despite the $2,500 advance he received for the novel, he decided to give up on the book after 30 rejections.

But his wife wasn’t going to let him do that. She urged him on, and he finally agreed to submit the manuscript again.

Carrie is one of King’s bestsellers and went on to become two film adaptations, one of which won the lead actress Sissy Spacek an Oscar.

The man who quit – just before striking gold

gold-mine-panning

Talk about hitting a gold mine

One last story comes from Napoleon Hill’s book, Think and Grow Rich. In it, the author writes of an interview with a millionaire named R.U. Darby who in turn described an uncle of his who, having heard of the riches that came from finding gold, set out to do just that. After weeks of commitment, this miner finally spotted a vein of shining ore. He raised the money for the necessary machinery and went ahead and he started shipping the gold. However, before long, he’d lost the vein of the gold ore.

Related: How Tebogo Ditshego Transformed a Failing Business and Tripled his Revenue

He tried to find it again and was unsuccessful. Then his workers quit and sold the machinery to a junk man. The junk man called in an engineer to inspect why the project had failed, and it was determined that the vein was just 3 feet (three) away from where the Darbys had left off.

The lesson? Before you stop trying, try again. If not for yourself, then for other people. What would the world be like without Thomas Edison’s invention? How about Alexander Graham Bell? Use failure as a step to elevate you because it’s by learning to accept failure that we can see great success.

This article was originally posted here on Entrepreneur.com.

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Business Survival

How To Recession-Proof Your Business

South Africa is in a technical recession. Here’s how to navigate the turbulent times ahead.

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For the lay-man like myself, it’s important to understand that a technical recession is an economic term that describes two consecutive quarters of negative growth in an economy. For South Africa, gross domestic product (GDP) declined 0,7% during the first quarter of 2017 after contracting by 0,3% in the fourth quarter of 2016.

Why is this a big deal? Because the economic outlook, even without the technical recession, was bleak. Ratings agencies are losing confidence in South Africa. S&P downgraded the country to junk status earlier this year, followed by Moodys, which revised South Africa down a notch.

Related: Can Your Business Survive A Recession?

How organisations respond to recessions

There are a number of knee-jerk reactions to a recession as a direct result of decreasing revenues and profits. The most relevant to SMEs are:

  • Cutting R&D spending. This means no new product lines, and no incremental innovation expenditure unless it returns direct value to the business.
  • People get fired. In a time where underperformance has a double impact on the business, people that aren’t performing are performance-managed out the door.
  • Market shares shrink. This is often due to reduced R&D spends.
  • Processes are evaluated. Companies start looking for efficiencies that should have already been in place.

Outlook and opportunities for SMEs

For SMEs, sales and product planning in a recession is key and must align to the way big business is responding to the recession.

Fundraising for capital expenditure is more expensive, but not impossible. It may be valuable to invest ahead of the curve to capture the emergent big businesses during this period and therefore external investment may make sense.

In an increasingly collaborative economy, SMEs should look to each other for partnerships and complementary projects that cost little to assemble, but amount to great value for a big business.

Survival of the nimblest

Cut down

SMEs have the ability to be nimble and move quickly to change organisational structures and deliver on just-in-time value. This can be hamstrung by unpredictable fluctuating expenses like cell phone contracts that may vary in cost in an unpredictable way from month to month. The fewer of these costs on your books, the better.

Related: How Renay & Russell Tandy Have Survived 2 Recessions And Built A Successful Agency

Sell harder

The term ‘always be closing’ is a famous sales mantra, it’s also applicable in a recessionary context. First, because you don’t know what they don’t know and unless you tell them — who will? Second, the feedback loop of understanding the concerns and actions from your customer or client can only be understood through interaction.

Position smarter

Is it clear that you are the best provider for the job that needs to be done? If not, it is important to build a stakeholder strategy that puts your business in front of the key procurement and strategy custodians. This may be a great opportunity to exhibit demos, case studies and showcase the efficiency that you offer.

Focus on value

I can’t over-state this. Value, value, value. It goes without saying that one of the key reasons anyone would consider an alternative supplier is because of the specific problem they solve, so this should be your approach in reinforcing the value you bring to the table. Repetition builds memory structure.

One recession doesn’t fit all

It’s important to understand that for SMEs a recession can have an expansionary effect in the same way the lipstick effect applies to luxury goods and services.

The lipstick effect is the theory that when facing an economic crisis, consumers will be more willing to buy less costly luxury goods. Instead of buying expensive fur coats, for example, people will buy expensive lipstick.

A series of psychology experiments have confirmed for the first time that while tougher economic times decrease desire for most items, they also reliably increase women’s yearning for products that boost their attractiveness.

Parting shot

So, for SMEs, the formula is simple — don’t panic, analyse your customer value chain and position your solution accordingly and then sell, sell, sell.

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