I must admit I am not a fan of using the term failure – every business whether it succeeds or not is a journey for the owner and founder. Experiences are learned which hopefully can be used in the entrepreneurs next journey.
Some businesses however do struggle and eventually close. The following is an account of some of the reasons for these struggles that I have experienced as an advisor.
Poor strategic positioning
Poor strategic positioning can occur in various stages of an organisation. At an early stage this tends to show itself as no real differentiation. At a later stage it implies an organisation which has been subject to strategic drift. An organisation typically which has allowed its resources and values to drift away from a changing environment such that it is too reliant on past successes and is relatively unprepared for the future.
Lack of Innovation
A small business begins by targeting a niche and succeeds by offering something different. Without innovation, this niche can become a tomb. For larger organisations, the crisis scenario relates to rigid planning and lack of flexibility. There are several reasons for this:
- Complacency – the entrepreneur loses the important urgency which once characterised the business
- A lack of current awareness and strategic thinking
- Inflexibility and a reluctance to abandon the past
- A focus on growth rather than profitability such that issues of size draw attention away from more important performance indicators
- Inadequate investment to build new core competencies
Leadership errors
In a small business the entrepreneur who “knows it all” and either fails to seek advice, fails to take good advice or fails to build a strong team of support managers to build the business. The entrepreneur fails to appreciate the strengths and potential contributions or others and believes themselves to be infallible. Ironically this is sometime the price of success. If a new business takes off very quickly and is instantly successful, the entrepreneur can believe the feelings of personal brilliance; but the success may be more luck than judgement.
Lack of investment
Some would be entrepreneurs begin businesses with the main aim of supporting a particular lifestyle. Any profits are invested in fast cars and new homes rather than the business. This approach is even more indictable when the people spend the money before the business has earned it.
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