Going out of Business

Why Businesses Fail – It’s the Owner

Written by: Alan Rodway

Category: Organisational Success

Sadly, many businesses either fail, don’t reach the levels the owners would like or don’t reach their potential.

There is one fundamental reason that causes poor performance for privately owned and operated businesses … the owners!

So many of the deficiencies that businesses suffer from are a direct or indirect result of owners’ deficiencies.  So the real cause receives too little attention because the symptoms are visible, attract daily attention and employees are not inclined to point to owners’ deficiencies as distinct from the problems they cause.

If you are a working owner of a business the most use you will get from the list below is to genuinely consider which of the factors apply to you and what you might be able to do about them.

  1. First and foremost owners can lack leadership.  That seems a strange comment given they are often the ones who started the venture in the first place and that represents leadership.  But the leadership of people is a different thing and too many owners are poor leaders … ask the staff!
  2. Owners can become risk-averse once a business is up and running.  Once the initial idea(s) are put in place, owners can become more intent on following the initial route than being astute at changing it if necessary.
  3. Owners who want to maintain too much control hurt their own businesses.  High flying businesses often do so because of the performance of people inside the businesses.  That is unlikely to happen with a controlling owner.
  4. No one person knows a lot about all aspects of running a business so everyone needs people in influential positions who can contribute to the future of the business.  Too many owners try to do it all themselves, sometimes unwittingly, sometimes they think they can.  They end up with inadequate expertise in and around the business.
  5. Owners can be too emotional and, whilst that is entirely understandable (there is a lot at stake) emotional behaviours and decisions hurt business performance.  Sometimes the owners’ emotion becomes so high they can’t see the forest for the trees.
  6. Owners can unconsciously expect others to be like them, in commitment, in how they think, in what they do, in how they learn, even in personality.  That’s simply ridiculous and does not work.  Everyone is different and non-owners cannot be expected to show the same level of commitment.
  7. Owners too often hire the wrong people, either because they like them, they know them or (potentially worst) they are family.  Nepotism, friendship and likability are not logical selection criteria for high performance.
  8. Owners can fall into the trap of thinking that the first idea or concept is the right one when that is rarely the case.  History shows that most successful business ideas have followed many failed previous ideas.  Sticking to the first idea or approach might seem to represent admirable persistence when it’s little more than naive, narrow-minded stubbornness.
  9. The personal factors in the lives of owners can obviously have devastating effects on a business when they are negative.  That’s not harsh; it’s just true.
  10. It’s a natural trap for an owner to become engrossed in the business rather than being able to see things from the outside as well …. and then their objectivity can suffer.
  11. Owners sometimes fail to continue networking and learning from others as they spend more or most of their time in their own business.
  12. Poor choice of equity partners is a massive problem for business and this one really hurts businesses (and the people within).  Once an ineffective equity partner relationship exists it creates deeply seeded difficulties.
  13. Owners too often get poor or inadequate bookkeeping, accounting, tax and legal advice, which leads to all sorts of problems for the business.

For the sake of being complete, let’s note the commonly nominated reasons business fail but understand that they are most often the outworking of the owners’ performance anyway:

  1. Under capitalisation, from the start of the business or beyond.
  2. Poor financial management including excessive private drawings, overuse of credit, no budgets, inadequate provision for tax payments and poor cash control.
  3. Poor bookkeeping and other record keeping.
  4. Poor sales and marketing, including poor promotion, inability to cope with seasonal factors and insufficient knowledge of competitors.
  5. Insufficient sales and too few customers compared to the cost of operating.
  6. Inadequate and/or poor use of a database.
  7. The poor performance of people.
  8. ‘Wrong’ people.
  9. Poor decision making.
  10. Lack of clear vision and/or buy into a vision.
  11. Lack of innovation.
  12. Poor risk management.
  13. Poor location and lack of customer convenience.
  14. Bad costing, delayed invoicing.
  15. Giving too much credit, resulting in bad debts and slow payment.
  16. Inventory problems … slow moving or dead stock and shortfalls.
  17. Poor customer experience
  18. Poor public relations.
  19. Ineffective working relationship with suppliers.
  20. Poor quality workmanship, inadequate quality management.
  21. Lack of industry or product knowledge, or lack of knowledge of market forces.
  22. Inadequate systems and/or systems not being followed.
  23. Unclear target market / customer.
  24. Lack of planning.
  25. Economic fluctuations and downturns.

Owners who are willing to accept that almost everything that happens in and around their business is because of what they do and don’t do, and what they decide, are way more likely to have highly successful businesses.  Focusing on the problems the business ‘appears’ to have rather than bringing it all back to their own performance in causing or allowing the problems just disguises what is really happening.  If this contention seems offensive, harsh or misguided then the benefit of the article will be lost.  The contention brings great news to owners … you can fix virtually everything that’s not working in your business by changing yourself !  Conversely, if an owner continues to focus on the business problems rather than themselves then, not only will the problems continue, they could get worse as people within the business usually know what’s really happening.

In case any owner reading this article feels it is too critical, we could have written the same content from the opposite perspective … “Why Businesses Succeed … It’s The Owners ! ”  The fact is inescapable.

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