There have been many articles written on the subject of why businesses fail, and most of them point to the same reasons, such as:
==>Inadequate funding ==>Bad location ==>Lack of a well thought-out business plan ==>Poor execution ==>Bad management ==>Expanding too quickly ==>Insufficient marketing or promotion ==>Inability to adapt to a changing marketplace ==>Failure to keep overhead costs low ==>Underestimating competitors These reasons are widespread and no doubt cause many businesses to fail. However, the reason for a company’s failure is not always something so obvious. Here are 6 lesser-known reasons why Dave Lavinsky thinks a business might fail.
Why do these reasons remain untold? Simple. Most of the time, the business owner doesn’t realize that these reasons are what caused their failure, and consultants generally don’t ask the kinds of questions that would identify them.
1) Focusing on Short-Term Profits Rather than Building Long-Term ValueIt’s important to be profitable, but NOT when short-term profits come at the expense of the long-term value of the business and the lifetime value of the customer.
Here’s a real-life example: In the late 1990s, there was a franchise of a national smoothie shop located in West Los Angeles, CA. At this store, smoothies sold for about $4. They cost only around $1 to make, resulting in a solid profit. However, certain ingredients, like mangoes and berries, cost more than the other ingredients, such as juice and frozen yogurt. Since juice and frozen yogurt were cheap, the franchisee put more of these ingredients in their smoothies and less of the expensive ingredients. By doing this, their profit margin per smoothie grew by approximately 20 cents, which seemed great… on paper. Unfortunately for the store, customers weren’t satisfied with the taste of the lower cost smoothies, people stopped going there, and the store eventually went out of business.
As you can see here, it’s important to consider the lifetime value of a customer. Repeat business is way more valuable than short-term profits. Saving 20 cents on a smoothie today will cost you big in the long run.
(Another great example of this concept is Google giving preference to relevant ads in order to improve the user experience, even though there are less relevant advertisers willing to pay a higher price per click.)
2) Ego Business vs. Business Opportunity The foundation of a good business is a good business opportunity. As an entrepreneur, you want to fill a need in the marketplace. Unfortunately, many businesses are started solely to fulfill an entrepreneur’s ego (or, to put it less harshly, to satisfy one of the entrepreneur’s interests).
This can often be seen in the restaurant & bar industry, where too many entrepreneurs open shop because it’s a “cool” thing to do. Such businesses rarely succeed.
3) Life distractions The best ideas don’t always come between 9 and 5. A person might have a great idea while driving, or in the shower, or while working out. It’s moments like these when an entrepreneur leaves behind the day-to-day tasks of running a business and gains a better perspective of the big picture.
Sadly, there are a lot of things that can disrupt a person’s home life. Illness, death of a family member, divorce, relationship trouble, and problems with a child are just a few of the many issues that can affect a person’s mindset. When things like this occur, moments of clarity are replaced by stress and anxiety.
Many entrepreneurial ventures depend heavily on new ideas and creative thinking, and when an entrepreneur’s head isn’t clear, business can suffer. 4) Bad feedback & white lies People like spending time with friends and family.
Unfortunately, when it comes to business, friends and family members don’t always give the best advice. This is especially true at the birth of a business. Nobody wants to be a buzz-kill. No one wants to tell an entrepreneur their idea is bad, or their location stinks, or anything else negative. Most people are conditioned to be supportive of their friends and family regardless of the situation.
Plus, nobody wants to be wrong. Imagine your friend has an idea that you think is terrible. You share your objections, but the friend goes ahead with the idea anyways, and it succeeds. Now you’ll always be the naysayer that never believed in them. Nobody wants to be that person.
That’s why you’ll rarely get honest, object business advice from friends or family members. And yet, oftentimes friends and family are the first people entrepreneurs turn to for advice.
5) Maybe the owner is just a jerk There are a lot of great people in the business world, but there are also some jerks. And these jerks sometimes start their own companies.
A jerk, in this case, is someone who a lot of people can’t get along with. Maybe it’s because they’re a super-perfectionist, or they yell a lot, or they demand that everything be done in a certain way, or they constantly complain. Or maybe they’re annoying in some other way.
The key is that nobody -- not employees, customers, partners, suppliers, clients, etc. -- wants to give 100% for a jerk. Clients and customers will be turned off, and employees will start cutting corners. Most people believe that life is too short, and don’t want to spend their time working with someone they can’t get along with.
6) The entrepreneur never took the full leap In most new business attempts, the entrepreneur never leaves their day job, or they create a back-up plan, or they have a job lined up in case the new business fails. In these cases, failure IS an option, as the entrepreneur has a safety net to fall back on. In cases where failure is NOT an option, and the entrepreneur depends on the new business to provide food, shelter and clothing, the business has a greater chance of succeeding.
There’s a great example of this concept in a NY Times article. Xiang Yu was a third century (B.C.) General in the Chinese army. He led his troops into enemy territory by crossing the Yangtze River. Then, in order to inspire his troops, Xiang Yu took some unorthodox measures. He burned all of his troop’s ships and destroyed all of their cooking materials. This left the troops with only two options: Move forward and conquer the enemy, or perish. The maneuver did not make Xiang Yu very popular with his soldiers; nevertheless, the troops advanced and ultimately emerged victorious.
Xiang Yu’s methods might be a little drastic in this day and age, but the moral of the story is what’s important. Author Anita Roddick has said that entrepreneurship is a matter of survival, and the truth is, if you’re not totally committed to your business, your chances for success will be greatly diminished.
Owen Fragerfactor.com .................................................................. "A good storyteller is a person who has a good memory and hopes other people haven't."-Irvin S. Cobb .................................................................. We welcome the Library of Congress and these Notable recent visitors: LUCAS FILM; Paramount Pictures; QVC; HSN; 20th Century Fox; HBO; CBS; BBC; NBC Universal; BET; Viacom International; National Public Radio; Movicom; WGBH; Turner; Disney; INTERNET BROADCASTING SYSTEMS; WHDTV Broadcasting Systems;
WPP Group USA; Publicis; Crispin Porter Bogusky; Goodby Silverstein Partners; Kirshenbaum and Bond; OMNICOM GROUP; EDELMAN PR; Ketchum Communications; Duke Interactive Agency; eurorscg.com; Martin Agency; Chiat/Day; Publicis Groupe; D'arcy Masius Bention & Bowles; Grey Advertising; Websense; Goodby Silverstein and Partners; Carat MBS; Fleishman Hillard; Publicis; Bway.net; WPP Group USA; Ogilvy; Leo Burnett; YR; Edelman PR;Double Click; J Walter Thompson; Porter Novelli; McCann-Erickson; digitas; Tinsley Advertising and Marketing; Agency.com; Foote, Cone & Belding; Poppy Tyson; Landor Associates; TBWA; Crispin Porter; Tiempo BBDO; OMNICOM: changingourworld.com; Agency.com/Online Magic; SHAKER ADVERTISING AGENCY; McCann-Erickson; NameMedia; Lord Abbett & Co; Landor; DDB CHICAGO; Mindshare
The New York Times; FT INTERACTIVE DATA; The Dow Jones-Telerat; Macmillan/McGraw-Hill School Publishing Company; The Columbus Dispatch; R.R. Donnelley & Sons; PATRIOT MEDIA AND COMMUNICATIONS; OXFORD UNIVERSITY PRESS; Time Inc, Tribune Company; Random House
Ernst Young; Merrill Lynch; Primco; Accenture; UBS; JP Morgan Chase Bank One; Paine Webber; Citicorp Global; Banque Nationale de Paris; Morgan Stanley Group; Bank One; Oak Hill Capital; HBK Investments; Accenture; Salomon; Ameritrade; Dun & Bradstreet; Deutsche Bank; Waterhouse Securities; Boz Allen & Hamilton; Reserve Bank of Australia; Lehman; Washington Mutual; Bear Stearns Security Corporation; Alliance Capital Management; Pengana Capital; Putnam Funds; Federal Reserve Bank; WELLS FARGO BANK; Chicago Mercantile Exchange
Perot Systems; Motorola; IBM, VMWare; Oracle; Cisco System; GE; Citrix; idealab; HEWLETT-PACKARD COMPANY; Research in Motion; Microsoft; Apple Computer; Sony; ULTRONICS Inc.; LUCENT TECHNOLOGIES; Pillar Data Systems; Dell Computer Corporation; Symbol Technologies; Xerox Palo Alto Research Center; Verio, Inc.; Google; AMAZON.COM; Yahoo!; Ask; VeriSin; Computer Associates; Alcatel; Saudi Telecom; ITT; Vodafone Australia Party; Oce; Ricoh; Go Daddy Software; Marchex; Oversee; iReit; Name Media; Buy Domains Holdings; Dark Blue Sea; Digital Persona; Dataphone Sweden AB; nVision Software; SoftBank BB; Geoperceptions, Inc; Science Applications International; Ideal Technology Solutions; Game Brains; Far East Internet Co., Ltd.; Cumberland Technologies International; Hughes Network Systems; Northrop Grumman Corp; Lear Corporation; Intel; Danger.com; looksmart; register.com; Mobilenetics Corporation; NetVision-Israel; Eastman Chemical Company; Research in Motion; Cumberland Technologies International; Raytheon (Chairman’s Office); FedEX; Toshiba; Garmin International
Hilton Hotel Corporation; Sears Direct Response; J. C. Penney Company; Walmart.com; Ticketmaster; Southwest Airlines; HILTON HOTEL CORPORATION; Community Residential Mortgage; Shoebuy; BIDWELL HOLDINGS LLC DBA MARKETS;-Solvenia; Hostway Corporation; Onlky lamps; FONES WEST DIGITAL SYSTEMS;
Ford Motor Company; Nissan; Toyota; Chrysler; Hyundai Motor Corporation; Shell; GMAC/RFC; Alaska Air; UAL; DHL; GM; Boeing; GNA Corporation; ExxonMobil; Volkswagen of America
Pfizer; Clorox; Hoffmann LaRoche; The Procter and Gamble Company; Miller Brewing Company; Tyco; Skadden Arps; Wilson Sonsini Goodrich & Rosati; The Home Depot; Virgin Management Ltd; United Healthcare; Toll Brothers; Kaiser Permanente, State Farm; AIG; CHANEL; OWENS-ILLINOIS; DACOM Corp.; AMERICAN GENERAL CORP; Southern California Edison, PROGRESSIVE INSURANCE; Kimberly-Clark; Reebok; Allstate; State Farm; Kimberly-Clark; Philip Morris USA; J. C. Penney Company; DACOM Corp.; ALLTEL Corporation
UNICEF; United Nations; American Red Cross: American Museum of Natural History; National Aeronautics and Space Association; National Institute of Environmental Health Science; Fulbright; Smithsonian Museum; U.S. Patent and Trademark Office;
Harvard University; MIT; Stamford U; Princeton University; Carnegie Mellon University; California State Polytechnic University; Brandeis; Vanderbilt University; University of California, Office of the President; Ithaca City School District; University of Southern California; Furman University; Joan and Sanford I. Weill Medical School at Columbia; University of Vermont; University of Sydney; UNY Institute of Technology at Utica/Rome; Duke University; Universidad de Valparaiso; Mount Sinai School of Medicine, New York University; Ivanovo State Power University (Russia); Texas A&M University; University of Utah; ; AJOU UNIVERSITY COMPUTING CENTER; University of Waterloo; Georgia Institute of Technology; Franklin and Marshall College; Stevens Institute of Technology; University of Texas; Westminster School (UK); University of California San Francisco Medical Center; The Johns Hopkins Medical Institutions; Clark County School District; Goldey-Beacom College; Seoul National University; Ocean State Higher Education and Administration; Sacramento County Office of Education; Medical College of Wisconsin; University of Michigan; Baruch College; Nova U: Cleveland Municipal School District;
The State Insurance Fund of New York; Clifford Chance Rogers & Wells; Kabas & Sproule; Baker and Hostetler LLP; Department of Veterans Affairs; H.I.G. Ventures; McLeod USA Incorporated; LIFECARE.COM; Strato Rechenzentrum; Leicester City Council; Visiting Nurse Service of New York; NCTC; Mackay Shields; Advocate Health Care; Goodfellow AFB; Iowa Telecom; THE ALTMAN GROUP; Hubbell inc; SAC Affaires VL; ARCH CAPITAL SERVICES; Ameritech Electronic Commerce; Eastman Chemical Company; USLEC Corp;
Naval Research Laboratory; GENERAL SERVICES ADMINISTRATION; City of Phoenix; Federal Aviation Administration; Cold Spring Harbor Laboratory; National Iranian Oil Company; Emirate Telecommunications and Michael Jackson mid cap; City of Mount Vernon; Department of the Interior; Ontario Clean Water Agency; Forestry Canada - Maritimes Region; State of Georgia (DOAS-CSD); New York State; Department of Fisheries and Oceans; The Western Pennsylvania Hospital; City of Baltimore; State DEPARTMENT; Library of Congress;
This communication is declassified from Frager Factor VIP 12/18/08