I googled the reasons for businesses failure and on the first page I found articles detailing out a list of 80+ issues!
Here’s a quick list of the posts that were listed…
As I read through each post it seemed to me that all of these situations could be avoided by doing 5 simple things.
That’s it. Five actions to avoid business failure, or at least significantly improve your odds.
I’ve put together a roadmap on these 5 actions; why you should do each one; how; and how you’ll benefit when you do. Each one of these steps answers one of five questions:
What happened?
What’s going to happen?
What’s going on inside my business?
What’s going on outside my business?
How am I preparing myself to grow my business?
If you’re not taking care of these five questions with real actions then you’re business is closer to failure than you think.
Action One: Create a forecast every month.
Your forecast for revenue and expenses should be done every month so you can review it no later than the morning of the fifth. This will help you by focusing your attention on what needs to get done each month.
Remember, forecasts are about the things you’re going to make happen, not what’s going to happen to you.
This one step helps you avoid business failure causes like “inability to control expenses”, “failure to optimize conversions”, “no customer attraction plan”, “not keeping a budget”, and “not closing sales” among others.
Creating your forecast is a simple matter. For most businesses most of your expenses are relatively fixed. You may have some inventory component and you should have to rules of thumb for what that looks like. Other than that, you should understand how sales affects labor and be able to project your numbers.
The big piece is collecting the expected revenue numbers from your team. That may be from product managers, your sales team, or project managers. It’s non-negotiable for your team to submit these numbers directly to you by the morning of the fifth.
In order for this to benefit you, avoid allowing anything else on your calendar that morning every month.
What does this do for you?
First it creates a monthly cycle of accountability from your team to you to produce on a regular basis.
Second, when you get the numbers and you see that a person is projecting a bad month, that should trigger an in person and targeted conversation about what’s going on and what they can do to hit their number. After that conversation and if you’re confident they’ll still have a bad month, you can get with the rest of the team to see if any other work can be pulled in to fill in the sales gap.
Third it helps you make sure that you’re controlling your expenses. If you know you’re going to have a shortfall you can hold off on some expenses where you have flexibility.
Fourth, it’s a great way to keep the pulse on individual accounts and projects. You can spot clients who are decreasing their work with you or product lines that are struggling and clients who are growing nicely. You’ll know real-time when your top five or ten client list rotates new members rather than finding out months later. This is a great time to send a handwritten thank you card and strengthen the relationship.
Fifth, when you know exactly who and what’s driving your revenue every month you tend to make better decisions about how you allocate your money and team resources. Things can change pretty quickly. This is a great way to see that.
To take this to the next level, if you’re in a business that has any ability to project revenue out two or three months, or even further you should do so each month and keep a rolling extended forecast so you can work sales issues sooner rather than later.
Have your team put a confidence number on anything in future months. Something like “$30,000 @ 70% confidence in month 3”. This allows you to think a bit into the future – to start seeing around the corner just a bit.
In the same way that you spoke with everyone about their current month numbers, once the current month is nailed down, you can talk to them about their future months. You can bring focus to any shortfalls you’re worried about in the future. Good sales people love to be internal heroes so letting them know ahead of time is a great tool.
Mastering your monthly forecast will go a long toward managing your cash flow and minimizing your chances of suffering a business failure.
Action Two: Review Your Financials Every Month.
Your fully closed and finalized financials should be on your desk by the 10th of every month. Period.
One of the gross mistakes made by business owners is that they wait too long to look at last month’s final numbers. If you wait until the 31st of March to look at February’s numbers then you’re actually at 5 weeks since something bad may have happened and you’re just starting to look at it.
If something needed to be fixed, you’ve let it run broken for too long by waiting a full month to look at your numbers. And you’re a month closer to business failure without even knowing yet.
On the positive side, employees need to be rewarded for their accomplishments in a timely manner. If you’re not reviewing your numbers promptly then too much time passes before you recognize a team player who had a great month and made a great contribution. In order to recognize people quickly after they accomplish something you need to first know it happened.
One of the rules of employee recognition is that it has to be close in time to when the action being rewarded was committed. This cements the tie between the reward, the achievement, and the action that created it.
From your monthly financial review you should know the answers to these questions:
- Why did we make our month? What went well?
- Exactly where were the trouble spots? Big negative variances in the numbers, clients or producers who fell short? Vendors who under-delivered or bailed you out; production issues?
- Which employee needs to be recognized for their successes and contributions?
- Special successes or issues that need to be addressed now?
These two actions are part of a monthly business rhythm which I recently wrote about and you can learn more about that here.
Action Three: Stop and talk to your employees – and not just about work.
Wow! This one covers a lot of ground!
As I was reading through the list of things that cause businesses to fail I found myself thinking that if a leader just talked to their employees they could have avoided so many issues.
Talking to your employees is such a great way to get information. It will help you avoid several causes of business failure like “lack of authenticity”, “failure to build an employee tribe”, “dysfunctional management”, and a really tough one – “doing it all yourself”.
Some years ago there was a popular management approach called “management by walking around”. I will always be a huge fan of this technique.
Walking around in your business and having genuine unplanned one-on-one conversations about all sorts of things is one of the five best ways to know what’s happening with your employees, your clients, and your business.
I’ve heard leaders say it’s not a good use of time because it doesn’t feel like it has a structured purpose. Nothing could be further from the truth. Talking to your employees like they’re real people is the most productive use of your time.
Richard Branson advises that you treat your employees better than you treat your customers because your employees take care of your customers. If you don’t talk to your employees, why would they talk to your customers? If your answer is “because it’s their job” then I can promise you those conversations will be empty and low energy. Your employees won’t learn anything about your customers and no information will be passed to you about your clients.
You’ll tap into all sorts of things you can help with. Sometimes you may have an employee who’s struggling personally or professionally and they won’t admit it if that means a closed door conversation in your office. But one of their teammates might let you know if you’re having authentic conversations with your team. That gives you the chance to proactively help the person.
What else?
You’ve got a great team. You know you do! Heck, you hired them! I’m sure they’re full of great ideas and insights. In fact, Inc500 CEO’s say that 40% of their most innovative ideas come from their employees.
Walking around and talking to your team is a great way to have spontaneous brainstorming sessions about what you’re doing and what your clients want. Scheduled brainstorming is great, but there’s nothing like having an employee show you a new idea and back it up with information they have at their workstation.
When someone learns how to do something new or creates something, the best way for you to find out is in a personal conversation at their desk.
Taking this one action helps you stay plugged into their dreams, personal and professional goals, challenges, their teammates, and your clients. This one action will keep you a long distance from business failure.
Here are a few recommendations to really make the most of walking around:
- Schedule it on your calendar, but do so at fairly random times and days. Setting it on different days and at different times makes it feel low-key.
- Resist the urge to carry a notepad with you. That makes it feel like you have an agenda. There is a good chance that your employees have something for you to write on at their desk or workstation. And it makes it feel super important when you pause the conversation to get something to write on.
- This is a fact-finding exercise so don’t shoot down any ideas in these conversations. Remember, these are public conversations and you shouldn’t publicly criticize people.
- Get around to everyone. If you can’t visit everyone on one trip then start at different places in the business each time so that over time you cover everyone. Keep notes on who you spoke with so you can review them.
- Your team will ask you questions about things they have on their mind. Commit to getting them answers and do it. This is a two-sided process.
- Ask for ideas, suggestions about anything, it’s an open forum for everyone you speak with.
There’s a formula for how you approach the mix in these conversations. Out of every five conversations you have with an employee follow the 80/20 rule.
Have one conversation that has nothing to do with their job. For the other four, make a point to steer the conversation towards clients, processes, and new ideas- with a dash of a personal topic thrown in.
Making sure that each of the four conversations includes both business and a little personal helps you learn something new in both categories. This takes care of “they don’t care how much you know until they know how much you care.”
On the fifth conversation that’s personally focused, make no effort to steer toward business. If it happens because that’s what your employee wants, then welcome it. If it doesn’t that’s perfect too.
Action Four: Have lunch with a different client every month.
…or better yet, every 2 or 3 weeks if you have many clients.
I have a friend who worked on Wall Street in the late 80’s. One of his memories of that experience is being written up for not spending enough money on his clients!
The company he worked for assumed two that if he wasn’t with his clients then his clients were with a competitor and he was missing opportunities to serve his client. His employer wanted him to build relationships with his clients so that his clients wouldn’t see a need to work with anyone else.
We’re not in the 80’s, but that concern is as valid today as it was in 1983.
You have to eat. You might as well move your business forward at the same time.
“I’ve come to believe that connecting is one of the most important business — and life —skill sets you’ll ever learn. Why? Because, flat out, people do business with people they know and like. Careers — in every imaginable field — work the same” ― Keith Ferrazzi
Eating with a different client every 2 or 3 weeks is a gold mine and will help you see around the corner so often it’s not even funny.
As I read through the posts and all the reasons why businesses fail it struck me that 25-30% of these things could be avoided by communicating better with your clients.
The articles listed out reasons that included “failure to deliver value”, “failure to connect with their target audience”, “unable to compete with market leaders (should pivot)”, “no unique value proposition”, and “not closing sales”.
If you’ve read my posts on strategic planning you know that the very first question you should ask every year is “how have our client’s needs changed?”
You and your sales team should be asking this question all the time.
Yet, if you’re not talking to your clients how you can begin to know the answer to that question?
Speaking to clients on regular basis in an informal setting is how can you spot trends and know when to pivot. It’s how you’ll spot problems. It’s how you’ll know when your client’s definition of value changes and what it changes to.
Having lunch with your clients gives you the opportunity to explore these issues and others as well.
You don’t want to know only how your client is doing; you want to know how you’re doing. How’s you quality? Is your team treating your client well?
And what about your competition? Have they knocked on your client’s door recently? If so, what was their pitch? Their price? Why did your customer stick with you?
You don’t have to cover all of these topics at every meal but they‘re the questions that should be on your mind and the ones you should be listening for clues about.
And there’s one more big huge reason for having lunch with your clients. Who has the client relationship in your business – you or your sales person?
That’s a big question…
I’ve heard too many times from business owners about how a sales person left and took their accounts with them. According to data security firm Symantec, over 40% of your employees see no problem with keeping your intellectual property (including client lists) and using it at their next job.
I’ve also been told too many times about how a business owner really needs to fire a project manager but that’s who has the client relationship so business owner keeps the guy on the payroll…
Every time you have lunch with a client and pick up the bill you’re writing a check on an insurance premium. The better your relationship with a client the better the information you get from the client, and the easier it is to make changes or endure changes if they’re thrust upon you.
Action Five: Avoid business failure by learning
You got into business because you have a particular expertise and know how to solve a certain problem or set of problems. On top of that there’s a 90% chance that your business doesn’t look exactly like what you described in your business plan.
There’s also an above average likelihood that your clients are different in their needs and direction. And of course the world around you is changing. Think of how Facebook and YouTube have revolutionized marketing in the last five years. When is that last time you saw a payphone? Ever stop to think about how much the cell phone has revolutionized the salesman’s job over the last 30 years?
There are a hundred things changing around you all the time. Some will be of great value to your business or your clients and others won’t.
There are skills that you need to develop such as negotiation, understanding contracts, tracking the economy, leadership and goal setting. Building a business is a commitment to learn continuously just to keep up with the pace of change, never mind what it takes to build a business in a way that builds real financial security.
Continuous learning and reading are real differentiators. You may have heard the statistic that one-third of adults don’t read a book after high school; and more than half of all households don’t buy even one book per year – they skip a year in between book purchases!
Readers are leaders.
With the exception of whom you know and the books you’ll read, you are the same person today that you’ll be in 5 years. Your clients wants and needs are going to change. Will you be ready?
And by extension the same is true for your business.
With the exception of the books you read and the clients you have, your business is the same today as it will be in 5 years.
The question is what will your business look like in 5 years? Will it fail or will it thrive?
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