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Practice Management > Building Your Business

Ten reasons businesses fail

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  1. Lack of focus – Priorities are not clearly identified, communicated and defined at all levels of the organization. Efforts and resources are not aligned toward the desired outcomes.
  2. Too many targets – A company may define the opportunities it wants to pursue, set measurable targets for those opportunities and still not succeed because it doesn’t have the resources to pursue all of the opportunities.
  3. Technology/Product mindset – Focusing solely on the product and not on the process and business infrastructure limits success. Investment in the core business processes is also needed. If you fail to deliver value in the processes that support the sale and business relationships, and the product, then the organization doesn’t reach its full potential. Customers find someone else to do business with when your business processes don’t meet their needs.
  4. Structure – The business you build needs to be established to support the long-term vision of what you want it to be. This doesn’t mean investing in huge computer systems at the start of the business. It does mean that you think, act and react on a business model and plan that takes a long-term perspective. Start as you intend to go with sound business processes and choices that weigh the trade-off between what you can afford to do now and what you need to do to grow the business and its systems.
  5. Rigid roles – There are times at every stage of a business that the team members have to step out of the box and up to the plate to deal with a business challenge. In start-up stages, it may mean everyone working to pack the goods to ship to the customer. At another stage, it may mean everyone working to take an inventory on a weekend. Whatever the task, individuals and teams need to be willing to do what needs to get done.
  6. Hiring bodies, not skills and abilities – This point cannot be emphasized enough. It isn’t sufficient to hire a body into a position or your payroll. You need to choose the right person in a well-defined role to make the organization efficient and effective. Too many businesses think that anyone can write contracts, make purchases, handle payroll and hire or fire employees. There are certain areas in your business that need the knowledge base of a specialist to keep the business risk at a minimum. Don’t make the mistake of throwing bodies into the business – you need the right skills and abilities in the right roles to make a difference.
  7. No plans – Numerous businesses succeed without formal plans. Few businesses succeed without any plans. Take the time to analyze and develop strategic plans that address where you want to take your business over the next three to five years. Then take the next step and put numbers to those plans. If you want to sell $1 million of products this year and $10 million by year five, what does it take in resources and investment? How many people do you need? Computers, equipment, offices, marketing, telephones, and so on? What are the numbers and where will the cash come from to fund those efforts?
  8. Not narrowing the focus – This is the fear of missed opportunities — if you just focus on one segment, you might miss all of these other sales. Yes, that is true, but think about what happens if you don’t focus on getting sales and spread your resources too thin. If you go after everyone, then you may not get anyone. Targeted, focused efforts toward a limited number of niches or markets means that you are deciding to systematically go after those most likely candidates for your business. As you succeed in those areas – generating sales and cash – you can expand your focus and grow into other areas. Also, it gives the business the ability to develop and expand processes that support a larger effort and have a stronger base to build upon.
  9. Getting caught up in “fun stuff” and not minding the business issues – There are a lot of areas in business that just aren’t fun. There are financial decisions that have to be made as to where resources are best spent. Resources are scarce. They need to be employed in the organization to maximize the returns, efficiency and effectiveness of the organization. Controlling costs and allocating resources wisely is mandatory in every business.
  10. Growing too fast – You may have an incredibly successful product. Sales orders are flowing in faster than you can keep up with them. You order more inventory to build more products. You add additional shifts to production. You add more sales people. You add, add, add to your organization.

    The faster you grow, the more cash is required to pay the bills. The rate of sales growth drives the organization to add infrastructure. There is a time lag between the addition of infrastructure and the collection of cash from the sales that infrastructure supports. When the initial “capacity” is added to a business, that additional capacity isn’t efficient and effective. It often reduces the existing capacity of systems and processes due to the need to train, implement and install new inputs.

    Something else to consider what is the margin on the additional sales? If the cost of the sale exceeds the revenue from the sale, then the company is losing money on “growth”. Understand that too-rapid sales growth can actually result in business losses – know what sales growth rate your company can support.

Source: Lea Strickland, Carolina Newswire