Surprising stats from the SBA
Dr. Garnett Newcombe and Kay Woods are business experts and award winning CEOs who have joined forces to start the speaking platform CEO Real Talk through which they share a realistic foundation for long-term profitability as businesses continue to grow and diversify. These experts advise that there are several hidden nuances that can destroy businesses, pointing out that according to the U.S. Small Business Administration (SBA), only about 50 percent of new businesses last five years or more, and only 33 percent last 10 years or more.
The two tell AGBeat, “Many experts have addressed the reasons businesses fail that range from inadequate cash flow, to high overhead costs, bad management, expanding too quickly and poor credit. However, in our many years as seasoned entrepreneurs, we have identified five less obvious factors that can completely destroy a business, particularly in the early years, if gone unaddressed.”
In their words, the following are the most common hidden nuances that can destroy businesses:
1. Getting a Second Job
In the early years of starting a company, most business owners feel stretched financially. Many combat this by developing a contingent back-up plan to either work at night or on week-ends just in case their business fails. However, if you straddle the fence you are setting yourself up with the option to fail. The “hidden nuance” here, which could have destroyed both of our businesses, is that if you continue down the path of straddling the fence or concentrate on maintaining your back-up plan, it will keep you from making a full commitment to your businesses. When you decide that failure is not an option because the livelihood of your family depends on your business and you commit to it completely, you will have a greater chance at success. In tough times we recommend scaling back on the “big bold sell” and focusing on those “low hanging revenue generating services” that are in high demand and have the capability to generate immediate revenue.
2. Not Understanding Your Financials
Not understanding your financials or not knowing what’s coming in and what’s going out is another “hidden nuance” that puts your business at high risk for failure. Operating in the blind is not something most business owners want to admit to. It is often not until a company has to start closing down projects that they realize a change needs to be made. Know what you’re spending on what and where you can cut back. There needs to be systems and processes in place to control purchasing and inventory and when budgets are developed for projects, they need to be followed. It’s important that you not only generate financial reports but that you understand them. It is your responsibility to watch over business finances not the accountant, the bookkeeper or the division managers. Not knowing your financials will quickly position your business to fail.
3. Your Dream vs. Business Opportunity
“I want to help, I’ve always dreamed of owning my own business, I love what I do” are often sound bites that business owners share with the world. Unfortunately, the “I” mindset is a “hidden nuance” that will keep a business from succeeding. What we have learned over the years is that the foundation of a good business is a good business opportunity. The number one focus for any business owner should be to fulfill a need in the marketplace. It’s not about your dream or fulfilling your interest, but about whether there is a need for your product or service.
4. Not Being Prepared for Economic Downturns
As business owners we dare to dream about saving or building a cushion for a rainy day. However, we often have the mindset that we are barely getting by and the thought of saving is not an option. Because of this many businesses were forced to close their doors, or came very close to it, during the economic downturn from 2008-2011. Not being prepared for an economic downturn is a “hidden nuance” that can be devastating to say the least. We recommend staying abreast of your customers buying trends, identify those customers that may be entering the “slow pay” zone (70 to 90 day payments), restructure staff duties in an effort to increase productivity, and cut back on unnecessary spending.
5. No Follow-Up May Mean No Repeat Business
Sometimes businesses take their customers for granted. We’ve all done it! Once we obtain our customers’ business we don’t follow-up or ask, “How are we doing?” Moreover, we fail to ask, “Is there anything we can do better?” The no follow-up is a “hidden nuance” that leads to loosing repeat business. Lack of follow-up can appear in the form of a decrease in sales or customer complaints. By the time you reach that point, it is often too late. The lack of follow-up and not responding to complaints immediately, positions businesses to fail. Avoid the possibility of losing business by taking the time to recognize your customers, ask them for feedback and ask them how you can do better.
Businesses thrive and survive for many reasons that vary on a micro level, but diagnosing failures or the potential for failure can be much easier to spot. Dr. Newcombe and Woods offer the five preceding common reasons for businesses to fall short, and knowing these potholes may save your business from its own demise.