The Dow Jones Industrial Average is a market index of some of the largest publicly traded firms in the world. It was first published on February 16, 1885 and was comprised of 12 firms. Of those original firms, only one – General Electric—exists today.
These non-existent firms either dissolved, went through bankruptcy or were acquired by other companies. Each of these scenarios represents some measure of failure to grow.
If the biggest, most successful companies can fail, then a company of any size can fail. But why do companies fail?
The truth is that most company failures can be avoided, so long as business leaders understand the variables to give rise to failure; in many cases, these are the same variables that give rise to success, and they are comprised of resources and opportunities:
Businesses fail when there is a strategic misalignment of resources to opportunities. (Vice versa, companies succeed when the opposites is true.) Most often, this strategic misalignment is driven by three root causes; these include the following:
Poor management: This doesn’t necessarily mean that a business’ leaders are bad people or even that they don’t know how to manage; poor management means that poor decisions are made, and this can happen for a number of reasons.
Management may not be fit for purpose – they may not simply know how to respond to internal or external changes that have taken place. Management may be unwilling or unable to change the culture of an organization—impairing the ability of the business to succeed. Management may be spread too thin and focused on too many objectives—each of which is moving too slowly to deliver positive impact.
Lack of clear data: In cases when management is strong, companies may still fail when there is a lack of clear data to inform management decision. Lack of clear data can take several forms.
Data may not be properly defined, and / or management may be looking at the wrong data set(s). Data may be historical or predictive, and it may be oriented around financial investments, organizational efficiency, sales performance, cost containment or customer retention. In some organizations, data is not properly defined, and so it is evaluated through the wrong lens. Strong sales, for example, might paint a rosy picture of growth, but if bad debt and / or customer returns are not being evaluated, a company might not have a clear view of all the data that is driving its performance.
In other cases, data is simple not captured, cleansed or reviewed. This is often especially the case with many smaller businesses. Many small businesses believe (incorrectly) that data and / or analytics are too overwhelming, time-consuming or expensive to implement. The truth is that many businesses can evaluate their performance on 3 – 6 key performance indicators (KPIs). Much of the time, these KPIs are a function of sales performance and include the following:
These six KPIs can be broadly defined to many companies—large and small—inclusive of online businesses, off-line businesses, B2B, B2C, professional services and products or goods.
Short-term focus: Finally, many companies fail because they do not align their actions today with their goals for tomorrow. We once worked with a client that spent years building a premium brand; during the financial crisis, this company began t heavily discount its products in order to keep sales levels constant. Today, the company is about 20% smaller than it was 5 years ago and cannot understand why it’s having such a hard time increasing prices. Its short-term actions (managing sales growth) actually impaired its long-term strategic viability by eroding its brand. Things like this happen all the time.
With these insights into the issues that most often cause companies to fail, we hope we’ve helped the reader develop a broader understanding into how he or she might best be able to avoid these pitfalls and get his or her business to succeed.
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