The Top Three Reasons we see a business fail for are nothing like what the SBA says. We think the SBA folks are asking the wrong questions.
Before we get to the top three reasons, I must first ask, why did you want to start your business? Many owners tell me that they want freedom and to be in control. I felt that way too, and also found that a couple of my businesses ended up being a bigger burden. That got me asking why some businesses were fun and gave me the time off I wanted and others were worse that work.
Loss of Freedom
It is amazing how many people have an idea, and start to execute and then stop. One long time friend wanted to hand me his company and I would get 30% for marketing, producing, packaging and delivering his patented idea. I was stunned at how out of touch he was with reality. If he was lucky, he would et a 2% licensing fee on a deal like that.
During our conversations, I asked why he didn’t just do it himself. He confessed that he had been and for the last two years had not taken a day off. Essentially his failure to execute was to become my problem and he kept 70%. Of course he never found a sucker and the business is essentially dead.
When it comes down to it, I became a business owner because all of the people I hung out with were business owners. They got to drive better cars, take better vacations, and they seemed to have a lot more time off. That is where the idea for the Owners Play class came from years after I started making money it business. It wasn’t always that way though.
Three Reasons A Business Fails.
- Beating The Boss Syndrome. This group of people quit working for someone who they thought was “taking all the money” or “making too much”. They started a business to compete with the boss at a lower price only to find they were soon broke.
There is a reality to owning a business and that is that the costs are spread out among the customers. You can eliminate some of those costs like Costco and Home Depot by eliminating the middle man and selling in bulk. Do I really need 48 rolls of toilet paper every time I shop?
Thank fully this is one I have only seen repeated regularly, I have not done this myself.
- Raising the Bar. This group of people are at the top of their game. They think they can just hang a shingle and charge a premium price. then they want time off so they hire people in to “replicate themselves” or “take work off their plate”.
They go out and sell a service at their skill level, then hire people at half what they should be paid. These new employees can’t measure up, so they quickly get frustrated and leave. Many times the owner is stepping in to fix mistakes or deliver services the employees didn’t.
If you own a Pilates studio and everyone wants to take your class or none of your instructors measure up to your standards, this is your problem. If you own a restaurant and the servers are acting like order takers in a fast food restaurant, this is your problem.
This is a problem that I am all to familiar with, and confess I have done myself.
- Not Understanding Lead, Follow or Get Out Of the Way Syndrome. This one is getting more common among my clients and is among the toughest to fix. Simply put it usually stems from one of the first two, but is harder to identify because the owner keeps taking over without admitting it. If I don’t catch them, I can’t help them.
I wrote about this one on the Owners Play website last week. No where in the military teaching of “Lead, Follow or Get Out Of The Way” does it say “Move, let me do that.”.
There are other reasons too. Sometimes a business is started to solve an owners problem and the fact is there is no market for it. Other times, there is a great market but a bigger competitor undercuts you until you are out of business. That is essentially what the big box stores did to thousands of mom and pops across the country.
There Is A Solution
While not every business failure stems from these three problems, they are the three biggest by far that I see when trying to ‘save’ a business. Many customers think that great marketing will bring them customers and in turn more money. That is only true if the business has a great foundation.
Sadly many owners will never fess up to these three problems so they are classified as “under capitalized” or some other similar reason for failing.
If you would like us to help you with your marketing, don’t be surprised if you get some leadership coaching or join the Owners Play program. After all didn’t you become an owner so you could play?