A few weeks ago, the NY Times’ “You’re the Boss” blog (which discusses small business topics) had a piece from Chicago entrepreneur Jay Goltz about the 10 reasons small businesses fail.
It’s a laundry list of pretty fundamental stuff, much of which we regularly talk about here:
- a business model whose math doesn’t work,
- owners who can’t get out of their own way
- out-of-control growth
- poor accounting
- insufficient cash cushion
- operational mediocrity
- operational inefficiencies
- dysfunctional management
- lack of a succession plan
- a declining market
Several of the items on this list are things that I encounter not only as a customer, but as someone who helps businesses improve their performance and profitability. Some of them are more frustrating than others. I’ll bet you see them as well.
Jay summed up his comments with this:
“In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don‚??t like the soup, employees stop working for you, and customers stop doing business with you. And that is why businesses fail.“
We recently talked about the market’s lack of forgiveness. If you missed that piece, I noted that I can be as nice as you like when discussing examples I’ve seen that you can learn from, but the market…well, it just won’t be nice or fair about it. It doesn’t benefit you (or the folks I write about) to whitewash things.
So how can you, the head chef of your business, keep these 10 things out of your soup?
Relentless focus and accountability.
I warned my clients at the first of the year that I would be holding them more accountable for their efforts. Not one has rebelled. Those who have been pressed the hardest have responded with the most results. Accountability works.
First things first
If you have a business model whose math doesn’t work, NONE of the other stuff really matters.
The “If there’s plenty of gross there has to be some net around here somewhere” thing is more prevalent than you’d think. People start businesses for all kinds of reasons, but it’s pretty shocking how few pay attention to the math of the business model.
They start out with a price that they THINK makes sense (it might, it might not) and that initial pricing often drives the rest of the business, their marketing (ie: how many sales they need to make) and their operations (how costs are defrayed).
The other nine items on this list are pretty important, but it doesn’t matter AT ALL how well you’re doing at these things if the basic math of your business doesn’t work.
Cash flow is king
Back in my photo software days, many of our competitors (we had eight at one time) offered “free lifetime support”.
I refused to offer that because I knew it would either kill our business or prevent us from providing the kind of support we felt we had to offer.
Prospective customers would ask me why they should buy our stuff instead of a competitor’s when that competitor didn’t charge annually for software upgrades and support.
All I had to do was ask them: “Whose lifetime are we talking about? How free, unlimited and lifetime is that support when they go out of business because their business model doesn’t work?” Two years later, only two competitors remained.
If the math for your business model doesn’t work, nothing else matters. Once it does, the other nine things are pretty important.
Next time, we’ll get into detail about the math of your business.