Why Businesses Fail and Why Your Business May Be in Trouble
 
 
12 Steps: Executive Overview
Step 1: Why Businesses Fail
Step 2: How to Know if Your Business is in Trouble
Step 3: Are You Prepared for the Task
Step 4: Turnaround Leadership
Step 5: Organizing Your Turnaround Team
Step 6: Stop the Bleeding (Cash)
Step 7: Problem  Diagnostics
Step 8: Marketing During the Turnaround
Step 9: Developing the Turnaround Plan
Step 10: Down-Sizing Staff
Step 11: Dealing with Creditors
Step 12: Financing During the Turnaround
Disclaimer-Please Read
 

Critical Care for Companies

Step 1: Why Do Businesses Fail and What You Can Learn From These Failures


  Why you should read this information and how it will help you

  1. 96% of all businesses that fail, do so because of this one reason, find out what the reason is.

  2. One of the most effective ways that I have found to avoid failure is to study the reasons that businesses fail.

 3. By becoming familiar with the primary causes of business failure, you will begin to develop a hypothesis or hunch as to why your business is in trouble. 


You Have a Better Chance of Winning in a Las Vegas Casino then Succeeding in Business...10-25% Chance of Business Success

 Doug Hall in "Jump Start Your Business Brain" reported some fascinating statistics.

Estimates of new product or service success rates vary widely depending on the industry studied and the definition of success. A review of academic studies and US census data found that on average about 75% of new businesses, products or services fail and are discontinued within two to five years.

This means that you basically have only a 25% probability of success with your new advertising, product, service or business concept.

A venture capitalist reported that 17% of the companies his firm invests in succeed. This would actually be an improvement over the 10% rate reported in the May-June, 97 "Research Technology Management" reviews of the results of 10 major venture capital firms.

A 10-25% chance of success is terrible odds. Most business owners would have a greater probability of success if they went to a Las Vegas casino and gambled their investments. The following chart details the various probabilities of winning at gambling games:

1. Slot machines-32% probability of winning

2. Horse racing-41%

3. Blackjack (as usually played)-45%

4. Roulette-47%

5. Blackjack (perfect strategy and card counting)-50%

Brian Tracy, in an article titled "How to Succeed in Business", cited even worse odds. He stated that 99% of businesses started by people lacking business experience fail within the first two to three years. However, and equally surprising, 80% of businesses started by experienced businesspeople succeed. He went on to explain the reason why there was such a dramatic difference in the failure of the inexperienced compared to the experienced business people:

According to Dunn and Bradstreet, the Number One Reason Businesses in America Fail

Dunn and Bradstreet's research shows that 96% of businesses in America fail due to Managerial Incompetence. In order to understand what exactly is meant by managerial incompetence, I have listed the top 12 reasons business fail from research by Jessie Hagen of U.S. Bank:

 Top 12 Reasons Why Businesses Fail

  • 82% Poor cash flow management skills/poor understanding of cash flow.

  • 79% Starting out with too little money

  • 78%  Lack of a well-developed business plan, including insufficient research on the business before starting it. 

  • 77% Not pricing properly - failure to include all necessary items when setting prices.

  • 73% Being overly optimistic about achievable sales, money required and about what needs to be done to be successful.

  • 70% Not recognizing, or ignoring, what they don't do well and not seeking help from those who do.

  • 64% Minimizing the importance of promoting the business properly.

  • 63% Insufficient relevant and applicable business experience.

  • 58% Inability to delegate properly - micro-managing work given to others or over delegating and abdicating important management responsibilities.

  •   56% Hiring the wrong people - clones of themselves and not people with complimentary skills, or hiring friends and relatives.

  • 55% Not understanding who your competition is or ignoring competition.

  • 47% Too much focus and reliance on one customer/client.  

Now that you have some understanding of the reasons businesses fail, I have developed an exercise to work through and which will assist you in shedding more light on your specific business problems. Click here to conduct a self audit of the reasons your business may be in trouble.

 

 

 

 

 

   

 

 

 

 

   

 

Copyright 2005 Critical Care for Companies
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