Business is a series of interactions between individuals that involves the exchange of goods and services for some form of remuneration. It is a living and breathing organism that must deal with its internal and external environments. Each individual within this organism has an underlying mind?set that influences all processes and relations. Just as any organism fails, so too can business. It should be noted, however, that people fail business; business does not fail people.
There are hundreds and sometimes thousands of variables that must be dealt with to start-up and maintain a successful venture. In the end, individuals must allow for some flexibility and have a realistic understanding of their market environment. To say that business fails because of a certain economic or geographic climate is missing the heart of the matter. Inflation, high financing costs, reduced demand, and government induced constraints are all various viruses that add to the difficulty of survival, but they are not the root cause of the death. As with any virus, individuals must protect themselves from the possibility of contraction and take proactive measures to avoid the possibility of infection. These proactive measures are today referred to as good management. This is where people, individuals, and owners make or break their business.
Good management is a multi-faceted term.
The ability to delegate responsibility and not turn the organization into an one man show is an essential key to success. This skill can potentially turn small autocratic organizations with a very limited span of influence into huge organizations with influence in a variety of industries. With the delegation of authority also comes an empowerment of employees which enables workers to take pride in their work and combine their desires with yours to improve your situation.
A business is a community in itself. When certain members of the community, especially those with the highest profile (i.e., board of directors), do not participate in the forward moving direction of the community, there is a sense of individuality that permeates the company. Individual motivations can help drive individuals but in the end, people need to know and feel that their contributions are not futile. People need to feel needed and that they are an indispensable part of something important. Examples of this team movement must come from the top to demonstrate the commitment of all to the cause.
In a successful team effort, no one individual or group of people can be more important than any other. When a feeling of superiority occurs, sentiments of resentment and dissatisfaction grow. Each member is there to foreword the cause of the whole. An unbalanced administrative team sends the wrong message to the people who serve goods and services within the company and also to those who are served the final fruits of their labour. Businesses fail when companies are unable to present a holistic approach to management. When a virus penetrates, it will attack the weak area of defense, take root, and spread very quickly to the rest of the organism. It kills not only the weak but the healthy as well. If one area of your business is not as important to the business as another, then perhaps its existence should be re-evaluated.
Business has a responsibility to be fit. Sound mind and body; meaning, as parts of the organization, we should be constantly looking for flaws or faults in ourselves to improve. The end goal is to live longer, happier, and healthier. We, as people, do this by looking in the mirror, going to a doctor, or asking a friend for an opinion. We go to gyms, eat healthier, put on makeup, buy expensive clothes. Why?
We all have a need to feel better, not only in appearance, but in physical actuality. Businesses need to do the same, but how? Companies must look at themselves in terms of up-to-date information: financial, associational (internal/external), and degrees of physical plant condition. This constant need for evaluation and analysis of pertinent and factual information keeps businesses healthy, happy, and long-lived.
All these factors have to do with good management. No single individual can do all of the things necessary to accomplish the attainment of these points. Outside of time, few individuals have the necessary expertise in so many different areas. A good leader must be surrounded with individuals that have those talents that are currently lacking, creating synergy. The aim is to create a management team with great depth. One that is able to attack the widest range of challenges without having to go outside the organization.
A management team with great depth is an invaluable tool to success. The more people who are “in-the-know” working on your side make your chances of succeeding that much better. Every player has something to contribute to the game and the game is won when the people involved are capable of working together and remembering that they are all working for the same end, the success of the business. Personal agendas are fine in certain situations but are intolerable when the business as a whole is at stake. When the situation calls for everyone to bond together, personal goals must be put aside and allow for a flexible approach that demands personal sacrifice.
There are so many obstacles to the success of adapting to market changes in Canada that they add unnecessarily to the demise of Canadian business. Maintaining a business on an internationally competitive level becomes increasingly difficult when they are expected to comply with the various social obligations that are both costly and time consuming. As the cost of doing business increases as a result of domestic responsibilities, companies from abroad are able to produce goods and services at a much cheaper price. No matter how nationalistic we may be, lower prices direct our spending habits. Canadians cannot afford to look within for competitive prices. They must look internationally to determine their levels of competitiveness.
More and more, the international playing field will determine the value and price of goods, services, and even acceptable levels of overhead. As labour leaves Canada, so does our ability to provide services. Let us remember that one manufacturing job drives four within the service sector. We must not let the result of governmentally enforced fat severance packages bring our industries to a halt. Many businesses simply close their doors rather than attempt to shave expenses because it is too costly to take care of those individuals that must be let go. Government has taken a bad situation and made it worse for everyone.
As a result of the high costs of production and downsizing in Canada, business cannot be expected to compete against countries whose industries are allowed to concentrate their efforts. Business is there to create jobs, produce goods and services, and give to society through taxation. If we expect business to balance the shortfalls of government, we will never be competitive on an international scale. Let business be responsible for those things that keep it going. Of course there are limits to their practices; however, the greater their responsibilities outside of their particular fields, the less focused they remain.
There are several courses of action that are suggested by financial experts to avoid bankruptcy. As the economic environment grows more and more unstable, liquidity becomes a key tool in the fight to stay afloat. The more committed one becomes financially to a single project over a long period of time, the greater the risk of it dragging you down. Over-commitment to single large projects is dangerous and should be avoided if at all possible, especially if it is a make-it or break-it situation that will decide the future of your company. Stay liquid!
Another key in the fight for survival is the maintenance of good lines of communication between creditors and debtors. The more the creditor knows and understands about your particular situation and all the nuances involved, the more responsive they can be to your needs even in situations where their help was not expected. Having to verbalize your project and back your beliefs and projections to a neutral party can either reaffirm your commitment or save you from making a costly mistake.
Preparedness comes from proactive management. A reactive team of management will miss opportunities that become available along the way. Businesses must take advantage of as many opportunities as possible in order to stay healthy. When you pass one up, someone else is sure to capitalize on that which is neglected. A successful business cannot afford to give competitors any added advantages. The key is to be prepared with financial information, capital resources, and the energy to pick up the ball and carry it across the goal line. As with anything in business, the level of one’s commitment to any undertaking often reflects the success of its outcome.
A good business person should take success and failure in the same stride. The two will appear many times in one’s business lifetime and we should learn from both. This is what makes someone a success: the ability to learn from past actions. The ability to learn combined with the elements of good management, hard work, and an ability to turn a good idea into a commercial product, will enable you to maintain a competitive advantage.
The title of this article is “Why do businesses fail?” Let us remember that the answer ‘people’ was given as a quick solution. Practically speaking, it can be argued, and rightly so, that business is a human devise and individuals are responsible for everything about it. In the final analysis, however, people have the possible dual role of hindering or helping businesses fail. Just as the hard-work ethics and innovative creations of people propel businesses, so too does individual greed, narrow-mindedness, and arrogance destroy them. Be someone that creates a monument to human ability and not to human incompetence.
Written by: Mark Borkowski is president of Toronto based Mercantile Mergers & Acquisitions Corporation. Mercantile specialize in the sale of mid market companies. He can be contacted at email@example.com or www.mercantilemergersacquisitions.com