How to Guarantee Your Business Will Fail
Everyone obsesses about the things you need to do to make your business succeed. Spoiler alert: There is no “one right way.”
There is no “one quick trick” to success.
There’s thousands of ways to do business right. Pick one, and execute. Don’t over think it. Don’t obsess over the nuances of two nearly identical business models. Like losing weight, there’s thousands of ways that will work. Pick one that fits your goals and situation, plan accordingly, and modify as you go. Perfect your execution, and you’ll be top tier in your industry.
There are several quick routes to failure!
The more important thing to know is what will make your business fail. The SBA has a list of the most common reasons why businesses collapse. You’ll notice things you can’t control (like Recessions, Divorces, and Natural Disasters) ARE NOT this list:
- 19% collapse because they were “out competed” (their term, not mine)
- 23% didn’t have the right team.
- 42% die because there’s no market need for their products or services.
- 60% don’t have a Business Model that works
- 30% break even
- 30% lose money
This very small number of failure-inducing risks are easily avoided by taking some very specific steps. Nothing can ever guarantee success, but failure is relatively easy to avoid. Taking these 3 steps will prevent your company from becoming a statistic.
1. Business Plan – Write one. Get help if you need it.
Truth is, you have a plan already. You did that before you did anything else. Even if it’s only in your head, you have already laid out your business model, set a price, and made some effort towards planning your strategy, operations, marketing, and competitive analysis. No matter how little you knew about business plans, if you are a functioning business you’ve given some thought to each of these steps. Your plan is halfway complete! Now, put it on paper.
Business Plans are critical to every business. Every. Single. Business. There’s a reason banks and investors insist on seeing a business plan. Having one shows you’ve done the hard work, and have a decent shot of making it past the first year. Without a plan, a purpose, and well-defined strategy, your company will flounder in the land of mediocrity. You may grow by accident, but you won’t be successful long-term unless you are executing specific actions by intention.
Each of the SBA’s common failures are addressed in a comprehensive Business Plan. The Marketing Plan shows whether or not there’s a need for your product. The Strategic Plan and Competitive Analysis analyzes your competitive position, and how you differentiate from your competitors. It can’t prevent you from being “out competed” but it will show where you can compete, and where you can’t. The Business Model shows if your idea will ever become profitable, and if it will scale.
Plans are Useless, but Planning is Priceless.
We exclusively use Live Planwrite business plans. Their process is intuitive, effective, and includes research tools, examples, and many extras. If you’re working on a tight budget, free templates can be found everywhere. SCORE has a free templatethat I use in my small business courses. It is very thorough, and functions as a worksheet to walk you through the process. The format is less important than the content. Write it on a napkin, or a notepad if you want. Just put it in writing.
2. Cash Flow – Monitor it.
Cash Flow problems kill more businesses than anything else. Anything. Else. Cash flow problems kill 82% small businesses. Simply running out of cash kills 29% all by itself. Not bad cash flow, just simply hitting $0 in the bank account when AP or Payroll is due.
- Business too slow, and customers are hard to find?
- Cash flow will be a problem.
- Business too good, and you can’t keep up with production? Cash flow will be a problem.
- Business is seasonal, and you’re in a short month? Cash flow will be a problem.
- Business is too ___________? Cash flow will be a problem.
Keep a customer pipeline open. Have customers & projects in each stage of development.
Cash truly is King.
Manage your cash like your business depends on it. It truly does. Stay on top of the AP/AR queues, and NEVER sell your AR. That’s the payday loan of the business world.
3. Leverage – Avoid it.
Leverage is a pretty word for Debt, which is a pretty word for risk, which is a pretty word for potential failure. If your company has successfully accomplished the first two items on this list, leverage won’t be necessary. Carrying debt costs you money, lowers your profit, and greatly increases your risk.
Over leveraged companies have caused nearly every recession in our country’s history. It’s what caused the Great Depression, and made investors jump off buildings in 1929. It’s also what caused the Great Recession in 2008, and devastated the world’s economy for nearly a decade.
Risk and reward go together. In this context, the reward comes from risking money you’ve already made. Risking money you haven’t made (and owe to someone else) creates the heartache of paying back a loan for an idea that didn’t work. Leverage works great, as long as nothing changes in the market. Just ask Enron.
Borrowing on your success to expand into a new market, or bring an unproven idea to market exposes your company to an incredible amount of risk. Adding $80,000 of debt service to your annual expenses is a big hit, and opening a new market might not pay off for several years. Is that expansion worth the cost of two employees?
Yes, leverage is popular, even necessary at times. I’m not telling anyone to stop taking out mortgages, or to avoid taking on investors. However, many cash flow casualties are the result of having to choose between payroll, supplies, or loan servicing. The loan always wins. Even if you ignore it this month, it won’t go away.
The Bottom Line
If your want your business to fail, continue to ‘wing it.’ Manage the cash as best you can, and expand with borrowed money into markets you can’t really define.
If you’d like to have success that’s predictable, repeatable, and continual, follow our simple advice.
- Write down a business plan that’s as detailed as you can make it.
- Manage your cash flow like it’s the most important thing in your business. Because it is.
- Avoid debt, and minimize your use of leverage. Pay it off, and leave it alone as you grow your company.
These 3 things will help you avoid seeing your hard work go down the drain. The odds are already against you. But, you are an entrepreneur. No one tells you no. The odds can pack sand.
Also published on Medium.
