The 6 Main Reasons Businesses Fail and How to Avoid Each It is impossible to achieve success if we are not aware of the most common pitfalls that make businesses fail.
By Luis E. Romero Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Success and failure are intimately connected. As we pursue success, we are also avoiding failure; and whenever we fail, we also elude success. This relationship is important and must not be ignored.
I fully understand the principle of focusing on the positive (i.e. vision, mission, goals, etc.) as a means to develop the best possible attitude to move forward on a daily basis. At the same time, however, it is impossible to achieve and sustain success if we are not aware of the most common pitfalls that make businesses fail so we can consciously avoid them.
The whole point of organizational learning is to acquire, categorize and apply the necessary knowledge to support our strategic and operational efforts in all foreseeable scenarios. To this end, our knowledge inventory must include best practices as well as worst practices. The former serve as a reference of what to do and the latter as a reference of what to avoid.
Related: Afraid of Failure? Think Like a Scientist and Get Over It
On this occasion, we will explore six bad business practices and how to avoid them. This is a very useful exercise, especially in today's over-positive, politically correct environment, where critical thinking and tough leadership have been weakened in favor of more permissive, sometimes-naive organizational approaches.
Without further ado, here are the six main reasons businesses fail and what to do about them:
1. Having a vision, but not a strategic plan.
All my clients want to be successful. They even have a fairly descriptive vision of what that would look like. Yet only a few have developed the necessary strategy and action plan to get there. That is one of the reasons they hire me. Let's go back to basics for a moment. To be successful, businesses must know what makes success possible. Interestingly enough, this begins by learning what makes their competitors succeed and fail. A deep understanding of the industry is key. This means they must find out their competitors' market shares, client portfolios, product portfolios, key leaders, high-level political connections, recruiting practices, etc. Likewise, they must assess themselves in every one of those areas. Finally, businesses must know what their competitive advantages are, and, if they have none, they must be able to either develop them quickly or get out of the business. Not having a strategic plan is a major source of stress, conflict, mistakes, multidirectional blame and failure.
2. Hiring the wrong people.
Hiring out of necessity is the costliest mistake in business, period. When organizations feel the impact of work overload resulting from a vacancy (someone resigned or was let go) or sudden business growth, stress is inflicted on every collaborator, relationships start to suffer and performance starts to decline. This is where executives and managers slip up by hiring the first acceptable applicant rather than the best possible one. "It just takes too long to find the right person," is the usual rationale. The result? The initial relief is far offset by the long-term cost of dealing with an employee without vision, drive, commitment, etc. And, of course, organizational leaders often feel the temptation not to pay a competitive salary, which always leads to recruiting blunders. If you do not have the time to search for the best possible candidate, then hire for limited-time contracts until you find a top performer. And if you do not want to pay a competitive salary, then do not complain and enjoy the madness.
Related: Failure Is Not the End. It's an Opportunity to Learn
3. Letting politics supersede business.
Friendship at the workplace is a double-edged sword. We all want to feel comfortable with the people we work with, and if we are able to strike a friendship with some of them, life indeed becomes all the better. But letting friendship cloud our professional judgement is unfair to the organization and becomes the source of future endemic problems. Similarly, when getting on your boss's good side requires you to abandon good leadership and management practices, the initial feeling of comfort will sooner or later be replaced by the inevitably stressful aftermath of unsound organizational decisions. In short, office politics is the result of letting friendship and cozying-up-to-the-boss supersede good business practices. The most effective way to break this dynamic and reverse its negative results is by providing top-notch training on leadership, management and organizational learning, with a first-class coaching program. This is a proven fact, but it requires full commitment from top leadership.
4. Not trusting your team.
Widespread mistrust at the workplace is a systemic weakness arising from the combination of the three aforementioned problems, namely, not having a plan, hiring the wrong people and politics superseding sound business practices. Therefore, if, as a team leader, you feel you cannot trust your people in general, it means either you have control issues or your organization has been down the wrong path for a long time already. In the latter case, to rebuild trust, your organization needs to produce a strategic plan, hire the right talent and kick politics out the door.
5. Mishandling disagreement.
Genuine disagreement based on intrinsically different approaches to solve the same problem or achieve the same goal, or even about what the problem actually is or what the best goal may be, is the foundation of learning and progress. However, apparent disagreement about important issues, arising solely from people trying to excuse their mediocrity or hide their silent political liaisons, is the foundation of organizational failure. The way to handle either type of disagreement is different. To handle genuine disagreement as described earlier, organizations must hold professionally-guided strategic sessions of brainstorming, problem solving and organizational alignment. Conversely, to handle apparent disagreement as described earlier, organizations must fire the unethical, politically-entangled, underperforming employees and craft a strategic plan to provide the direction and purpose needed to hire the right people.
Related Book: Fueled by Failure by Jeremy Bloom
6. Letting guilt get In the way of business decisions.
When an organization has been subjected to the lacerating consequences of the previous five afflictions, top leadership is, by definition, a fundamental part of the problem. In these circumstances, making the necessary, tough decisions for the first time in months, years or decades does often trigger feelings of guilt. The usual verbalization is something like, "How can we let people go? How can we freeze salaries? How can we close down that division if we were the ones leading this organization down the wrong path in the first place?" Yes, this is a terrible spot to be in. But it is often either that or full organizational failure and bankruptcy. So, in order to save what is still salvageable, surgery is inevitable. Outplacement programs and attractive severance packages are usually the only two ways to palliate the pain, anxiety and uncertainty inherent to this kind of emergency protocols. The suggestion? Do not let your business get to this point.
