Why Companies Live and Die

Why Companies Live and Die

All things in this world have a lifetime, and businesses are no exception. Some businesses grow and prosper for many decades and some never flourish, fading very quickly. What’s the difference between them? Why do some make it and others fail?

The lack of a business plan is a primary reason for most business failures.  But business failure, as opposed to success, is just the other side of the same coin. The question is whether you will be content to simply flip that coin and take your chances, or plan ahead, effectively weighting that coin so it comes up heads.

According to Small Business Administration statistics noted in Scott Shane’s book, Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By,  twenty-five percent of all small business start-ups fail in their first year, and more than 70% fail within ten years. So business success is clearly based on more than just a coin toss.

Business plans do not stop functioning after a business launch.  They must be referred to and updated as circumstances warrant.  There will always be factors beyond management’s control. The economic recession of 2008-11 killed off a number of businesses, but effective planning can head off many other reasons that are frequently blamed for failure. Impacts such as taxation and tough regulations can be planned for as business challenges rather than allow them to be terminal for the business.

A 2013 article in Forbes gives five reasons why businesses fail. But let’s look at the other side of that coin. Businesses succeed by doing these things well. We’ll turn it into six points:

  • Have sufficient start-up capital. There is no solid formula for this. If you plan to support your business for two years until it can support you, you are building in a two-year failure component.  Profit stems from successful planning, not from how long you can survive without profit;
  • To avoid being compared to your competition you will need a unique product or approach. You don’t need to look just like your competition;
  • You need promotion. Word of mouth is great, but you will have to have enough of those mouths out there speaking words for it to work. The key is an ongoing dialog with your customers, which takes us to the next point;
  • You need to be crystal clear in your communication of your company’s value to the customer.  Don’t be muddled and don’t be verbose. Be clear, succinct, and compelling. After all, there is something you want your customers to do, right?
  • Provide effective, professional leadership from the top. Master your weaknesses and perfect your skills. Don’t be the reason for your own company’s failure;
  • Make sure your start-up idea is a good one. Do you have a profitable business model and are the revenue streams proven? Test marketing can make the difference for you in these areas.

Located in Camarillo, California, Vision Economics serves all of California, Arizona and Nevada with both large and small business services. We will gladly answer your questions about the essentials of business success and proper business planning.   Please give us a call.

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