5 reasons why companies fail

We live in a time where almost 95% of startups never make it to become a solid profitable organization. Many managers and company owners underestimate the importance of having long term winning and money making organization.

Companies obviously fail for many reasons. When we say fail we mean either loosing track or going out of business. We live in a time where almost 95% of startups never make it to become a solid profitable organization. A more dramatic statistic reveals that more than 50% of small businesses fail in the first four years. Many reasons can cause the failure of an organization. For example bad product, poor market penetration etc. But here we decided to focus on reasons where the source of failure is the bad management and bad investments. Many entrepreneurs and business people today lose focus and run their business for their short-term well-being and underestimate the importance of investing in the company for a long-term success.

It’s all about the profit at the end of the day, we all know that. That is the reason often, managers and directors sacrifice investments for the happiness of the shareholders and their yearly dividend.

But what many managers and company owners underestimate the importance of having long term winning and money making organization. To achieve this, some of the below managerial fails have to be avoided or considered wisely.

Here are the 5 most usual reasons companies can fail to grow or go out of business.

 

No patience to grow.

Investors, shareholders and directors focus on the yearly profits and positive numbers. We are all to make money here, aren’t we? We want to get rich as soon as possible. In other cases – small business managers and owners take out cash for their pockets as they feel the company is another pocket of theirs. Bad practice. Of course profits and numbers are important but when companies sacrifice the bonuses and dividends for some years (especially when markets are on fire), reinvesting in the development and expansion of their products or services, they suddenly grow and overpass competition. Is good to have a profitable company for 5 years and get rich but what about having a solid profitable organization forever? Patience is the key here. Markets are changing and anything can happen. Be ready and prepared, whatever happens. Growing your organization is never a bad idea if you do it in a way that is solid and stable. Be patient and invest on the long term earnings.

 

They don’t invest in employees.

This is a huge chapter obviously so we have to mention the basic part. Many companies treat employees as tools to create more income. The truth is that employees are the gears in a successful organization. But “gears”| have to be in a good shape and “motivated”. The best investment a company can make is on the staff. Companies are run by people. Invest on professionals for your organization that will make the difference in their sector. Then, make sure you keep them motivated and happy. Create a team where people will feel proud to be part of and then they will be willing to sacrifice anything for the organization. When everybody works towards a common purpose, great things can happen. The bet here is to create a strong company culture, where respect, teamwork and common purpose are aligned. Some tips to achieve that are:

  • Give them freedom
  • Trust their skills and creativity
  • Invest on their development
  • Find out their ambitions and try to align them with your organization
  • Build team spirit and respect within the organization

 

Zero marketing actions.

Unfortunately, still in our days many companies underestimate the power of marketing. In other cases some companies make random campaigns couple of times per year and expect results. The truth is that, in the fast paced and hostile internet environment, couple of campaigns per year won’t bring much results. People see so much every day and forget very easy. Companies should invest in a day to day marketing plan 365 days per year. Your organization has to be current and always in the foreground. Luckily, digital marketing – which is the most effective now –can work for you in a low budget and bring to you results all year round. Historically companies that invest more in marketing last longer. Also, as you may already know huge corporations like Coca Cola, Starbucks, Lidl never stop their marketing campaigns and are always current and almost on every possible medium.

 

Bad finance control.

Finances are so critical for businesses. We all know that. Bad moves can destroy any organization. Every expense has to planed and well though before executed. Budgets should be followed as much as possible. Of course unexpected bills and expenses will show up. That is normal. The big bet is to control all the other things. Plan your monthly or yearly budgets wisely and try to be committed. Don’t spend money in unnecessary stuff. Make sure you invest every penny on things that matter for your organization. Investing in people, technologies, equipment, tools, software - things that make your company work more efficient will take you further. Avoid spending money on expensive equipment that you will never use, taking unnecessary trips, staying at the most expensive hotels or dining at the most exclusive restaurants. Don’t over hire if you cannot afford it. The punch line here is humble. Manage your company as if is always a small organization and try to control unnecessary expenses. That is how you scale.

 

Wrong partners.

Partnerships play a huge role to any business success. Traditionally long-term partnerships are the most valuable and successful ones. Company owners in many cases don’t understand this simple rule. If two people (or companies) help each other, support each other in any situation, have trust to each other, they will grow together. Having partners you can trust anytime will only benefit you. Make friends first and then business partners. Try to help without expecting something in return. You will eventually receive much more in the future and this should be your politics when engaging with other businesses or people. If you believe you have the wrong people as partners then you can step down, without making noise. No need for hate and bad feelings. You never know what the future will bring. Forgive and move forward. Remember that not all people are the same. Try to be kind with your partners and good things will come ahead.

 

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