If you don’t understand the details of your business, you’re going to fail[ – Jeff Bezoz

A few years back, a middle-aged entrepreneur in Lagos who had invested tremendous resources of money, time and efforts in his venture but was enormously frustrated that despite the amount of investment he had put into the business, nothing seemed to be working – “Nothing works in this country”, he lamented. Paradoxically, he would refer to a competitor who apparently was way ahead in success and ask “But how do they do it?”

In over two decades of business consulting experience, we’ve encountered scores of entrepreneurs as this. Regrettably lamentations do not stop a business from failing. Young, middle-aged or old; business failure is not a respecter of age. The dynamics of business is such that when you do not play by the intricate rules of effective management of business, the risk of failure becomes enhanced even from the outset. Dead on arrival? Possibly yes! But for many others, it’s dead on the way.

Research shows that over 50% of new businesses fail between the third and fourth year of commencement. The seed of failure of many of these businesses were sown from the first day of operations – some as early as when the business idea was conceived.
So why do some businesses fail where others succeed? While from one business climate to another, from an economy to another and even from sector to sector there are myriad of reasons businesses fail, we have carefully selected the top 5 factors business owners and managers whether as small businesses or very large ones should take note of.

1. Poor planning

This could be both strategic and operational or a combination of the two.

At the strategic level, the following would be instructive.

- Misconceived business ideas
- Lack of vision or weak vision
- Inappropriate strategies or poor deployment

At the operational level, issues relating to poor financing and weak organisation sooner than later drive businesses out of existence, if not properly addressed. Other potential killers are:

- Weak structures and processes
- Incompetent management and
- Bad corporate culture


2. Lack of effective Corporate Governance Framework


Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled - Investopedia


Corporate governance essentially involves balancing the interests of a company's many stakeholders - shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Sadly, many organisations, especially at the earlier years of existence struggle with striking this balance. And so, it’s not unusual to find situations where these businesses battle with issues on statutory compliance defaults, staff dissatisfaction and financial obligations default. These issues, which often than not become intractable lead to the eventual collapse of many businesses.


3. Poor Financial Management


The language of business is money. Having adequacy of it and managing it well is what ultimately signals the success of a business. One the one hand, businesses should avoid the temptation of overtrading or premature scaling which ultimately lures them into a position of being highly geared in debts where they have access to funds, or reputation damage and loss of business where they don’t and they are not able to meet the demands of their customers. On the other, effective management of financial resources available is crucial to the success or failure of a business. Many businesses, particularly SMEs do not have competent financial managers who could guide them through tricky paths of effective financial planning and treasury management.


4. Leadership failure

Businesses fail because of poor leadership. The pinnacle of decision making in an organisation is the leadership. Decisions of who to hire, how to raise capital, pricing, which markets to operate and strategies to adopt invariably lie on the leadership of the business. When corporate leaders get this right, the business prospers but where they consistently get them wrong, the business is set on a path to demise.


I often argue that the first set of people to be trained in an organisation is the leaders. Effective leadership in business management evolves and leaders must constantly upgrade themselves to meet the needs of the current. Unfortunately many businesses have been ruined by the actions and inactions of the owners themselves or those put at the helm.


5. Lack of REAL Value Creation


The world wants value. Customers desire and pay for value. However, many businesses struggle to create or deliver real value to the market. Differentiation rules the world of business. Is your business distinct in your product, service delivery, customer service etc? There must be at least one thing that the customer passionately or sometimes emotionally holds onto in your service or product(s). Where this does not exist, sustainability becomes a challenge in this exponentially changing business world. Succinctly put, many businesses belonging to the “me-too” bandwagon enclave invariably get choked by competition, wither and die.


In conclusion, business owners should look at the pitfalls ahead through careful planning, take advantage of uncommon through deliberate visioning, constantly develop their leadership skills and hire AT ALL COST the best human resources available to help in the survival and success of their business.

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