Studies illustrate there are 5 stages of development that every business goes through. I can’t remember where I first saw the chart below, but it’s a great illustration of the five phases.
Notice that, with the 5 stages of growth, there are also 5 opportunities to fail. In other words, getting through the survival stage doesn’t mean you are home free.
There have been hundreds of articles about startup failure statistics. You’ve all seen the numbers, 50% fail in their first year, most never make it to five years, etc. But mature company business failures don’t seem to be given as much attention. Maybe because it’s harder to pinpoint the causes of those failures.
First, let’s agree there is more than one way for companies to fail. They can fail to grow and diversify and still hang on in survival mode for years, or they can completely go out of business.
It seems from my experience the first scenario is much more common. I could name at least a dozen companies that I’m familiar with today that are in constant survival mode. They are of more interest to me because, for some at least, something can still be done to build value in those organizations.
There are many reasons why some companies grow and others constantly struggle. There are certainly external factors like economic conditions, market shifts and competition that impact them. But as I’ve written before all companies in that market experience the same difficulties. Why then, do some prosper and some don’t?
We obviously must examine the internal factors that have to do with operations and leadership to answer that question. In every industry, there are companies that grow and do well regardless of economic conditions, while others stagnate or shrink and ultimately fail.
The following are the areas that I believe most commonly separate the two.
- Leadership. This starts with a clear vision of where the company is going and what must happen to get it there. But having vision isn’t enough. You must communicate it and get understanding and buy-in from all stakeholders. Then comes the hard part, you must execute. If you’re looking for change you must be accountable for making sure that change occurs. If you aren’t accountable to yourself, you can’t expect others to be accountable
Lack of a defined strategy. Call it lack of planning, lack of direction, lack of vision, they all result in the same thing. If you don’t have a clear plan that includes your market, your competition, and how your company has chosen to compete, you can find yourself chasing the priority of the day. This causes increased costs, frustration of key employees, and confusion for your customers. Decide what you do best, and more importantly, decide what NOT to do!
Reluctance to acknowledge the need to change. There have been many articles on this subject, and many state the cause as ego, not wanting to admit problems exist, stubbornness on the part of the founder etc. Whatever the cause the longer you wait to address significant issues, the harder it is to recover. Many times executives don’t acknowledge the need to address issues because they don’t know how to fix them. The thinking being if I admit it’s there, people will expect me to fix it.
Depth of key people. You can’t build a company without the right people. Your job as a leader is to create an environment where great people want to be. If you can’t attract and retain excellent people, you are in trouble.
Lack of process and measurements. Too many companies don’t have documented processes for key functions. If it isn’t documented its people dependent and subject to variation. This causes rework quality issues and increased costs.
Technology. See processes above. Technology can make life easier, but it isn’t a cure-all. If you don’t have a strong infrastructure, technology alone can simply add costs without the anticipated benefits.
Marketing. Many small and mid-tier companies don’t do much marketing. Many of those that do don’t do a great job of it. To me, marketing is about educating your customer why you are the obvious choice for their product or service needs. A key part of that is developing a compelling value proposition. If you can’t articulate that value proposition, what does your marketing message say?
Innovation / investment. Market changes that used to take decades now can happen inside a year. successful companies change ahead of the market, those that don’t react to market changes too late.
Complacency. Maybe the root cause of all the above. You get to stage 3 or 4 above and you get comfortable. if you aren’t constantly reevaluating your organization and it’s role in the market, and how you can add value to your customers, you can be headed for trouble