With over four decades of experience (published author with a number of publications on Amazon) working alongside entrepreneurs and leaders with ailing and under-performing businesses to help them to turnaround and grow, As a strategic advisor, I have learnt more than what I chipped in for these companies. The factors vary from business to business and the industry to industry. (The single biggest cause of business failure is a lack of sales, but today I will leave this out because this subject deserves the whole article to its self for another day.) However; there are some common causes of failure that fits the profile of any business.  If you think your business is underperforming or has started bleeding money then, these seven causes might help you get your business back on track. The key to success is never giving up and always finding a way forward to move past temporary obstacles.

“Failure is not an option” 

Failure happens, sometimes you win and sometimes you learn, but as an entrepreneur or business leader you have responsibilities for your employees and fellow directors, you have to do everything you can to guard against it. As an entrepreneur or a leader, devote yourself to avoiding these crucial mistakes that are the causes of business failure:


1. Inexperienced Management Team:

One of the major reasons that a business might fail is its management. Top management is the backbone of a strong business, decisions and strategies made by the management can decide the fate of a business well before it gets off the ground. Many decision makers (Directors/CEO’s) are often not aware of the business capabilities and the importance of creating long-term strategies and clear achievable goals, there is no point in having strategies or goals if the management teams you have are not experienced at managing a business. Over the year I have seen and known people get promoted to management positions because he/she seems like a nice person and not due to their skill merits without proper management skills or training.

You need to get shot of the bad apples no matter how much you might like them, if they are not productive then they are not a good fit for you or your business, especially if they happen to be family. Short-sightedness to pick the right players on your management team can prove to be a killer for any business. You can have the best opportunities, finance, strategies and goals for a business and still fail without the right team to implement the strategies for a successful turnaround. From experience, the smaller businesses with less than 50 employees tend to become too attached to their employees and can’t fire them so they allow the business to continue bleeding till it runs out of blood then the whole business dies because you could not bring yourself to fire one or two people. I want you to think for a moment, if you had to start all over again and knowing what you know now about each of your employees, would you employ them?. Remember to hire slow and fire fast.

When I am working with my private clients who have businesses that failing or under-performing, I switch hats from a business turnaround practitioner to business mentoring by looking at solutions rather than the problem to get the business back on its feet once more. Even if we have to negotiate with each creditor one by one to get them to hold off any court proceedings they might be considering or have instigated already. 

2. Underestimating The Importance Of Cash Flow:

A second major cause of failure of businesses is not understanding the importance of a positive cash flow. Cash is KING no matter what anyone else tells you, No matter how good your balance sheet might look but the reality is when you can’t pay your staff and your creditors on time, you don’t have a business what you have is, what could be or could have been a successful business. I have seen time and time over the number of company directors showing me their positive balance sheets BUT they could not get the banks or other finance houses to provide cash to bail them out. It is so important that the person in charge of collecting payments (credit controller or finance director) must be good at their job and should be well paid and rewarded by making sure the company does not run into cash flow problems that are unforeseen. Cash flow is the key to success for any business that wishes to survive through a rough patch. If the Directors are not aware of how much Cash is needed to operate a business smoothly, it is a disaster waiting to happen.  Now once more I want you to think for a moment and work out if you had no cash coming in for 7 days, 14 days or 28 days could your company survive if not, start preparing a plan that will allow you survive in the events of cash-flow problems?.

3. Differentiate or Prepare to Die:

This is a classic one which I have heard entrepreneurs and directors of companies say, we are cheaper than anyone else. Being cheaper is not something to be proud of or to brag about, just take a look at Woolworth, Quicksave, MFI…K-Mart…. And so on. Being cheap is not a badge of honour, it is a sure thing that a competitor will come along sooner or later who will be cheaper than you, then what will you do….. yes file for Bankruptcy / Insolvency.

Being cheaper or cheapest is not differentiating yourself whether you sell a product that you make or a service that you provide. I suggest you buy this book on Amazon or your local bookstore by Jack Trout “Differentiate or Die” in this book you will discover how to stand out from your competitors and why people are willing to pay you more for your product or service. Quality is better than quantity. Take a look at why Zappos turn over billions with happy customers all willing to pay full price every time and still keep coming back for more, they have differentiated themselves by caring for their customers every time with the evergreen customer experience for life.

Work on a plan that will set you apart from your competitors where you are focusing on attracting the top 40% of potential clients and not the bottom 30% at the of your market. Ask yourself a very simple and basic question, if a 500ml bottle of water costs £0.18p at Tesco with their own label and right next to it is the same bottle same size but costing over a £1 why do people pay over £1 when they can buy the drinking water for £0.18p or free from a tap?. It’s not too late to start thinking about it and start differentiating your product or service, starting today. I am a living example of how I have differentiated myself from all my competitors. Not everyone can afford to hire me for my service, that’s because I like to be exclusive on who I work with, and I make it clear by stating who I do not want to work with. Think Big and deliver results for your clients and customers every time so they keep coming back for life to you and only you. When the value exceeds price consumers are willing to buy, so how can you increase the value of your product or service?

4. Lack of Focus:

Managers and directors can easily be distracted with too many minor tasks every day that their focus tends to shift, their thinking shrink. A good manager or director will never lose focus on what’s important and where their priorities are. The weakness is when they get caught up in trivial perfectionism in the tasks which can and should be left to others. The short-sightedness becomes obvious when DOING rather than BECOMING becomes an obsession.

Sometimes I have to remind managers and directors of a very simple fact that being busy is not the same as being productive. Guiding one’s self back on focus is hard and sometimes we all need reminding to focus on the task at hand that will advance the business and produce results a.s.a.p. Therefore, take charge and do not leave any room for lack of execution. Get someone strong to hold you accountable on a daily, weekly or monthly basis, or join a mastermind group.

5. Not Knowing about your Competitors:

Whether you are trying to turnaround an under-performing business or a failing business, knowing what your competitors are up to can save your business. You must understand their products and services, what value-added benefits are they providing their customers, are we doing more or are we lagging behind, what is their customer experience like good or are we better than them?. The more you know the greater the chances are you will succeed in turning your business around. Remember the more you know about them than what they understand about you, then and only then are you ready to compete by taking away customers from your competitors. When I work with under-performing or turnaround businesses I not only want my clients to survive but I will make sure they THRIVE in today’s economy. Lack of understanding of the competition and your customers is a killer on its own. One of my key strategies for turning around any business is understanding your customer and what you can do for them and not what you can do to them. You see most businesses want to sell and squeeze every bit out of each customer without any consideration for what the customer wants or needs. If you can focus on what’s in it for your customers I guarantee you will win every time, unlike your competitors who are only interested in short-term profits by squeezing the customer at every opportunity.

6. Declining Market:

Everything moves at a fast pace in today’s world, new products, new services, branding and re-branding. You have to keep pace with the times, if your product or service has a dying customer base then the writing is on the wall but most businesses do nothing about it at all including some of the giant corporations until it is too late.  Take Kodak, bookstores, record shops, newspapers not going online. If you can see the trend moving away and the writing is clearly on the wall be the first to adopt the changes and challenges and ride the waves of success. You have to understand your market and your customers, then be prepared to innovate by thinking outside the box. A great book to read is Blue Ocean Strategy By W. Chan Kim & Renee Mauborgne. This book will help you to innovate your business whether you are selling products or a service, it’s a must-read for anyone who wants to innovate and start leading the market rather than being a follower. If you understand your customers well and get regular feedback and can adapt then you will stay ahead of your competition.

7. Not Seeking a Professional Advice:

Even the best of us choke at some stage in life. None of us has mastered the art of industry in wisdom and information. Thus, a leader or entrepreneur who does not recognise the need to have an expert’s opinion for turning an under-performing or failing business would eventually send a business off in the wrong direction. In order to excel back to the top and get the most out of a business, you should be prepared to accept advice or guidance from people who have turned-around businesses in the past, failure is not a person but an event.

Sometimes a fresh set of eyes is all that is needed to look from the outside in. Did you know that Sir Richard Branson had a mentor? yes, he did it was Sir Freddie Laker. Bill Gates mentor was and still is Warren Buffet, so don’t be shy about seeking expert advice or seeking out a mentor to help you grow your business.

One of the best pieces of advice I can give to anyone in business is, never to stop learning, read and learn about marketing not just about your industry but how other industries buy and sell products and service and how you can do things differently than the rest of industry in your sector. I personally read a book a week just to stay on top of all the trends and furthermore, I spend over $63,000 a year on my mentors, courses, book and seminars around the world so I can stay at the top of my game.

So tell me if you had a business that was customer focused could that business fail?

My personal experience working with underperforming and turnaround cases, I firmly believe that you should have good strategies for attracting, converting and retaining customers for life through good customer experience. If I personally can be of assistance then just contact me via our contact us form or connect with me on Linkedin.

Focus on the business of tomorrow and not your problems of yesterday by being able to “Think nonlinear rather than linear”. A millionaire-mentor/ will help you transform your business strategically. Wishing you a brighter future.

Please feel free to share this article with a friend and to leave us your comments below.

Moe Nawaz: Author – Speaker – Strategic Advisor & Mentor to FTSE 100 Leaders

    3 replies to "7 Causes of Business Failure"

    • Dan Walters

      You made some clear points there. I did a few searches on the subject matter and found most people would agree with your blog.

    • Seite

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    • Tony Hurst

      Love the inexperienced managers, we seem to have loads of them about now a days.

      We placed a vacancy two months ago for our warehouse managers job, which involves looking after 23 transport crew as well as the warehouse staff of 14. We ended up with 37 CV’s and it was amazing to see how many of them had no management experience and all felt they were fit for the job.

      This is one of the biggest things killing businesses, people who think they can do the job because they been given a big title.

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