Key Reasons Businesses Fail

Sometimes, it is difficult to work with certain companies that are struggling with issues.  After discovering their problems and developing recommendations, they say, “You haven’t told us anything we didn’t know already.”

This lack of honesty is one of the key reasons businesses fail.

When a company leader says this, what he is telling me is that he knew not only that he had problems, but didn’t spend the effort to correct them. He spends time and money to seek help from others. Then, he tells the consultant that he already knew about everything that was observed and recommended changing.

This is business neglect.

To know about a problem and not do anything about it is a very poor business practice.

Let me tell you about a recent example. A recent client said that after we had completed an initial review of their operation.

Their problems were obvious to us. Their inventory storage was a mess and needed to be organized. Space was being wasted by keeping old and obsolete materials. This was stored in prime locations. A large part of their production was in a rework section. It sat until the quality issues were fixed before shipment to the client. Quality should occur at the time of manufacture and not be collected and fixed at a later time.

After reporting these initial findings, I was hit with, “You didn’t tell us anything we didn’t already know”.

How do you respond to that?

Do you ask, “So if you know all of this why am I here? Why haven’t these things been fixed?”

When a company hires consultants it is usually for the following reasons:

• The consultant has the right expertise to help the company and may bring new life to it.

• The consultant identifies the company’s problems.

• The consultant can act as a catalyst for change and can influence people to make and accept the changes.

• The consultant provides objectivity,

In each of these instances, the consultant is bringing a fresh perspective. Too many company executives feel they are aware of their difficulties and how to deal with them. If that is true, then there is no need to bring in an outside person or persons. That is a waste of the consultant’s time and the company’s time and money to do so.

As a business executive, I have hired consultants for various reasons. This helps to resolve key reasons businesses fail.

I am sure you have also used outside assistance at some time. It is good practice to question the work to understand what they are saying. We also make sure that the consultant completely addresses the situation at hand.

We don’t always have to agree with the recommendations for improvement. We can ask for other options. By telling them that we already knew all of the problems they are addressing and know how to correct them we are admitting that we have committed business neglect. We should be embarrassed by such an admission.

A past client was having major issues in their current Quote-to-Ship process.

It was managed outside of the company’s SAP system. The employees identified that this created errors and delays in processing.  These were unacceptable to them and their customers.

As with all projects of this nature, we proposed to understand and document the current state. This covered; business processes, policies, data, and organizational structures, and systems. This was Phase 1 of their Request for Proposal (RFP). We were to identify best practices and develop a future state process and gap analysis.

Then, we could establish a plan to put in place best-practices in a Phase 2 project.

We met with the department managers involved in this project to review our proposal and how we would proceed when awarded this work. They were in agreement with our approach. Then the CEO spoke up and said:

“Our problems will all be resolved when we start to properly use our SAP system.”

The managers seemed stunned at this pronouncement, but no one challenged this declaration. Nowhere in their RFP nor in our fact-finding was it mentioned that a poor use of the SAP system was an issue. Now, it became the declared issue that when solved would solve this and many other problems.

I have dealt with this issue with other clients. They didn’t have the business foundation in place to even have a system. They were banking on its use to solve their business problems.

In dealing with systems, there are three important  aspects :

1.  Process – An information process that includes clean data. How it is utilized by all employees must be in place.

2.  People – People must be trained on the process and the system that will be a part of it.

3.  System – This is the last piece of the puzzle. Unless the first two pieces are in place, depending on a system alone is disastrous. Too many companies rely on this. They are shocked when the system is not the business savior they thought it would be.

We tried to convince the CEO that this was not the correct solution to the company’s problem, but she wouldn’t listen.

We were told to redo our proposal and help them to get their SAP system working. This was not to include any process or people work. The chances of this work solving their problem was slim and none.

The client was not listening to what their real need was. Even though we reworked our proposal, they were dead set that their approach was correct. They only needed to fix the “system” and all would be ok. We did not get the work. They gave it to a company that specialized in selling systems. The company had little accomplishment in the process and the people sides. The project struggled.

The CEO violated one of the key reasons businesses fail.

She did not consider the real or root cause for the company’s problem. instead, she headed down the wrong path. This cost the company time, money and more ill will with clients by not fixing the real problem. 

She also was admitting that she already knew what the problem was. She had made a large commitment in a very expensive information system. And, she allowed it to sit for years while doing nothing about it. This is serious neglect. Now she was ready to take action and wasn’t addressing the real cause. She was demonstrating even greater neglect which is one of the key reasons businesses fail.

Another example of this type of behavior dealt with a potential new client.

The owner was to receive some state funding to help him improve his operation. The improvements were to:

• Help start up a new operation for which they had acquired equipment. The machinery was only achieving 50% of its rated production. They needed help to get the production up to 100%.

• Develop a layout of the current operation for a new facility the owner had purchased.  The current layout was not optimal. My company and I were expert at developing terrific factory layouts.

We developed our proposal to complete the work. This included using his son as an intern. This would allow him to gain experience in the business and keep project costs low. We met twice to both review the project and to set a schedule to complete the work.

The timing was tight. He needed to have the facility up and running with three to six months from the date the project started. Time was of the essence.

We immediately set up a Share File system to share all the work files and layout drawings we would create. We established a work plan for his son and started to develop initial documents. We were off and running as we had discussed and agreed to with the owner.

Out of the blue, the owner called and stopped the project. After everything he had agreed to he changed his mind. He decided to use some friends and business acquaintances.  with no real experience in either of the areas we were working on. He stated, “I can do the work at a reduced rate”. As Benjamin Franklin said:

“The bitterness of poor quality remains long after the sweetness of low price is forgotten.”

I have told other clients, I can get all sorts of people to do things such as a layout. A child can do one. The question is, “How good is it? Will it meet what is needed?” This type of action is one of the key reasons businesses fail.

The owner was making decisions based on saving a few dollars. That decision would cost him much more in the future.

There are too many business owners and executives that follow the same philosophy. They then wonder why their business is struggling. They blame it on bad luck or market conditions. If they would look in the mirror, they would so who or what the real problem is.  

This is a stark demonstration of business neglect. When one does not have knowledge and makes decisions based solely on price that is business neglect. No wonder so many businesses fail.

These two examples by a top executive and a business owner show business neglect. While different in scope, the effect is the same. Both are not helping to move their businesses forward. Both are smart people, so what is the problem?

I strongly believe it is the “Forest for the trees thing”. Company leaders get too close to issues or get lulled into complacency. Then they stop doing what is needed to move their businesses ahead. They want help, but only on their terms. This isn’t always correct because sometimes their terms won’t work.

So what should leaders such as these do? Here are some suggestions:

• Start and maintain a Continuous Improvement program. Get all employees involved and allow them to make ongoing improvements. This should be appropriate to each person’s level. The worker on the floor is not encouraged to come up with a million-dollar solution. When added up can total a significant improvement to the business.

• Own up. You’re the problem. Lack of leadership rubs off on your employees and leads them into apathy, too. “Businesses that aren’t cared for fail”. Make sure that you are not standing in the way of progress and improvement.

• Don’t say “I can’t.” or allow employees to do so. There are many ways to make improvements. Some ideas are better than others. Pick the ones that make the most sense and do them. There is a big difference between “I can’t” and “I won’t”. Neither is positive and shouldn’t be tolerated.

To make even more progress and improvement you can…

• Upgrade your technology. If you are not investing in your business, you are falling behind your competition. Technology is expanding by leaps and bounds. Embracing new technology doesn’t guarantee success. But ignoring it will ensure failure.

• Work nonstop. When a business is in trouble, you can’t do a little here and there. It’s going to require a 110 percent of your effort for a while to get things back on track. Don’t expect everyone else in the company to put out effort if you don’t. I have seen too many executives who feel that they are beyond that kind of effort. My feeling is that the more you earn the higher your accountability. That includes putting in the time, especially in times of trouble. Your employees are watching. What message are you sending them?

I regularly watch shows where a person comes in to help rescue a business.

In all cases, the owners are violating every recommendation I listed above. The person called in to fix the problem works as hard to fix the owner’s attitude as fixing the business itself. They usually say some very strong and unflattering things to the owner. This is to wake them up and get them moving.

Don’t let this happen to you. Take that look in the mirror and honestly evaluate if you are doing what you could and what you should. Once you have then follow that famous Nike slogan and “Just do it”!