Businesses fail. Most businesses fail, because they run out of momentum. You’ll hear that described in various ways, like:
- High debt service.
- Shift in markets.
- Poor cash flow.
- Insurmountable rise in costs.
- Insufficient capital or “under-capitalization.”
- And so on.
Those are just sad excuses for a business to fail. In the end, every business failure is the result of the owners and managers failing to identify and plan for future opportunities and threats. I am not a big fan of SWOT analysis (Strengths, Weaknesses, Opportunities, Threats), because it usually does not translate into action. SWOT sessions make management feel good that they involved the whole “team,” but concrete action steps are not often listed, assigned to personnel and followed up later.
Done well, SWOT can benefit a business. It’s just not done well often enough.
Another approach is more akin to Kaizen theory, which is generally defined as incremental but continuous improvement. That works well, if a business has two key things:
1. An Operations Manual
2. Regularly scheduled meetings to review and improve the Operations Manual.
SYSTEMS! That is the key to operating a business well. A system enables a business to all these things as a part of what the business itself does:
- Deliver the same quality good or service each time to every customer.
- Identify quickly the cause of any problem resulting in lower quality.
- Identify new customer needs and wants, which is often a signal for a new market opportunity.
- Identify trends suggesting that your current offering of goods or services is becoming obsolete.
- Reduce inefficiencies.
- Reduce risks and losses.
- Grow market share by effectively communicating with customers and future customers.
- Identify new vendors, alternative sources of materials, labor-saving equipment/services, and strategic partnerships.
- And so much more.
I’ve watched dozens upon dozens of businesses fail over the years. In the final analysis, each one failed because each lacked systems. None were fully committed to systematic business operations. The owners and managers thought too much about making widgets and not enough about building a business enterprise.