How to Prevent a Business Flop

Ways to Reduce the Chances for Businesses to Fail

Businesses do fail from time to time. Even the biggest names in the industry have had their own share of failures. For instance, in 1985, Coke changed their recipe to a sweeter blend. Fans of the drink retaliated, forcing the company to revert to their original recipe. Polaroid became famous for manufacturing instant cameras. In 2001, they became bankrupt when they failed to compete with digital cameras. With Betamax, the format became obsolete when JVC introduced a better alternative. In these cases, businesses failed when they chose not to listen to their target market or if they failed to evolve and change with the times. However, there are ways to reduce the chances for businesses to fail.

Understanding where former businesses failed can help new ones avoid the same mistakes and formulate better strategies. There are two possible sources for failure: internal and external.

Internal

• Poor Management

Leaders are responsible for hiring, training, deploying and keeping the right kind of people in their management ranks. If leaders fail to make decisions, execute strategy or correct mistakes then the business is in trouble.

• Poor marketing execution

It could be using the wrong strategy to go after the target market or targeting the wrong market. Strong leaders provide the needed resources to allow the company to seize the right opportunities yet reduce the amount of risk.

• Working capital management

It is not simply about how much money the company can shell out but how it uses its funds. Even the biggest companies can fail if they do not spend wisely. The total operating cost is dependent on how the business is being operated. A strong leadership knows where to get enough capital to cover the cost and makes the most out of it.

• Lack of strategic management

CEOs are in charge of developing a clear vision and communicating this vision with the rest of the team. Executing any strategy must be in alignment with this vision in order for the business to succeed.

• Uncontrolled hypergrowth

As companies grow, they often expand to other areas. At times, expanding too quickly without any direction can lead to business failure. Businesses should only expand when needed or when the current structure can no longer provide for the needs of its target market.

External

• Competition

Having some competition is healthy as it forces companies to think and be creative. However, if the competition is high and the demand is low, smaller companies may be forced to close if they have nothing to offer that distinguishes them from the competition.

• Labor issues

Each business has its own specific culture. Leaders should identify and remove individuals that are damaging the existing culture within the company. Any conflict between employees should be handled professionally as not doing so can cause issues and affect productivity.

• Change in technology

Businesses must grow with the times and learn to use new technologies. Markets change with each major technological change. As such, businesses must stay on top of these new trends to cater to the changing needs of the market.

 

Importance of Strategy

Businesses always need a strategy. A business plan or strategy defines the direction of the company. It should identify all possible issues that the business might face along the way and suggest solutions for these problems. Although helpful, strategies are not foolproof especially if they are not created or implemented properly.

 

Poor Strategy Development

Failure due to poor strategy development can occur because a proper strategy was not created or developed.  One common mistake includes focusing on short term tactics as compared to analyzing and developing a long-term strategy. There is also the failure to understand what customers want or are looking for or even failing to convince people why they should pick your company over the others. Poor strategy development can also be caused by not providing something unique.

 

Poor Execution

On the other hand, strategy implementation involves having a sound strategy but having issues with the execution. Some of the mistakes that arise because of this failure include not referring to the plan and not revising it when needed. Not informing the team of the strategy or their role can also result in inconsistencies in the execution.

 

How to Avoid a Flop

Build/Plan Business Strategies

There are several ways to avoid business failure. First is to develop a business plan. More businesses fail because they failed to devise a strategy than improper execution. They may take new directions or risks without understanding what it takes. Planning may not provide all of the answers but it will help guide businesses to where they are going.

 

Develop a Marketing Plan

 It is also good to have a marketing plan. Spending time and money properly marketing the product will tell people that the company exists and what it offers to the market. Similar to a business plan, writing a marketing plan will force you to research about possible ways for marketing the business and how to properly execute the strategy.

 

Focus on customers

Another tip is to listen to what people have to say about the business and what it offers on the market. Customers are what drive sales up or down. Businesses that do not listen or research on what the market wants will eventually lose customers.

 

Failure is a common threat for businesses regardless of whatever industry they are. Do not be afraid to fail. Instead use it to learn to avoid making the same mistake and produce something better. Stay focused and passionate about what you are doing. Listen to your customers and make each transaction count.