Why Good Businesses Fail and How You Can Avoid It

Over the last 15 years, I have had diverse roles such as consultant, product manager, account director, and executive; and through the lens of these roles, I have seen many businesses succeed and fail. The reasons for success vary and depend on a number of factors such as technology, timing, team, and just plain luck. Fortunately (or unfortunately), the reasons for business failure typically come down to a few common areas: market, product/service, sales, and technology.

Market

The first and most important element to business success is the market. Specifically, how large is the market and is it growing? If you happen to find a large market, add 1-point for the good guys. If you have a market that is growing, even better. If you are in a market that is growing, with minimal competition, you have potentially hit the jackpot. I say potentially because any lucrative and growing market will attract competitors like flies to dung. I don’t say this to discourage you. I say this to make sure that you are aware of both the market size and your competitors. Any time you speak with bankers, investors, or potential customers, you should know these items in detail:

  • What is the market?
  • How large is the market?
  • Is it growing or shrinking? If so, by how much per year?
  • Who are your competitors?
  • What are their strengths and weaknesses?
  • What are the alternatives to your product or service?
  • How would you rank your product/service against your competitors and alternatives?
  • What advantages do you have over your competitors?

If you have straightforward, simple, and quantitative answers to these questions, you should be in good shape.

 

Product/Service

Every business can be simplified down to providing a product or service in exchange for a fee. For example:

  • Grocery Stores: groceries
  • Construction Firms: labor and expertise for new buildings or renovations
  • Consulting Firms: expertise and advice on a range of topics and industries
  • Software Development Firms: software engineering and labor
  • Creative Agencies: design and creative expertise

Each of these examples comes down to finding the right niche for your product or service, but most importantly, it requires the business managers to find the right product or service at a sufficient profit margin to sustain and grow the business. If you cannot sell your product with the right margins, your business will stagnate and eventually fail. If you cannot sell your product at all, maybe you should consider that no one wants what you are sell and there is no market. There are times when you are creating a new market and over time sales will come, however, the most likely outcome is a zombie business: there is still movement but no meaningful activity.

 

Sales

As I always tell my clients, sales are the lifeblood of a company. If you aren’t properly nurturing your leads, prospects, and sales, you will soon find yourself in a dying organization. Every day, you should be gathering new leads on the Internet, over the phone, by email, and/or in-person. These leads should be tracked in what is called a Customer Relationship Management (CRM) system. What you sell will determine how you qualify each lead to make a decision on whether to move forward to try and make the sale. Once you have made the decision to move forward, you will estimate the labor, price the product, or write a proposal (your industry will determine what is appropriate) and close the deal. This is a simplified overview of what needs to happen but gives you a good idea of what you should be doing to manage your sales effectively. I teach teams to review their sales pipeline each week to make sure that each lead and deal is moving along and nothing is stagnant. If you do find that a deal is not moving along, you will need to do some digging around with the salesperson, estimator, account manager, etc. to uncover the issue.

 

Technology

I group all of the systems, and tools that are needed to improve a business’ survival under the term “Technology.” First and most importantly is the company’s website. Not only should the site be visually appealing, it should be easy to navigate, find information, and clearly show the purpose of the business, products, and services. A key element that I see overlooked even in 2018, is a lack of focus on lead generation on many companies’ websites. As stated previously, lead generation is a key element in the sales process and needs appropriate attention at the most senior levels of the business. Another element to the website is to ensure that the site is secure using what is called SSL (the little green padlock in the browser address bar). Given that SSL can now be set up for free or very low cost, there is no longer a reason to have an insecure site.

Another element that is critical is the CRM as previously mentioned. The CRM is the central place for all of your customer, lead, and deal information. In other words, the CRM will contain all of the information about your customers leading up to you closing the deal. I have found and set up free and low-cost CRM options for my clients that have resulted in both in millions in new revenue and a detailed record of what led to the new revenue.

There are many other systems that are critical to a business but the website and CRM are the two that I find provide the largest ROI for every business that I have personally worked with in the past.


Daniel is a venture architect and advisor specializing in technology strategy, investment, and implementation. He has helped clients as diverse as the US government and automobile manufacturers manage their technical needs and endeavors. Formerly management consultant at Booz Allen Hamilton, he helped launch a $200+ million enterprise collaboration line of business. Daniel also doubled automotive vertical revenue to $25 million in less than 2 years. With B.S. and M.S. degrees in Computer Science and Technology Management respectively, he has become an expert in vendor management and business development utilizing technology and strategy skills.