The Recipe for Disaster: Why Many Businesses Fail

The Recipe for Disaster: Why Many Businesses Fail

The movie “Hunger Games” gives a great analogy to today’s fierce market competition.  Who will be the one to survive?  Competition is rampant and the business (Hunger Games competitor) with the greatest amount of skills, resources and ingenuity will be the only one to survive.    According to the US Bureau of Labor Statistics report, 20% of startups fail during the first two years, 45% in the first five years, and only 25% make it to their 15th year.  At least the US market has better odds that the Hunger Games participants!


Recipe for Disaster

Despite the proliferation of feel-good books touting tips on how to succeed in business, renowned American entrepreneur and consultant Michael Michalowicz shares “startups and small companies should focus more on learning why most businesses fail. After all, it is better to learn from the mistakes of others than to learn from firsthand experience, especially if it involves losing money.”


Get Rich Quick Schemes

Gone are the days when people were patient enough to brew their coffee, save up to buy their first home with cash, and wait for the dial-up Internet to load their favorite website. Because everyone now expects instant gratification, the current generation is aptly called Nescafe Generation in reference to instant coffee. 

In business, instant gratification is the quickest route to failure. According to a joint study conducted by the Kauffman Foundation Inc., about two-thirds of the fastest startups end up going bankrupt.

 While business growth should be the goal of most small and medium enterprises or SMEs, Michalowicz says it should not be confused with get-rich-quick schemes and “mindless” expansion. 

The only time you can safely expand your business, he adds, is when you have already spent a great deal of time understanding your new customers, new market, and/or new products. 

To further minimize your risk, Michalowicz recommends Pumpkin Plan Consulting in which his team will look into your current sales, profitability, debt structure, cash flow, employee productivity, and product and service and its branding. 


Work Hard, Not Smart

In the 1930s, industrial engineer Allen Morgenstern coined the phrase “work smarter, not harder” to highlight the importance of using the right tools to achieve the best possible results with the least amount of resources and time. Unfortunately, many entrepreneurs do not heed this “universal truth” and think that time and effort are directly proportional to success. 

If your business is going south, Michalowicz suggests that you look into the core functions of your business to identify the loopholes and gaps, as opposed to working longer hours. 

Take the following analogy: You can peel an apple with a spoon, although it will take you longer time and more effort. In addition, you will end up with a bruised, beat-up fruit and sore hands. 


Myopic View 

Having a myopic view, especially when it comes to your finances, can spell disaster to your long-term success, warns Michalowicz, who adds that revenue is not the key indicator of success but the net profit that represents the final measure of profitability for a company. 

The renowned entrepreneur says it is possible to have a large revenue but little or even negative net profit, which happens when you cannot manage your expenses. 

Again, Pumpkin Plan Consulting can help you identify the flaws in your balance sheet, increase your net profit by managing your expenses, and reroute your cash flow to the product or service that gives the highest returns.


Money-Focused Business Approach 

It may sound counterintuitive, but focusing too much on money can lead to financial disaster. While you need money to sustain your business, your need to earn is the least of your customers’ concern. 

The core value of your business should not be about money but how you solve your customers’ pain points (and how to add value to their life). To put this in perspective, Nike has become the world’s number one athletic shoe brand because its primary goal is to provide high-quality footwear for sports enthusiasts and athletes. Thanks to their “solid” purpose, they generated around $23.3 billion in sales last year alone. 


Final Words

Knowing the common denominators that explain why many businesses fail can give you a competitive edge amidst the growing competition in today’s highly saturated. It is critical that you learn about the greatest corporate comebacks, e.g., Apple, Lego, General Motors, and Continental Airlines, to help you understand the importance of innovation and creativity for your business’s long-term survival. 

To know more about Pumpkin Plan, contact Sum of All Numbers at 1-916-547-6772.  We are a team of bookkeeping experts and certified strategists who can help you grow your business and your profit amidst the new norm. 

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