Fatal Flaws - Strategic Solutions

While small business continues to be the fastest growing segment of American businesses, experts say the failure rate of small business ranges from 10 to 18 percent.

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January 7, 2002

While small business continues to be the fastest growing segment of American businesses, experts say the failure rate of small business ranges from 10 to 18 percent. A significant percentage of entrepreneurial ventures will die a premature death because they have failed to implement necessary life-saving strategies to succeed.

Research conducted of nearly 100 small businesses nationwide over the past five years by The Price Group reveals the following operating failures:

  • 75 percent of the businesses failed to use readily available financial information to determine shortfalls or to make necessary planning adjustments.
  • 30 percent of the companies failed to produce monthly financial reports - up to 50 percent from research five years ago.
  • While 97 percent of the business had accounting and management software programs, 54 percent of these businesses failed to use technology for little other than printing out financials and letter writing.
  • Only 52 percent of the companies had any kind of formal organizational structure, and of that percentage, 80 percent failed to effectively implement the structure. The remaining 48 percent had no formal structure at all.
  • While 71 percent of the companies had done an effective job of identifying their core customer market, only 13 percent had any formally planned marketing strategies. Eighty-seven percent operated with no marketing plan whatsoever.
  • Internal communication problems existed within 79 percent of the companies - many were very seriously impacting productivity.
  • Ownership failed to let go of the reins in 88 percent of the businesses, further impeding unproductive performance by the company's primary leaders.
  • Although business leaders recognized the need to adapt to changes in the marketplace, 59 percent failed to do anything about it.
  • In a startling statistic, more than half (55 percent) of the business leaders recognized stagnation within their companies, yet of this percentage, 66 percent chose to do nothing about it.
  • Herein lies the fatal flaws that entrepreneurs fall prey to when starting or growing their businesses. The resolves demand strategic solutions - sometimes very simple, sometimes more difficult, yet all require a strong commitment. Here are five fatal flaws and strategic solutions:

    Fatal Flaw #1: Failure to Work From a Plan

    Whether your business is a germ of an idea or well into its growth cycle, it is suicidal to not have a plan. We're not talking about formal business plans the likes of which are required when securing funding from a bank or venture capital organization. What is necessary, however, is some written plan identifying the current stage of your business, where you expect it to go growth-wise within the coming year and how you intend to get there. It needs to be realistic and specific so that you can benchmark your performance along the way and make necessary alternative plans. All business planning should also have a contingency plan. What will you do if the economy declines? Your best customer goes bankrupt? Your product or service is no longer in as great a demand? Ask the tough questions as they relate to your specific business and be prepared with realistic answers of how to shift your strategies if necessary.

    QUIZ: How Fatal Are Your Flaws?

      In this self-administered quiz, respond to the following statements as honestly as possible using the following scoring: 4) Strongly agree; 3) I moderately agree; 2) I moderately disagree; 1) I strongly disagree

      __1. I have a written plan for my business
      __2. I review my business plan quarterly and update it yearly
      __3. I generate monthly financial statements
      __4. I respond monthly to any variables in budgeted versus actual and use this financial information as a planning too
      __5. I have a clear understanding of marketing and all the marketing tools available
      __6. I have a written marketing plan
      __7. I test my marketing strategies against my company's mission statement
      __8. My company's mission statement is reflective of the ownership's core values and it is a living document that is used frequently
      __9. I am comfortable delegating authority
      __10. I believe in hiring, attitude is as important as skill
      __11. When I don't have the right talents on staff, I hire outside expertise
      __12. All employees have specific, clearly written job descriptions
      __13. I have established customer service standard procedures for handling customer complaints and encourage customers to report problems
      __14. Everyone in the company is aware of and follows our customer service standards
      __15. I have a phone policy to which all employees adhere
      __16. Letterhead and other company collateral is professionally designed
      __17. Productive staff meetings are meaningful and keep everyone informed on a timely basis
      __18. I subscribe to trade publications that pertain to my primary customer base
      __19. I attend industry trade shows and have memberships in related organizations
      __20. I will not hesitate to fire an individual who fails to perform in his/her role as an integral part of the team
      __21. I realize that as the company grows, loyal employees may no longer be the best qualified to fill certain roles
      __22. I realize that sometimes the products/services that took us into business must be dropped or replace to stay in business
      __23. An accountant and lawyer are integral performance partners in my business
      __24. I am willing to ask for help
      __25. I maximize the use of technology to the best of the company's financial ability

      _______ Total

    • 85 - 100: It appears that your business is flying high with good people and process
    • 50 - 84: You show evidence of flaws that could prove damaging if maintenance work is not done
    • Below 50: Oh, oh! Your emergency light is flashing-there's work to be done

    Fatal Flaw #2: Failure to Understand and to Effectively Use the Concept of Marketing

    Planning includes specifics form a marketing perspective. Unfortunately most small businesses throw money at unproductive marketing tactics rather than seek expertise on developing a marketing strategy that is aligned with their company's core values. On the reverse side of this issue is the fact that all too often small businesses fail to allocate adequate funding to provide the marketing efforts necessary to fuel profits. Both issues must be carefully addressed in order to maximize marketing efforts. What percentage of revenues need to be allocated for marketing that will vary from industry to industry, but suffice it to say, it must be understood that money must be spent to make money.

    Fatal Flaw #3: Failure to Effectively Deal with the People Factor

    This flaw requires a leadership strategy in which the ownership of the company must understand that it is not the leader's role to take a hands-on approach in running the company, but must trust those whom they have hired to perform in their respective roles. Far too often entrepreneurs are reluctant to let go of the reins - often at the cost of losing valuable employees who are talented and could play an integral role in the company's growth. Gone are the days when the best workers are willing to be treated without respect and to feel values. Entrepreneurs who cannot trust to turn responsibility and accountability over to their employees need to begin to be trusting enough to let go of the reins or replace those they cannot trust with those whom they can. Money alone is no longer a measurement of fulfillment. Caring counts. And it must be authentic. As Len Roberts, Chairman and CEO of Radio Shack said, "You can't fake caring. If you really understand why leaders fail, it's because they are unable to care." This should be good news to leaders who have as much care and concern for their employees as they do their bottom line.

    Fatal Flaw #4: Failure to Communicate

    Entrepreneurial leaders must be powerful communicators who connect with their people in order to convey what is most important. They don't have to be charismatic, but they do have to be compelling in their ability to help others capture their passion for the company's vision and purpose and to embrace the cultural values that drive the company's success. Listening becomes critical to their success. Listening taps the wisdom of future success because a good leader learns from everyone. When they don't, the whole venture suffers. Even the leaders of global giants know this as reflected by Trincon Global Restaurant's Chairman and CEO who said, "When people feel that a leader thinks they are smarter than everybody else, you cut about 75 percent of the intellectual horsepower out of the organization."

    Flaw #5: Failure to Adapt With the Times

    Change is as fluid as entrepreneurial ventures as it is in major publicly held corporations. Future planning is therefore critical to the enduring success of any small business. That requires both an attitude that embraces change and the allocation of resources to identify and make necessary shifts. Those unwilling to adapt with nimbleness will see their profits plateau - even fiercely erode.

    Entrepreneurship will continue to be a driving force of America's economy. The question is, will your company be willing to deal with its fatal flaws and remain among those that flourish and not merely survive?

    Bette Price is an author, speaker and president of The Price Group, a leadership development firm. She is the co-author of True Leaders: How Exceptional CEOs and Presidents Make A Difference by Building People and Profit (Dearborn Trade Press, 2001).