Businesses need effective process, the focus of leadership and structure that can stretch to enable the company to grow safely as a massive 55% of businesses fail in their first five years of existence. The observers offer useless ‘insight’ as to why this occurs. I continuosly observe three key reasons why this tragedy happens so often and to so many individuals with different backgrounds, qualifications and skill.
The first reason is insufficient market understanding.
No foresight. For example People have the concept, build the product and then sit back and wait for the market to come and buy. In this connected age there is no excuse for lack of research before spending any time and cash on designing a product until you have robust confirmed there is a market.
The number two reason is lack of understanding of the basics of business.
A significant proportion of people starting a company know their trade, how to deliver a service or build a product, but know very little about running a company. Being able to read and follow the balances in the P&L or the balance sheet is a vital. The basic knowledge of accounting is rarely imparted well by the business publications, internet resources and those in the know such as CPAs and bookkeepers. This domain is further exacerbated by software companies and their alliances thrusting small business accounting software at fledgling businesses.
Sage software and other vendors as usual are underserving small businesses.
Large enterprises years ago figured out that all of their systems should be wired together to give them a complete view of the business and then along came ERP software solutions and packages. One vendor NetSuite had the foresight to see the gap in the market and began selling its small business ERP software. NetSuite pricing has since increased and put their technology out of the financial reach of small businesses.
The last reason companies don’t make it is a because of the absence of good management processes and policies to enable a cohesive fabric of disciplines and behaviours.