The 5 Factors that will Fail Proof Your Business
In this post we will provide an overview of the 5 primary factors that cause small business to fail according to the peer reviewed literature and dissertations on the topic. These have been stated in the series How to Fail Proof Your Business. These five components include:
As this series continues we will move toward breaking down issues within each of these five primary skills and exploring practical solutions to address these pockets of potential risk.
In review Crisis Management as a risk factor to small business failure refers to occurrences such as health issues within leadership or primary staff, legal issues such as patents etc, and domestic issues just to name a few. As with each of the areas of risk the goal for the business owner is to minimize risk by addressing these issues proactively.
The second area of risk to your business from a failure stand point is the ability to manage. Management skill is intertwined with many of these factors depending on how the definition is defined or operationalized. The primary subsets need within this skill to fail proof your business include the ability to manage marketing and finance endeavors or at least oversee them with the ability to truly understand what is happening in each area. Further, communication and team building are important factors to success for any small business owner that wishes to Fail Proof the Business.
This third component of risk was mentioned within the Management skill, however it is so highly correlated with success or failure in small businesses that it deserves a category all its own. Financial acumen and at the very least the ability to understand and read financial statements is crucial. The subsets within this area are keeping financial records and understanding them. The ability to forecast or understand and hire for forecasting is also highly correlated with increased risk and failure. Finally, creating and maintaining a budget is the last of these items of risk.
This fourth component of risk involves activity that leads to small business failure when inappropriately managed such as extending credit without formal process and screening to do so. The ability to generate leads successfully and consistently for your business. The ability to automate your processes or batch processes in an effort to increase efficiency also correlates highly with small business success. Finally, carrying or providing an established product or service is a positive factor in business longevity.
This factor deals with the level at which your product or service requires increased time and effort or labor on the part of your business. Further, overhead, equipment, and technological costs are significant in determining risk factors. Each of these factors increases risk as cost goes up. This is a bit of a obvious conclusion, however many small business owners fail because they neglect to fail proof their business by addressing this issue of cost reduction.
There you have it. The above are the 5 factors that peer reviewed literature and dissertations reference as highly correlated with small business failure or success. What this means to you is that if you as a business owner are able to fill these gaps and address the aforementioned issues through learning and intentional process you will put your business on a firm foundation that is correlated with success. This sounds good to me.
In the days ahead we will be providing two benefits to you as it relates to Fail Proofing your Business:
1- Explanation with Practical examples of how to implement the above subsets.
2- A proprietary tool that will allow you to assess your risk level based on the above factors.
Additionally, do not neglect our Tuesday and Thursday series on LinkedIn Profile Training as LinkedIn is a great resource, actually an exceptional resource, for lead generation and it all starts with your profile.