It would be wonderful to believe that success is something that every owner strives to achieve. Success is a relative term, and most privately held businesses might consider survival in this economy a success.
Clues for business failure are always present, and most of time the person at the top is the one who has left clues for the detectives to piece together.
Workforce Management magazine highlighted a book entitled Why Smart Executives Fail. Written by Sydney Finkelstein of the Tuck School of Business at Dartmouth College, the book states that failures of leadership can cascade into the collapse of a company, the loss of a lot of money, perhaps millions of dollars and the end of employment for hard-working well intentioned employees.
One way that the owner fails the business is to tolerate a weak business model. All too often the concept of having a solid product or service delivered through strong distribution channels to a committed client base, developed at a reasonable cost and sold for a profit with reasonable cash flow isn’t considered as a complete system; only individual parts are considered. When challenged, the owner goes into defensive mode, denying that anything could possibly be wrong with the fundamentals of the business.
The May issue of Fortune Small Business includes the story of Debbie Dusenberry, owner of Curious Sofa, a home furnishings store in Kansas City, Kansas. A review of her financials shows that for the last eight years her business has lost money, despite growing to almost $1 million a year in revenue. Her costs, including rent, are too high. Despite being in charge, Debbie has, apparently, not taken the time to gain the level of understanding and knowledge she needs to run her business financially. She continues to work hard, long hours in a broken business model.
A second way for an owner to fail the business is to have a leadership team at odds. This refers not just to partners who own shares but also senior managers who are at odds about how to conduct business. Usually one side is invested in the status quo and the other side is interested in challenging the current way of doing things and wants a fresh approach. Put another way, one side sees things broken and the other says it isn’t.
A third way to fail the business might be considered to run counter to the second, and that is the elimination of all those in the company who do not fall in lock-step with the leader. It’s one thing to disagree and then work through those challenges; it is another to resist and to continue on the fight against what was decided.
Allowing the fighting to continue is the fourth way to fail the business, and the fifth way is the elimination of those who bring fresh perspective to how the business could operate. Every business needs “insultants” who are willing to look at who things are and ask ‘why?’ and well as asking ‘why not?’ without fear of being branded disloyal.
Another way to fail the business is to refuse to address festering problems. Usually these fall into the personnel or human resources area, with the failure to address employees who aren’t doing what they are paid to do, or people who have outlived their usefulness to the organization, or people in management positions who clearly aren’t capable or interested in managing. But failure could also demonstrate itself with a lack of a clear vision, a hazy mission statement and shifting values and standards.
The seventh way to fail the business is not having a plan. Successful businesses have plans and measure their progress towards their goals on a regular basis. It is the businesses way of keeping score in business. It is also a useful management tool to provide direction for those employed by the company, much better than saying “Blindly follow me, everyone!”
The last way, and perhaps the most devastating, is the clear display of a lack of passion or energy for the business. To demonstrate through word and deed that the business is no longer of interest to the owner, no longer has a place of priority and is more of a bother or nuisance than anything else sends a clear message to the employees that it is perfectly acceptable for them to have the same feelings about their employer that their employer has about them.
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