Why Do Businesses Fail?

Why Do Businesses Fail?

Imagine you’ve launched a brand new business website and gain a hundred visitors in your first week – that’s a major deal isn’t it? No wonder you’re delighted. 

Now, let’s wind on 12 months. You’re still running your website and now, 10,000 people are visiting it every week. Those 100 visitors you had initial barely register in your analytics. Yet, it’s still a hundred visitors, so what’s changed? The answer lies in relative gain. 

Let’s apply the same theory to generating leads. Getting ten fresh leads every week sounds like a lot if you’re only used to getting two or three, but if you’re used to generating 10,000 leads every month, those ten leads pale into insignificance. It’s for this reason that every company will eventually flatline before stalling completely. 

So, what went wrong, you may be asking? Well, nothing really, except that your business has become a victim of its own success. Relative gain has caught up with it. And if your business is growing quickly, relative gain will catch up with it even quicker and topping your previous wins will become exponentially more difficult. 

With this in mind, you need to know how to deal with it, otherwise your business will become just another failed statistic over time. Luckily, there is a solution – pinpointing where the relative gains have gone into decline and then taking the right steps to optimise it. This is where understanding the 6 scale constraints becomes so important.


1. Misaligned Or Uninspiring Vision

If you select the wrong business strategy or don’t properly execute the right one, you’re on a path to failure. When you set up a company, it’s common for your vision to be something as simple as “keep surviving and don’t lose all your money”. But while that’s ok at first, it’s going to hold your business back in the long run. Once it’s transition from its traction phase into its expansion and momentum phase you’re going to need to work towards a new and more scalable vision. How do you come up with that vision? You need to ask yourself some tough questions about your business – who are you really? What do you really do? Who are you serving? Where are you heading? How do you need to behave? The answers to those questions will enable you to develop the new vision you need to move forward.


2. Strategy Switching

When your business needs to scale your existing strategies for driving up traffic and generating leads can stop working for you. That means you’ll need to update and switch your strategies. Looking at your volume of sales, leads and traffic in any given month is important, but you also have to consider the growth rate that your current strategy is giving you. This will enable you to see which strategies are working so you can stick with them, and which aren’t. Replace those that have begun to fail you with new strategies that are more scalable by asking yourself about the goals you need to achieve in order to fulfil your mission, the vital projects that need to be completed, and the assets, skills and resources that you need to acquire to scale up.


3. Assessing Your People

Unfortunately, the reason your business may not be thriving any more is because the wrong people are on your team. You need to be prepared to make some tough choices here. While it isn’t a pleasant experience to let someone go from your team, you need to address staffing issues that are holding you back. Ask yourself honestly whether you have the necessary help or whether some key players are missing from your workforce, who is taking responsibility for each task and are they living up to those responsibilities, who can tell others what they need to do and whether they’re doing it correctly, how you’re dealing with conflict and, most importantly, how you train, hire and fire people from your team.


4. Dealing With Communication

When you have a small team it’s easy to communicate but once you expand your workforce it becomes a lot harder. Keeping everyone in the loop is a challenge and miscommunication becomes a common problem. Take a look at the meetings you’re holding and assess whether you’re having enough or too many. Assess your key initiatives and goals and determine whether everybody knows what’s happening at any given time. Make sure that everybody on your team is aware of what’s most important to your business right now and that they’re all aligned with those priorities. Check that your whole team is aware of how your company is doing and that they’re aware of the goals and whether progress is being made towards them. Look at the communication tools that you’re using and make sure that they’re efficient and that they’re working well for your needs.


5. Creation of Processes and Systems

If you want to scale your business you need to create effective processes and systems. You can determine whether yours are scalable by asking how your efficiency and output can be improved and what your company’s best practices and critical processes are. Most importantly, look at whether your critical utilities and software are capable of scaling with you to the next level.


6. Cash Flow And Money

If your business runs out of money it’ll stop. It’s that simple. So think ahead and ask yourself some key questions that will help you to work out whether your company’s cash flow management can scale with you. Ask what would happen if your sales dropped by half – how long would you be able to keep the business running. Check whether you’ve got a minimum of 90 days-worth of operating expenses saved together with a further 90 days of credit lines available. Ask how you decide the amount to invest in payroll, customer acquisition, rent and other vital expenses and how you distribute your profits as well as how much you should be holding back.

If you want to create a company that is scalable, all of these six constraints must be addressed effectively.


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Do you feel unseen and unsure about how to navigate the
digital business landscape? If so, EmpowerHER is here for you.


Do you feel unseen and unsure about how to navigate the
digital business landscape? If so, EmpowerHER is here for you.