I asked Rick Nicholson of TheRestaurantNinjas.com to create a guest post for my site. The results? Another fantastic article.. Thanks Rick
We know from statistics that 80% of businesses fail in the first
five years of operations. After 10 years of running my own businesses and
working directly with other entrepreneurs, I have discovered a pattern to
failure.
Here are my seven reasons why businesses fail and what the
entrepreneur can do to avoid them.
1. Failing to plan equals planning to fail
Extraordinary events like fire, flood or any other insurable claim
can devastate a business which does carry ample insurance. Planning for
disaster is not a fun exercise but it's necessary to plan for it just in case
it happens. Insurance should include lost of profits, key employee wages and
possibly management salary. Anything that could hurt the business as it
rebuilds needs to be accounted for.
Some businesses are heavily reliant on staff. It is imperative to
plan for problems with staff, customers, landlords. Is there a backup plan if
an employee calls in sick? What happens if a customer has a bad experience and
complains online? Is there a legal lease agreement with the landlord that
was reviewed by a lawyer? Lawyers are expensive by an unscrupulous landlord can
take advantage of a poorly written lease contract to seize the leased premises
for a more profitable tenant.
2. Lack of adequate capital
Getting into business the first time, is an exciting and scary
time. Most new entrepreneurs leverage their homes, their savings, and their
future earnings to invest in their new adventure, not leaving enough cash to
help through the first two years of operations. As the business is building,
too often there is little to no cash on hand to support day-to-day operations.
If there isn't enough extra cash, the landlord could seize the space, the
suppliers could cease deliveries, the customers could stop buying due to lack
of inventory. All because there wasn't enough upfront capital.
3. Lack of mentor
Many new business owners get into business in an industry they are
familiar with. Michael Gerber calls this the "Fatal Assumption" in
his book, E-Myth Revisited. "Knowing the technical work of a business is
the same thing as owning a business that does technical work".
Unfortunately, in most cases, the new entrepreneur may be fantastic as a
technician but doesn't know what she is doing as a business owner, and fails.
Having a mentor to help guide the new entrepreneur through tough decisions is
critical for anyone wanting to get into business.
4. Lack of business systems
McDonald's is the greatest business in the world run by 16 year
olds. Systems make the business simple so kids can work there and still deliver
the same level of consistency expected by its clientele. Backyard barbecuers
make a better burger than McDonald's, but not nearly as consistent. Every
business needs systems to do the same for its clientele. Receiving a remarkable
burger followed by an average one on a second visit is worse than receiving an
average burger all the time. The real objective in systemization is to offer
something remarkable every time.
5. Personal issues cross the lines and affect business.
Some entrepreneurs take their business personally. It makes sense
as they pour blood, sweat and tears into their dream company. The lines between
a personal life and business life get blurred. Whatever happens away from work
is brought to the office. These actions have an effect on the employees, the
customers and ultimately the business. Some personal issues can include death
or sickness of loved one, personal struggles with spouse and or children. The
entrepreneur must learn to separate work from home. It's difficult to leave
work at work when things aren't going well there, just like it's not easy to
leave home at home when things go badly there. Mainly because many
entrepreneurs live their lives through their work. The people they interact
with most are employees. It's in the best interest of all involved to separate
"Church from State" when dealing with these issues. The business
depends on it.
6. Complacency
Too many entrepreneurs focus on the competition. Competition does
not kill another business. It puts it out of its misery. Engaged entrepreneurs
are motivated by increased competition. It helps attract more clients to the
area and it ultimately grows the overall demand for the product. It's not
competition that kills a business. It's complacency. Complacency attracts
competitors who want to do a better job than the incumbent. Complacency drives
customers to the competitor. Complacency creates employee turnover, pisses off
customers, attracts competition and drives down profitability.
7. Lack of focus
An entrepreneur has to have laser focus. She needs to have clear,
concise, SMART goals for the week, month, and year. SMART is an acronym for
Specific, Measurable, Achievable, Realistic and Timeliness. With focus, the
entrepreneur navigates the business through rough waters like a ship's captain,
keeping the destination in mind. Without focus, the entrepreneur stumbles,
riding the entrepreneurial wave like a surfer not knowing where they'll end up,
just hoping they have enough skill to ride the wave long enough not to end up
crashing into the rocks.
With a background in finance and marketing, Rick Nicholson owned
two highly successful restaurants before selling them to start a consulting
business. His current company The Restaurant Ninjas provides tools to the
foodservice industry to become more profitable. His book, "The Art of
Restaurant Theft" can be downloaded for free at www.therestaurantninjas.com
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