Wednesday, September 06, 2006
Why Many Businesses Fail by Walt Barrett
We have been talking about starting a Green Energy Business and a news item on our local TV station about a local business failure this morning made me realize that it’s time to talk about the causes of the many business failures I have seen in the past fifty-five years. I will admit right from the beginning that I have also seen my own share of success and failure over these long years so I have spent my share of time living in glass houses too. It’s a hard way to learn!
I have often said that “overhead is the monster that eats businesses” and the first thing that caught my attention this morning was that the failed small business was located in an upscale mall and if that unfortunate business owner thought that he could eek out a living after paying the exorbitant rental and commission fees with the sales of the knick knack type products he was selling, he was sadly mistaken!
I have seen people with plenty of money for their startup blow it all on common mistakes like paying too much rent for an expensive store front or office, or putting too much faith in a really bad idea, and not seeking counseling from others with more experience. Of course, you still have to be very careful about advice because some people will patronize you and that can be a really bad thing. On the opposite side of that story is that about fifteen years ago I had a business partner in a video production company and he was a very astute businessman. Well one day I said to him that we should get involved with the Internet, and he laughed at me, and said, “Are you kidding? The internet will never amount to anything!” So I started China Depot on my own and he could have owned half of it. Needless to say, he is kicking his own butt now. I’m kicking my butt because the idea that I had at that time was to start a nationwide auction on the Internet that everyone could participate in. I didn’t do it because at that time I couldn’t write the software and the guys who could wanted off the wall money that I did not have at that time.
That brings up another problem. In my lifetime I have had two business partnerships and both of them ended in disaster – never again! When the going gets tough, the partners get going, and you get left holding the proverbial bag!
Another big mistake is that people invest way too much in inventory, and that is a bad mistake. People will tell you that “you can’t sell from an empty wagon” but that’s not necessarily true. In the age of the Internet there are people like us who bear the cost of warehousing inventory that you can work out of. It may cost a few dollars extra but we are bearing all the customs and storage charges etc. We still leave our dealers plenty of room for profit.
Speaking of Wagons, How about the guys that take a major portion of their seed money and buy the mega sports car or the monster SUV. Talk about counting their chickens before they are hatched. Those chickens usually end up in the slaughter house! Never borrow against your future for a frivolous item.
A proper accounting system is a major must have item. We use Quik Books and also have a CPA come in four times a year ,at least, to make sure we are keeping things straight. They also do all of our taxes. That leaves us free to concentrate on selling. I have seen too many people try to run a cash business out of their pants pocket and most of them went under. Don’t screw with your taxes! Another news item this morning was about a young man who cheated the IRS and he lost everything and got three years in the Federal Pen! This is not a good thing!
Don’t leave your business to someone else to mind for you. Absentee management stinks in my opinion. I have seen several acquaintances lose the whole business to their managers. One of them was a multi-million dollar rug cleaning business back in the days when it was profitable.
The next major big business killer is Wine, Woman, and Song. It may actually be number one. The long story short is that it’s hard to pay attention to your business if you are out playing “Pitty Patty” with the local socializers. I have seen a few really go down badly on this one, so enough said about that.
In summarizing I would like to say that if you are new to business or uncertain as to how to proceed, seek some proper counseling from several other more experienced people other than just your friends or relatives. As an example, my Mother always thought that everything I did was just wonderful and that I was always right – She was mistaken!
Even if you have been in business for quite some time but now find yourself in trouble it may be for one of the above reasons, or it could be bad customer service, and your help is killing you, or maybe you are trying to go head to head with a major chain. If you are, it's time to rethink your strategy. Find a new niche market.
The Internet has all of the combined knowledge of the world. Take advantage of it, but watch out for the phonies! Common sense and experience are the only things that count in business.
Please tell your friend’s about our blog whether you love it or hate it. We have very thick skin here!
All the best in your new business!