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According to stats from the U.S. Bureau of Labor Statistics, only about one-quarter of business startups will still be operating after 15 years. But why do some businesses fail but others continue to grow and thrive?
Over the last 15+ years, our interim executives have been instrumental in leading business success at companies across countries and industries. Their experience shows that there are some common reasons why businesses fail:
Poor Management
It’s not what business owners want to hear, but poor management is one of the most common reasons for business failure. Cleve Adams, who built a SaaS cyber security software company from pre-revenue to a $1B IPO in three years, notes that the best business ideas won’t work unless you have a quality team laying the groundwork.
“I think the executive team is something that needs to happen right away,” he says, adding that skillsets from the CEO to marketing, sales, business development, engineering, and support, need to be lined up from the start.
Joe Piscopo realized the power of forming a strong team, having founded software firm Pansophic Systems when he was 24 years old, ultimately growing it to 1,600 employees with customers in 60 countries and $230M in revenue. In How They Did It: Billion Dollar Insights from the Heart of America, Piscopo says “Hiring poorly prepared people, weak people, or bad people – and each has a different kind of background – is probably the cause of 75 percent of company failures.”
What Successful Companies Do
They understand that people are the key to success. They take a hard look at the team, starting in the C-Suite, and find ways to fill the gaps. That can mean anything from launching an executive search for a new CEO to additional training for existing executives to bringing in outside expertise in the form of an interim or fractional executive who can lead the company while also acting as mentors for the full-time executives.
Financial Problems
Being starved for cash is a critical reason why businesses fail. This is particularly a problem for first-year entrepreneurs who lack startup capital and simply don’t have enough money to fund the new business.
But even long-established and historically successful businesses can run into financial problems related to their growth — cash flow problems, inadequate cash reserves, accruing substantial debt, and inaccurate financial forecasting are all financial hurdles that limit a company’s chances of success long-term.
What Successful Companies Do
Successful business owners, managers, and board members understand the critical importance of strong financial management. As companies grow, they need increasingly more sophisticated financial expertise. Sometimes it makes sense to hire that expertise in-house.
But, our gig economy means that isn’t necessary. It’s easy to hire exactly the financial expertise you need at the moment you need it in the form of an interim CFO who can oversee a project or guide the company through a rough patch. Or, if you expect your financial needs to be ongoing but your company isn’t yet big enough to require a high-powered CFO full-time, you can choose to contract with a part-time or fractional CFO who will work a few hours or a few days a week for several years.
Lack of Planning
Without a strong business plan that outlines the company’s goals, identifies target markets, sets a marketing strategy, and projects financial prospects, it’s difficult to make sound decisions or track progress.
What Successful Companies Do
The best businesses develop a strategic plan and use it as their roadmap so decisions align with their overall goals. A plan helps define the target market, value proposition, and how the business will achieve success.
Developing a strong business plan requires unique insights into the business, its customer base, market needs, and financial prospects. While this is best developed by the people who know the business the best, it can benefit from an outside perspective. An interim CEO or COO can bring years of expertise and fresh insight.
Market Mistakes
Market changes happen at record speed in our AI-powered world. Among the marketing-related reasons why businesses fail:
- Creating the wrong new product.
- Failing to identify the right target audience or understand customer needs.
- Not developing a strong brand message.
- Choosing the wrong marketing campaign, and using the wrong marketing and social media channels to reach potential customers.
What Successful Companies Do
Marketing is the engine that drives sales growth and new customer acquisition. Companies that succeed long-term understand the importance of market research and the value of a strong marketing message.
A Chief Marketing Officer leads the team with creativity, expertise, and skill. An experienced interim CMO can be onsite in just a few days, ready to take the company in new directions.
Without excellence in go-to-market, everything else will likely crumble, Cleve Adams says. He prefers a business model focused on speed, asking “How do we want to take this to market?”
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InterimExecs RED Team is an elite group of CEOs, CFOs, COOs, and CIOs who help guide private equity portfolio companies through turnaround, growth, or absence of leadership. The need may be role (CEO, CFO, etc.) or project driven (merger, acquisitions, integration, ERP/CRM implementation, process improvement). Call +1 (847) 849-2800 or request a confidential conversation about how we can help you here.