Interim executives, by definition, come into difficult situations, assess them quickly, and create a plan for success. That means they have a front-row seat to the most common business mistakes companies make.
When we surveyed our RED Team interim leaders from around the world for insights into “The Big Mistakes Entrepreneurs Make,” we got an earful. While their responses varied, clear themes emerged in the areas of leadership, operations, human capital, strategy, business finances, and change initiatives.
Focusing on these fundamental business needs is a good starting point for any struggling business.
Don’t Become a Statistic: Why Small Businesses Fail
Statistics on business failure are daunting. According to data from the U.S. Bureau of Labor Statistics, around 20% of new businesses fail in the first year, 45% fail in the first five years, and 65% fail in the first 10 years. Only about 1 in 4 entrepreneurs create companies that survive 15 years or longer.
Long life and success are not a guarantee. Among the most established companies, the accelerating pace of change is resulting in shorter company lifecycles at a faster pace. A century ago, the average lifespan of a company listed on the S&P 500 was 67 years, compared to 24 years in 2016 and a predicted 12 years by 2027.
For startup companies, the prognosis is even bleaker: nine out of ten startups fail. Venture-backed startups, with a 75% failure rate, don’t fare much better.
Common startup mistakes new business owners make include:
- Lack of product-market fit
- Marketing plan problems
- Team problems
- Finance problems
- Operations problems
- Technology problems
Data from the U.S. Small Business Administration (SBA) shows that business survival rates are remarkably similar over time and across industries. The reasons why small business owners fail are also consistent. The SBA notes, “A negative economy has little effect on a given business’s survival.”
One turnaround executive pointed out that the problems are not external. Rather, they are related to the management of the company.
Research shows that businesses of different sizes and from different industries tend to fail for the same types of reasons, including:
- Poor cash flow management
- Lack of a well-developed business plan
- Unrealistic expectations
- Not recognizing, or ignoring, what they don’t do well, and failing to seek outside help
- Lack of relevant and applicable business experience
- Hiring the wrong people
Not sure where things went wrong? Consider speaking to a turnaround professional.
The Biggest Business Mistakes
Our interim executives understand what makes a successful business and they know where companies go off the rails. Here are the most common business mistakes they see and suggestions for how to fix them.
1. Ineffective Leadership
Small business owners are not necessarily the problem. Their hard work turning a business idea into a functioning company may have been spot on. But then, three years go by and the company is struggling. Or it’s growing exponentially. Either way, entrepreneurs realize they can no longer do it all.
“They may have been doing a good job when they started in a particular position, but they quickly get in over their head when something goes wrong,” Interim Executive John Collard told InterimExecs. “They don’t know how to deal with a troubled or a turnaround situation.”
Similarly, when a company is trying to move to the next level of growth, it demands a different skill set.
“In certain stages of a company’s size, one set of skills and experiences may be perfectly adequate,” such as scaling to $50 million, says growth expert Charlie Shalvoy. “But then to go from $50 to $200 million requires a much different set of skills, and from $200 million to $1 billion another again. Some people are able to add to their skill set and grow with the company through different stages. Some cannot.”
Other business decisions that might require new skills include developing an international marketing strategy, M&A activities, and developing new products to serve new potential customers.
How to fix this: Bring in outside leaders highly skilled in the areas your company needs. If you need to solve the problem quickly, contact us to discuss how an experienced interim executive can be onsite in as little as 48 hours. Or consider a business coach to help existing management best the best they can be.
2. Breakdown in Operational Execution
Assuming that a business has an operational roadmap, the next step is execution. There must be a clear chain from the beginning of a product or service to delivery to the target audience. Operational breakdowns at any step can lead to the demise of the company.
COO Steve Raack uses what he calls an “order, ship, and pay” framework because, as he told us, “If you can’t place the order, you can’t ship, and if you can’t ship, then you can’t pay people, and your business starts to have problems.” These processes can have what Steve calls “leaky buckets,” or controls related to cash flow. They include issues with handoffs between departments, insufficient talent, poor communication, and challenges with technology.
Reports of bad customer service can be a major red flag that things aren’t running smoothly behind the scenes. An executive said in our survey that one of the biggest mistakes companies make is “failure to provide incredible service to customers – focusing on only productivity processes at the expense of incredible customer service experiences.”
How to fix this: Bring in an experienced COO who can assess your situation, develop an operation roadmap and execute on it.
3. Failure to Leverage Talent
One of the biggest challenges to entrepreneurship — or any business leader really — is ensuring the right people are in the right seats. Is your company attract and retain talent?
While technology gets most of the attention today, people remain a company’s greatest asset. The executives we surveyed identified these issues facing struggling companies:
- Lack of talent
- Not leveraging the talent available to its full potential
- Failure to attract and retain talent that manages or participates in better communication, creativity, and collaboration
Interim COO Mike Bartikoski said during a recent webinar that companies are too focused on labor as an expense, rather than as an asset. “If you spend too much time trying to minimize the labor input, I think oftentimes, you end up minimizing your opportunity for success,” said Mike.
How to fix this: According to Mike, a big piece of the talent equation is building a company culture that employees want to be a part of. He cautioned that many companies take a superficial approach to culture instead of actually engaging with workers through measures such as skill-building programs.
Interim executives are tasked with creating an organization that can sustain itself and continue to move forward after they leave. That requires mentoring and empowering people internally, putting systems and processes in place to get things done more effectively, and more clearly communicating the “why” behind key goals in the organization. Everyone should understand why someone is doing what they’re doing and how they’re a key contributor.
4. Lack of Clear Mission and Strategy
It’s not unusual for leaders to spend most of their time focused on the day-to-day demands of the business. They may end up dedicating less than 10 percent of their time to strategy and big-picture thinking about where the company is headed. With constant change the new business norm, this amounts to a slow-moving disaster.
Lack of a clear mission and strategy was repeatedly noted as a major company blind spot among the executives we surveyed:
- Lack of synergy on mission and agreement on how to get there
- Too slow to act
- Not focusing on continuous improvement of the operations
- Inadequate planning/foresight
- Lack of process
- Lack of a clear, focused, and unanimous mission from the senior leadership that can be shared and used to empower the rest of the organization
How to fix this: Success in the future requires taking action in the present. Companies should be regularly evaluating themselves to gain greater clarity about what’s working, what isn’t, and how to improve moving forward. Periodically, they should also consider a business assessment from an outside expert.
5. Insufficient Capital and Insight into Financials
Working capital is the lifeblood of a business. Whether your company is growing, pivoting, or undertaking a turnaround, if it can’t pay its bills, vendors, and workers, it won’t survive.
First-time business owners tend to focus on bookkeeping, recording transactions in a system like QuickBooks with the aim of not overspending while producing basic reports to send to their bankers.
As a business gets more complex, so does its finances. Companies need to blend finance, operations, and IT together for better forecasting and cash flow. Data helps the sales team better understand pricing. A good inventory system ensures have a strong demand plan. And so on.
How to fix this: If finances are not your strong suit as a leader, you need to bring in a qualified financial expert. The advent of part-time or fractional CFOs means you can afford the services of a rock star Chief Financial Officer who works a few hours each week or month getting and keeping your finances in order and gleaning from them the insights your business model needs.
6. Reluctance to Change
One of the biggest mistakes companies make is an inability to navigate change.
“In all cases, companies lose focus, they fail to manage that focus, they fail to manage change, and they fail to manage what is going on within the organization,” said John Collard. “They also fail to recognize that sometimes they’ve missed the market, and they haven’t changed to go along with it.”
Companies that aren’t continually evaluating what they could do better and adopting the best technologies and practices will not survive.
Constant reinvention can seem overwhelming—even chaotic. But waiting until the house is on fire is no less chaotic. To stay ahead of the curve, companies must embrace the chaos.
“Anything we do, any form of work anywhere in the world is surrounded by change,” said CIO David Mitchelhill in a webinar on how businesses should use technology in their bigger business strategy. “Nothing is immutable. Technology is in change, business is in change, the world is in change, and therefore you have to accept that chaos. And if you don’t accept that chaos and the ability to assimilate chaos, and deal with it, then you’re going to fail.”
How to fix this: Companies that aren’t managing in a direction toward change are managing toward stagnation. Change starts at the top. Fresh leadership can see a company with new eyes and implement the technologies, processes, and work environment that will secure the company’s future.
Does your organization have any nagging issues or challenges? InterimExecs RED Team is an elite group of CEOs, CFOs, COOs, and CIOs who help organizations through turnaround, growth (merger, acquisitions, ERP/CRM implementation, process improvement), or absence of leadership. Request a confidential call with our team to explore solutions. Or learn more about InterimExecs RED Team at www.interimexecs.com/red-team or call +1 (847) 849-2800.