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“Success has many fathers, but failure is an orphan” is a quote commonly attributed to John Kennedy as he accepted responsibility for the Bay of Pigs fiasco. The idea, however, is an old one. Roman historian and politician Tacitus said that, “This is an unfair thing about war: victory is claimed by all, failure to one alone.”
When things are going well, it’s easy to share credit as a team. When things go sideways, buck-passing and finger-pointing rule the day. Success has many fathers, but for companies, so does failure. The thing about business is that it is always about the people, the process, and systems already in place. And those can fail over time, even at the most successful organizations. Errors, however, can actually help a business move forward – if the problem is identified and fixed. It’s how the owner and management team respond to those mistakes, misses, omissions — or even complacency — that can make all the difference.
InterimExecs surveyed interim leaders from around the world for our 2020 Interim Executives Survey. In addition to asking executives about who’s hiring them and the roles they’re taking on, we asked executives for insights into “The Biggest Mistakes Companies Make.” While their responses varied, clear themes emerged in the areas of leadership, operations, human capital, strategy, financials, and change initiatives. Focusing on these fundamentals is a good starting point for any struggling business.
Don’t Become a Statistic: Why 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 ten years. Only about 1 in 4 new businesses 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 reasons for startup failure include:
- Lack of Product-Market fit
- Marketing 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 businesses fail are also consistent. The SBA notes that, “A negative economy has little effect on a given business’s survival.” One turnaround executive pointed out that it’s not external, but rather about management of the company.
Research shows that businesses of different sizes and from different industries usually fail for the same types of reasons, including general business factors, financial factors, marketing factors, and human resource factors. Some of the leading reasons for business failure are:
- 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.
Turnaround Experts Share the Biggest Company Missteps
For our 2020 Interim Executives Survey, we spoke to more than 600 executives from 29 countries. One of the top reasons they cited for being called into an organization was to fix what’s wrong. Seventy-nine percent said they were hired to fix a failing organization, or to reorganize a company or division.
Who better to ask about the biggest mistakes companies make than the executives who are brought in to fix these mistakes? Every company is unique, but as the interims we spoke to explained, the general causes of a company’s success or failure are quite common.
Ineffective Leadership
Leadership was by far the most-cited reason for why things go wrong. It’s not necessarily the case that company leaders are themselves the cause of the error. They may have done an excellent job getting the company to where it is now. It’s when things get off course, and change is needed, that the current leadership struggles.
John Collard told InterimExecs that companies often fall into crisis situations due to mismanagement. “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,” said John. “They don’t know how to deal with a troubled or a turnaround situation.”
Different leaders are needed at various points in the lifecycle of a company. When a company is trying to move to the next level of growth, for example, it demands a different skillset than what’s needed at the startup or sales phase. “In certain stages of a company’s size one set of skills and experiences may be perfectly adequate,” said growth expert Charlie Shalvoy, giving the example of scaling to $50 million. “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 skillset and grow with the company through different stages. Some cannot.”
International expansion requires someone to look at messaging and value proposition based on the culture and customs of the new market(s). Taking on M&A activities requires leadership that has a repeatable, proven process for successful integrations. The executive who jumps in when a company is struggling may have a completely different skillset than the executive who ran the day-to-day. Too many companies don’t take a hard look at where they are and whether they have the right internal resources to execute their goals.
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 customer. 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 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.”
Failure to Leverage Talent
Do you have the right people in the right seats? Is your company not only able to attract talent, but to retain it? While technology gets most of the attention today, people remain a company’s greatest asset. Many of the executives we surveyed identified mistakes around talent that companies make, including:
- 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. It’s falling over dollars to pick up pennies,” said Mike.
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 and personal finance education.
An interim is tasked with creating an organization that can sustain itself and move forward even once they leave. Part of that is mentoring and empowering people internally. It may be putting systems and processes in place to get things done more effectively, more clearly delineating employee differentiation, or communicating the “why” behind key goals in the organization. Everyone should understand why someone is doing what they’re and how they’re a key contributor.
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 only 5 – 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 of 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 which can be shared and used to empower the rest of the organization
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.
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.
Early on in business, many owners focus on “table stakes” kind of bookkeeping, keeping transactions in a system like QuickBooks and trying to make sure their reports go out to the bankers or financiers on time. Companies might reach a point of stability in their transactional reporting and basic financial statements, but if they don’t have key insights into the metrics that are key to managing their business, things can break down.
As a business gets more complex, so does its finances. Companies need to blend finance, operations, and IT together to optimize performance. Technology can be used to slice and dice information, which enables better forecasting and cash flow. Data helps the sales team better-understand pricing. A good inventory system can ensure you have a strong demand plan. And so on.
Finances may not be your strong suit as a leader. The next best thing is to bring in a qualified financial expert. An experienced CFO can help see around corners, provide steady-handed guidance during a time of zero revenue or other crisis, and help with these common mistakes that companies make regarding capital/financials (per our interim survey):
- Insufficient and misaligned resources
- Inability to raise new capital
- Not understanding or caring about finances/accounting
- Failure to deliver real value
- Cash flow
- Lack of understanding finances/accounting
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.”
The executives in our survey responded that companies frequently make mistakes involving:
- Failure to recognize and exploit change
- Competing technology “leapfrogs” company’s technology
- Losing focus and not keeping up with the changing environment.
- Reluctance to change
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.
Robert Frost’s poem, The Road Not Taken, got it right: “Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.” The poem inspired American troops getting ready for D-Day. Let your new decisions – starting today – make the choice that will get your company onto a faster growth track.
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.
More Resources:
*Surviving Zero Revenue: Thoughts from a Turnaround CEO
*What are the Benefits of Interim Managers?