Business Failure and Fear

According to the Small Business Administration, more than 90% of small businesses fail within 5 years. Of those that survive 5 years, another 90% will fail within another 5 years. After 10 years, less than 1 out of 100 small businesses remain open. 

Why do so many businesses fail? 

Among  the most common reasons cited are insufficient starting capital and poor planning. Both can certainly contribute to the failure of a business. However, neither is a necessary cause of business failure—a business can survive with insufficient capital and/ or poor planning. 

A business is a dynamic entity. New products, new technology, economic conditions, consumer trends, and much more makes change a certainty in the world of business. Successful companies adapt to this ever changing business environment. Indeed, leading the change is often the path to success. This change has 2 components—one mental and one physical. 

The mental aspect involves conceiving of or embracing new ideas. It involves changing one’s perspective of the marketplace, procedures, or some other aspect of the business. It involves obtaining new information and knowledge. The physical aspect involves implementation—acting on the new ideas, information, and knowledge. It involves putting that new perspective into action. 

The failure to do this is what causes most small businesses to close shop. The failure—or refusal—to embrace new ideas and then implement those ideas is the primary cause of business failure. (Ideas without action are useless.) 

What then, prevents businesses from embracing and implementing new ideas? Why, given the statistics, do business owners refuse to expand their knowledge, and then act on that knowledge? 

The answer is—ironically—an idea, or more precisely, a set of ideas. 

Change necessarily involves an element of the unknown. While research and planning can certainly mitigate the risks involved, we cannot predict with absolute certainty the consequences of changes. Uncertainty breeds fear, and fear leads to paralysis.  

Fear is a natural response to the unknown. We fear what we do not know. A noise in the middle of the night can instill fear if we do not know its source. Our fear will vanish when we identify the source as a tree limb bumping a window. In other words, we overcome fear by obtaining information. 

On the surface, it may seem absurd to say that small business owners are paralyzed by fear. After all, owning a business is risky. But remember, most small businesses fail. It is one thing to take the risk of owning a business; it is another thing to succeed at it. There is a vast difference between uncertainty and ignorance. While we may not know for certain the outcome of an action, we are not totally ignorant of the consequences either. For example, we may not be able to predict the precise results of a particular marketing campaign, but we can make reasonably valid projections based on past experience (either our own or that of others). 

Successful businessmen learn to overcome their fears by obtaining the necessary information. Knowledge is power. Knowledge reduces uncertainty, and with it, fear. But knowledge alone is insufficient. We must act on that knowledge.  

The failure to act is a sign of remaining uncertainty. The failure to act is a sign of lingering fear. The failure to act is a consequence of not trusting one’s own judgment.  

Confidence is a crucial part of overcoming fear. A confident businessman evaluates the available information, makes a decision, and then acts. He takes calculated risks. He understands that failure is a possibility, but he takes measures to reduce the risk of failure. He trusts his own judgment, and acts accordingly.  

This does not mean that he never makes a mistake. Quite the contrary—he makes many mistakes. But he also keeps his eyes open as he moves forward, constantly obtaining new information, and re-evaluating his results. He is not afraid to act (or overcomes that fear when it exists), because he is armed with an ever growing body of knowledge. 

Businesses fail because of fear. Businesses succeed by seeking knowledge and having the confidence to act on that knowledge.

The Value of an Idea

What is the value of an idea? Some might say it depends upon the idea. Some might say an idea such as the internal combustion engine, or powered flight, or personal computers is a valuable idea. Each has transformed the way we live. Each has made life much easier and more enjoyable. 

I would argue that such ideas are worthless in and of themselves. Indeed, without action ideas have no power. Ideas without action are just idle thoughts, dreams, or fantasies. An idea derives its value from the actions that result. Business involves an integration of ideas and actions. It requires sound business principles, innovative thinking, and long-term planning. It requires execution, performance, and effort. It requires activity—both mental and physical. 

The goal of a business is to make a profit. Doing so requires good ideas and good implementation. Ideas without action are useless, and action without ideas is suicidal. Each of us desires certain things from our business. It may be more money, independence, or any of a number of things. Regardless of our individual desires, we must engage in certain actions if we wish to fulfill those desires. 

Consistent results are a consequence of consistent actions. Consistent actions come from embracing and implementing sound ideas. Sound ideas, when implemented, create consistent results. Rare is the business that consistently achieves the results it desires. Consequently, successful businesses constantly look for new (and better) ideas, or better ways of implementing old ideas (which are also new ideas).  

(In this context, “new” means new to the business. A proven business principle is not new, but it may be new to the business.) Successful businessmen constantly look for new ideas. Business is a dynamic affair, and if a business isn’t moving forward, it is moving backward. The implementation of new ideas is what drives businesses forward. 

Businesses pay hundreds, thousands, sometimes millions of dollars for new ideas. They do so because new ideas are an investment. New ideas, when properly implemented, can lead to great results. In other words, a successful business invests in new ideas because they can help it achieve the results it desires. Certainly, there are bad ideas. There are ideas that, no matter how well implemented, can only lead to bad results. Curing a cold with a massive dose of arsenic is one example. And equally certain is the fact that good ideas will not guarantee the desired results. But implementing good ideas—such as sound business principles— stands a much greater chance of success than muddling along. 

Most small businesess fail. More than 90% do so within 5 years. Most small business owners are competent technicians, and poor businessmen. Competent technicians think differently than competent businessmen.  A technician seeks to reinvent the wheel. A businessman seeks to learn how wheels are made, and then find a better way. A technician repeats what he was taught. A businessman seeks to improve upon what he was taught. A technician does it that way, because “that’s how it’s done.” A businessman does it that way because it is better. 

Are you happy with the state of your business? Is your business producing the results you desire? If your answer is yes, then good for you. You are rare. 

If your answer is no, then you need new ideas, and you need to implement new ideas. If you wish to get new ideas, where do you intend to find them? How do you intend to implement them? How will you make the changes necessary to transform your business and produce the results you desire? 

These are not hypothetical or rhetorical questions. These questions go to the very heart of what it means to own a successful business. Your answers will determine your future. So, what is an idea worth? What would you pay for an idea that brought you less stress in your life? What would you pay for an idea that helped you move towards your goals? What would you pay for new ideas? Your answers will determine your future.  

More importantly, your willingness to implement those answers will determine whether you move forward and achieve the results you desire, or become another small business statistic.

Using Systems to Solve Business Problems

If you are like most small business owners, you are frequently experience frustrations and/ or undesired results. Employees who do not always perform as you would like, late deliveries, payments that aren’t collected promptly, and a myriad of other problems can torment the owner of a small business. 

Most problems in a small business result from 1 of 2 causes: a lack of systems and procedures, or the procedure was not properly followed. 

Consistent actions lead to consistent results. If we know the results we desire, and the actions that will lead to that result, successful performance is simply a matter of following the proper course of action. In other words, if A causes B, and we want be, then we should do A. 

This may seem like an over simplification, but the truth is, actions have consequences. And those consequences are usually predictable. Thus, our business can achieve consistent, desirable results if we consistently take the appropriate actions. 

Undesired results are a signal that we have not taken the appropriate actions. When we experience a problem or frustration within our business, we should view it as an opportunity to correct or implement a system.  By developing and implementing systems in our business, we will consistently take the actions that produce the results we desire. Systems provide the guidelines and the standards for those actions.