Business Failure 1: Overview

We begin exploring reasons businesses fail to inspire you to avoid the same problems

More businesses fail than succeed. Dunn & Bradstreet reports that census data shows that “69% of new firms with employees survive at least two years, 51% survive at least five years…Bureau of Labor Statistics shows that 49% of new businesses survive five years or more…34% of new businesses survive 10 years or more, and more than a quarter (26%) at least fifteen years after being started.”

Business Fail

The numbers above look good, but they still indicate a

• “49% fail rate in five years and 74% in fifteen”
• “More than 550,000 business opened in 2009, 660,000 closed in the same year”
• “In 2009, the Department of Commerce estimated that there were 27.5 million businesses in the United States”
• “Only, 18,000 of those businesses had more than 500 employees, the rest were considered small businesses”

Reasons Businesses Fail

Ken Makovsky wrote an article for Forbes Why Do Companies Fail? He offers the following reasons:

• “Most companies flounder for one simple reason: managerial error”
• “The key sign—the litmus test—is whether you begin to explain away the brutal facts rather than confront the brutal facts head on”
• “Sometimes CEIs don’t get the information they need to make informed decisions. Subordinates are afraid to tell them the truth”
• “Some companies simply live too close to the edge—loading up too much risk at once”
• “People are less likely to make optimal decisions after prolonged periods of success”
• “Companies (e.g. Polaroid and Xerox) are slow to confront the changing world around them”
• “Companies run out of cash”
• “Too often CEO’s succumb to an undisciplined lust for growth, accumulating assets for the sake of accumulating assets”
• “Rotten corporate culture. Arthur Andersen, Enron, and Salomon Brothers were all brought down (or nearly so) by rogue actions of a tiny few”
• “What undoes companies is the familiar stuff of human folly: denial, hubris, ego, wishful thinking, poor communication, lax oversight, greed and deceit”
• “Refusal to hear bad news immediately…don’t make excuses”

Thursday we will analyze business failures related to lack of management by a technician