Business Failure 14: Refusal to Hear Bad News or Make Excuses

This continues our series outlining reasons businesses fail so that you can avoid failure

We mentioned denial as one of the human follies. Refusal to hear bad news or make excuses goes deeper. Some businesses or industries react to bad news by sticking their metaphorical head in the sand. Others rationalize bad news with excuses casting the blame for their own decisions on other people or circumstances they perceived as out of their control.

Refusal to Hear Bad News

Bad news comes from all sources and about all facets of your business:

• Equipment and facilities break down and need repair
• Suppliers inform you of their bankruptcy or major price hike
• Your biggest client cancels a major order or tells you their sales dropped by 80%
• You find your best employee has been embezzling from you for years

Ignoring the news will close your business. Acting on it may save it.

Make Excuses and Blame Circumstances

Forbes published a story about business failures. The article said “Refusal to hear bad news immediately.  Great companies don’t make excuses, including excuses about how they didn’t do well because the economy was against them or prices were not good.”

We have been inundated the last four years with business owners who never had trouble with their business for 10-15 years. They also never developed a business plan or learned how to market. Instead of recognizing their own failures, they blamed the economy. They blamed the big national stores that moved into the neighborhood. They blamed the big plant, who was their only client, that closed.

The key is not that the bad things happened. Nor is it that the bad things affected their business. What matters is what the business owners did about it.

• One answer, complain and blame it on the business environment. This answer does nothing to solve the problem or save the business.
• Another answer, accept what happened and plan a way to adapt, resolve, or solve the problem. This allows you to move forward and possibly save the business.

Saturday we will conclude and summarize our series on business failure

Business Failure 13: The Familiar Stuff of Human Folly

This continues our series outlining reasons businesses fail so that you can avoid failure

Business owners are human. They are not perfect. They don’t possess super hero powers. Sometimes they make mistakes or suffer from common human frailties and follies. Frequently, these human errors can result in problems with the business. These errors can result in business failure. They may lead you to invest in product lines that will not give a good return on investment. They may cause you to ignore good advice from others. You may chase a dream that cannot deliver results.

Familiar Stuff of Human Folly

First, let’s examine what might be considered the familiar stuff o human folly:

• Denial: I coached business owners who denied all the good advice they received. They denied clear evidence that their business idea lacked sufficient earning power. Others denied poor sales figures and lack of client response and continued pouring money into poor quality products.
• Hubris: The dictionary defines hubris as “excessive pride or self-confidence; arrogance” It can lead you to proceed on the assumption you can do no wrong.
• Ego: Your ego may prevent you from seeing mistakes or challenges arising in your business. Conceit can taint your perception of things.
• Wishful thinking: I’ve seen businesses fail because the owner’s wishful thinking caused him or her to chase fanciful or ill-conceived products, advertising, or plans.
• Poor communication: Owners may miscommunicate product guarantees or miscommunicate instructions to employees that result in costly errors or lawsuits.
• Lax oversight: Running your business may dull you to employee theft, overcharging from vendors, and corporate information hacking.
• Greed: Taking money out of the business that you should reinvest can ruin your business. Raising prices to satisfy your greed can lose your clients. So can paying wages so low that you can’t keep good employees.
• Deceit: You lose trust with your employees, clients, or suppliers when you cheat or lie to them. I mentioned earlier a dishonest boss who lost his business because of his deceit.

Learn from these follies.

Thursday we discuss how refusal to hear bad news immediately can affect your business

Business Failure 12: Toxic or Rotten Corporate Culture

This continues our series exploring reasons business fail so you can save your business

A lot of businesses fail because of a rotten corporate culture. Sometimes the culture’s rot stems from underhanded dealings with others. Rotten cultures can come from vindictive even intimidating owners. Some rotten cultures fester when owners and executives cover up secrets, illegal acts, or unethical behavior. Maintaining a rotten culture requires a lot of work and resources that divert resources from success. Eventually toxic cultures erode and destroy the company.

My Personal Story

My first full-time job after graduating from college was with a company with a rotten corporate culture. The rot began with the owner. He kept  copy of the book Winning Through Intimidation on his desk—facing those who sat across from him. He had cut 1/4 of an inch off of the front legs of the chairs facing his desk to keep people off balance when they met with him.

His dishonesty permeated the business. He falsified performance numbers which determined bonuses for his employees. He would call the office every morning at 8am and again at 5pm for no reason other than to verify people were at their desks. Yet, he would lie about where he was and what he was doing.

He pitted employees against one another. For example, he came to me and told me the branch manager was incompetent and he needed me to step up and exert more control in the office. At the same time, and unknown to me, he told the branch manager that I was too uppity and that she needed to put me in my place and manage me better. Then, he waited to see who won. He did the same thing with 3 employees when I became manager.

Examine Your Corporate Culture

Determine any rotten or toxic habits in your corporate culture. Counter them with positive principles, values, and mission statement. Create situations in the company to enhance and internalize those positive values and virtues. Practice them. Live them.

Tuesday we will explore how the familiar stuff of human folly can destroy your business

Business Failure 11: Greed & Make Money for the Money’s Sake

This offers another insight into why businesses fail so that you can avoid them

Charges of CEO and business owner greed ricochet around our media sources. Headlines decry “Greedy CEO’s eat away at our economy”, “Greedy Hostess Executives will fill their own stockings with bonuses” and “It pays to be a greedy CEO and screw over your workers”. However, you probably are not one of those $12M executives. Nevertheless owner greed or zest for making money for money’s sake can still doom your business.

Getting Greedy & Focusing on Money Hurts Your Business

Businesses your size depend on good relations to succeed. You build relationships with clients, vendors, suppliers, and your staff. Relationships suffer when money becomes your focus. Greed distorts your perceptions and thoughts. When greed and money becomes your focus you may tend to

• Pressure vendors and suppliers to cut costs, provide shoddy materials, & then delay paying them
• Provide products that lack quality, while charging higher margins than they deserve
• Pay penurious wages to your employees, outsource, and deplete morale and loyalty
• Cut moral and ethical corners to get more money
• Lose sight of why you started the business in the first place
• Neglect your family to spend more time working when you don’t need more money

You may fall prey to any or all of these problems if you allow greed or making money for money’s sake to enter your life.

How to Avoid Greed & Making Money Your Prime Motive

You may take several steps to avoid feelings of greed or money:

• Change your view of the world from one of scarcity to an abundance mentality
• Identify a good charity or cause and donate money to those worse off
• Stay close to your staff, family, clients, and vendors so that you see them as people
• Know when to reduce your drive for money, create a team to help stay on target
• Keep your money low key and avoid ostentatious symbols of wealth
• Read scripture and good books that will help you focus

Saturday we will highlight how a rotten company culture leads businesses to fail

Business Failure 10: Solutions to Lack of Cash or Overextended Cash

This continues our series analyzing why businesses fail, how to avoid business failure

While your business may experience cash flow or cash strapped problems occasionally, persistent cash problems represent serious problems with your business plan or implementation. Fortunately, several solutions exist to resolve the problems. Unfortunately, many business owners resist many solutions. 

Possible Solutions

Business Know How provides several possible solutions:

• 12 ways to get startup funds
• Avoid being ripped off by business loans scams
• 5 Steps to grow beyond the $5 million mark
• 39 cost-cutting tips for your small business
• Should your purchase or lease business equipment?
• Get loan with the bank that turned you down
• and many more tips and suggestions

Crowdfunding

Alan Hall shared 5 Ways of Funding a Business: How to Get Your Peace of the Pie for Forbes.com. He lists Crowdfunding as the 3rd most effective way to fund your business (right after personal funding and family and friends). Crowdfunding represents a relatively new way (the term first appeared in 2006 from Michael Sullivan) of raising capital.

My daughter used Crowdfunding to obtain special supplies for her public school district pre-school class for autistic children. She wanted to buy special equipment for her class and needed about $2,000 to do so. She posted her project on a Crowdfunding web site. People go to these websites and commit so much money. She raised all $2,000 within 24 hours.

Currently Crowdfunding for businesses reminds me of the wild west—out of control. The JOBS Act which President Obama signed into law on April 5, 2012 established a timeline for the Securities and Exchange Commission to clarify guidelines for business Crowdfunding. Currently, some serious benefits and drawbacks exist. Explore the pros and cons before listing your project. Don’t rely on Google to help you. The first 8 pages of my search for pros and cons only listed paid ads.

If you want to know more, several sites offer this unique source of funding. Check them out, but use caution.

• GoFundMe.com
• Crowdfunding Professional Association
• GoBIGnetwork.com

Thursday we examine how undisciplined greed & money for money’s sake leads to failure

Business Failure 9: Lack of Cash or Overextended Cash

This continues our series outlining reasons businesses fail so you can avoid them

Running out of cash may define business failure, as in “We’re out of money, so we’re going to close the doors”. In this post, however, we’re going to discuss how poor funding or mismanaged financing contributes to business failures. Many businesses begin with too little money and never overcome that hazard. Others possess enough money for well planned growth, but cannot support reckless overextension and growth.

Problems for Underfunded Startups

Studies indicate that most companies begin with too little cash. Startups receive their initial funding from any one of prime sources:

• Income from a full-time or part-time job
• Personal funds
• Family funds
• Credit cards
• Collateral based personal loans (including second mortgages)
• Small Business Administration guaranteed loan
• A wish and a prayer

Frequently business owners start their businesses knowing they have less money than they should, but hoping it is enough. Actual startup expenses regularly exceed anticipated budgets. Starting with less money than you forecasted, coupled with actual spending exceeding forecasted, quickly closes many new business.

Other business owners keep pouring additional money into their business in a desperate attempt to recoup earlier losses or resuscitate a struggling startup. The additional funds trickle in from other income, family, or other sources—too small to alleviate the problem—just big enough to keep the business going.

Overextending Finances

In addition, to starting with insufficient cash, you may overextend the cash you possess. Overextending means that you decide to do more in your business than your cash can support. Common actions that may overextend your cash include when you:

• Commit to a lease on office space you really don’t need
• Sell more product than you can produce or purchase with the money you have
• Open too many stores or locations in a gamble they all will succeed
• Hire too many employees (especially for seasonal or cyclical times, but keep them on afterward)
• Advertise through expensive and less productive methods
• Begin production on your idea, with expensive prototypes, with little feedback

Tuesday we discuss solutions to lack of cash or overextending your cash

Business Failure 8: Another Word About the Closure of Hostess Bakery

I was vacationing at Disney World when they announced the closure of Hostess. I wanted to add my own insights and lessons we can learn.

Many people remain shocked that the makers of Twinkies, Ding-Dongs, and Hostess Cupcakes closed their doors. They cannot believe that an American icon would fail. The signs indicating potential failure, however, glared like a freeway billboard directing you to the right off ramp.

Failure to Keep Your Product Niche

Hostess produced snack food. Most adults remember sucking the cream out of Twinkies or peeling the marshmallow covering off of a Hostess Snowball. Millions of consumers unwound their Ding-Dongs. Hostess maintained a loyal following—through the 60 and 80s.

Upon reflection, however, you will have noticed that Hostess had lost its product market niche in the last 15 years.

• Hostess failed to answer a growing demand for healthy or natural snacks
• Little Debbie, an upstart company that did not start selling packaged snacks until the 1960s, began taking shelf space. Soon Little Debbie displays took valued front of store end racks, leaving Hostess relegated to end racks at the back of the store
• Hostess relied on their old brand names with few new brands in the last 20 years
• Hostess purchased scores of companies in the 1970-1990s, yet failed to keep markets

Bewildering Ricochet Changes

Hostess experienced poor management, constant changes in leadership, and financial upheavals. The company could not sustain a workable business strategy. They:

• First filed bankruptcy in 2004 and named a new chief executive
• Stock prices fell from $34 $2.05 a to share
• Fought off a hostile takeover bid from Mexican baked good giant Grupo Bimbo
• Emerged from the bankruptcy in 2009 because a group of investors took them private
• Filed for bankruptcy a second time in 2011.
• Changed company names five times in one decade
• Stopped paying future pension benefits, breaking its contract with the union
•  Bakery, Confectionery, Tobacco Workers and Grain Miller’s International Union resulting in a strike by the union
• Filed for closure on November 21, 2012

Thursday we will also discuss other ways companies run out of cash and fail