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3 Reasons Why Businesses Fail

Some companies come and go without us ever noticing whilst others when they close we feel it (Enron anyone?). Once in our time there was the saying that some companies are “too big to fail”, well that is not exactly the case anymore, think Lehman brothers. Business comes with a few basics that we need to follow if a company is to be successful. The consequences of a company closing can be very stressful for any country or society. Companies have a part to play in development after all some of them give us solutions to our needs.

1. The Wrong Leadership

Without meaning to be too extreme the wrong leader will destroy any company. It does not matter how well established that company is, if the leader is wrong that company will fail. Policies and decisions are critical. If the wrong leader is in place then companies will fail. If you sit back like a Nokia company sooner or later the market will catch up with you and you will be left behind. Now am not saying that Nokia’s problem was entirely the leadership but contrast with Steve Jobs who encouraged innovation. If the wrong leader is in place who takes a very traditional approach to company growth you may need to order the company funeral casket in advance.

2. Lack of Systems, Controls and Governance

A company that operates without the right systems, the right controls and a level of governance will soon find itself knee deep in credit and heavy losses. As long as people are not accountable or monitored then decisions will be made which will naturally be questionable. Sooner than later the company will assume loans that make no sense and make investments which will require to be written off.  Think how we were all inspired to Sarbanes Oxley when before we never thought business needed such an Act. The saying that too much power can corrupt is true in companies as well, now if you have people in charge of large monies in any company who are not regulated the result is company closure.

3. Products, Service and Marketing

What will a company achieve with the wrong product, wrong service and wrong of marketing. The end result normally is a negative balance sheet in which the capital is finished in no time. Think of a company that keeps pumping money into a business operation in which the market clearly does not want the product. Think Pets.com , lots of marketing but no real product or service that the clients wanted.  In the end the company failed. Three simple reasons why companies fail. These reasons cans still be expanded further however these are the basics which when not noticed can easily lead a company in the  wrong side of the business cliff without ever climbing back.
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