Why Most Businesses Fail & How To Ensure Yours Succeeds

infographic stating why most businesses fail and how to ensure your business succeeds

In the competitive worlds of both profit and non-profit organizations, the line between success and failure often hinges on a collective of accurate micro decisions and executions. For the sake of the conversation, let’s call them 1,000 optimizations.

Now, before going any further, I have to address the elephant in the room: 9 out of 10 businesses fail. Across nearly all industries, about 10% of new businesses fail within their first year. However, an astonishing 70% of new businesses do not survive beyond their second to fifth years. Rarely if ever is failure due to one catastrophic event – but rather a series of small, overlooked missteps and micro steps that accumulate over time. 

These issues are akin to cracks in a foundation—each one small but collectively capable of undermining the entire structure. A phrase I coined years ago and repeatedly use today, “We either succeed by 1,000 optimizations, or die by a 1,000 cuts.” Businesses typically don’t collapse or nose dive in a dramatic fashion; instead, they gradually deteriorate, often running out of momentum before anyone realizes the gravity of the situation.

In this article, I will share 7 Ways To Safeguard Your Business From Failing. My goal is to help you ensure your business does not become another statistic. I’ll also address at a high level some of the steps you can employ to avoid a gradual decline in your business. These practical tactics are designed to keep your business robust and help you avoid pitfalls common to all businesses.

IMPORTANT: for my main points, I am going to assume three specific criteria are already met and in place with the business:

  • You have achieved product-market fit
  • You have addressed a critical business problem
  • You have received validation from both the market and your customers 

Building on this foundation, we’re going to focus on easy-to-follow steps that will help you sustain and enhance your business success.

Principle: The Law Of Entropy In Business

infographic stating business systems naturally progress from order to disorder

Now, before we get into the 7 Areas To Safeguard Your Business From Failing, let’s have a quick physics lesson. In physics, there is what is known as the “Second Law of Thermodynamics,” also known as the “Law of Entropy.” Essentially, the law states that things naturally fall apart and become disorderly.

We see this in our daily lives at home. When we live in them, stuff accumulates, gets used, and is left out; if we just let things be on their own, our stuff does not clean up after itself. Left to itself, the home becomes disorderly and messy. Unless there are rules in the house that inform and instruct everyone to do their part and clean up, the home becomes a train wreck fast.

Just like in physics and our homes, business is the same.

Business systems naturally progress from order to disorder unless the business purposefully invests in maintaining and supporting its upkeep—its order. And I would contend with much higher stakes. So, how do we keep a business from falling prey to entropy? How do we avoid becoming one of the 9 out of 10 businesses that fail? How do we survive and win by design?  

Breakdown: 7 Ways To Safeguard Your Business From Failing

infographic stating these 5 areas lead to the general decline of any business

Understanding why 9 out of 10 businesses fail is crucial for long-term success. Below are some reasons that are generally missing in a business, and its failure tends to correlate to them directly. 

  1. Organizational Transparency: Ensuring clarity and openness within the organization.
  • 360-degree view of the business units and their functions
  • Clearly defined ORG Chart
  • Defined decision rights (who to go to for what, who makes which decisions, etc.)
  1. People & Culture: The business MUST define what it values, what it stands for, and how it’s going to operate. The leaders must be united in these beliefs, and just as important. They must live out what they believe and value—there are no shortcuts.

    A few examples of what needs to be defined:
  • Core values (i.e., what the business believes about people and how those people will work together)
  • Career Pathing
  • Succession Planning
  • Employee opportunities and upskilling
  • Empowerment
  • How and when to make decisions
  • Who is responsible for making which decisions
  1. Systems: Maintaining effective systems is essential for smooth operations. 
  • Standard Operating Procedures
  • Training 
  • Continuous Improvement Methods
  • Knowledge transfer
  1. Technology upkeep: Tech Debt (i.e., Outdated Technology) is a business killer, especially in today’s tech-centric world. Keeping your tech stack up to date should be part of your normal business diet and regimen. Technology changes fast. You must change with it, fast.
  1. Customer Needs Inventory: Regularly assessing customer needs ensures relevance in the market. Aligning your products and services with customer expectations strengthens loyalty and drives expansion. The longer a business goes without taking inventory of customer needs, the more out of touch it will become with its market.
  1. Cross-functional Communication: 
  • Destroy silos
  • Bridge departments with relevant information
  • Communicate more 
  • Communicate often 
  • Share, discuss, and talk 
  1. Constantly Remind of the North Star Metric: Jeff Weiner, CEO of LinkedIn, said his primary role as CEO was to be the Chief Reminder Officer. His job was to constantly remind the company about where it is going, why it is going there, and what it measures to ensure it is constantly going in the right direction.

Why Missing These Areas In Your Business Is Problematic?

infographic quote by Garrett Delph Founder and CEO if Clarity Ops

Missing any single one of these areas can seem small and insignificant. But when added up and multiplied across the entire business, they collectively threaten the life of the business.

These collective problems permeate cross-functionally in departments like HR, Finance, Sales, Marketing, Logistics, Technology, etc. When this happens, trust erodes internally and externally, leading to business failure.

When people who operate in the business lose trust, customers soon after begin to lose trust in the brand and the service. As customers start to lose trust in the brand, sales will plummet. When revenue goes away, so does the business. This is death by 1,000 cuts in action—the cumulative of small cracks, missing components, unhealthy and/or ungoverned decisions, and cultural behavior that is not unified all contribute to a major business collapse.

Results & Benefits

Safeguarding your business in these ways is like putting your hard earned money into an investment vehicle that is guaranteed to give you satisfying ROI. If you safeguard your business using the above-mentioned 7 areas, and manage them sustainably, you WILL experience safety and significant improvements that include but are not limited to:

  1. Higher profits
  2. Enhanced operational efficiency
  3. Increased productivity
  4. Consistency
  5. Repeatable PMF alignment
  6. Higher happiness
  7. Lower stress
  8. Lower employment churn
  9. More likely to stay in business longer

These results will stabilize your business and prepare you for bigger and better opportunities.

So, keep on keepin’ on! And, remember: small, consistent improvements can lead to monumental success over time.

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