According to the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail during the first two years of establishment. During the first five years, 45% fail, and 65% fail during the first 10 years of being established. Only 25% of new businesses are viable entities after 15 years or more.
Aspiring design entrepreneurs dream of creating and building a successful business. However, as the data suggests, not all businesses thrive; many become a statistic, having faced insurmountable challenges leading to their eventual downfall.
Dedicate the time today to learn why businesses fail and what you can do immediately to overcome obstacles and take advantage of the tools for sustained, achievable success.
Tipping a hat to former late-night show host David Letterman, here are the top 10 reasons businesses fail and the insights to avoid being another casualty.
10. Location: Is there enough demand in your current location for your products and services? Has the market or demographics changed since you first opened your doors? Have you adjusted to the changing landscape? The adage location, location, location is still current today – not just for visibility but also for being accessible to the markets you want to reach. You want easy in, easy out for your primary and supporting customers. Too often, we equate location to a physical location. Yet, in today’s world, your place in the digital world and the strength of your social media efforts can be just as important as a brick-and-mortar presence.
9. Rapid Expansion: Out-of-control growth may be the saddest reason for failure – successful businesses ruined by over-expansion. While growth is desirable for any business, rapid and unplanned expansion can backfire. Scaling too quickly can strain resources, dilute quality and lead to a lack of focus. Noted author and business professor, Jim Collins, promotes the 20-mile march concept in his book, Great By Choice. He writes about successful companies that work feverishly to achieve 20% annual growth in good and bad times. Those growing faster than 20% in any given year will deliberately throttle back on the accelerator, fearing their inability to keep up with the necessary infrastructure that supports the cutting-edge customer service that fueled the outstanding growth in the first place.
8. Ignoring Customers’ Needs: Ignoring customers’ needs is a fast track to failure. Dealers must find an opening or unmet market need and fill it rather than try and push their product or service in. It’s much easier to satisfy a need than create one and convince people that they should spend money on it.
7. Insufficient Capital: Cash is king and the lifeblood of any kitchen and bath operation. Even the most profitable companies will struggle to stay afloat without proper funding. Business is cyclical – either cash rich with deposits or retainers or cash poor with invoices to pay. That’s why it’s essential to have an emergency fund set aside for a rainy day. Historically, conventional wisdom suggested a need for six months of fixed expenses parked in a liquid account so it can be easily accessed. Today post-pandemic, it’s suggested to have 12months of reserves in a liquid account to protect against unforeseen circ*mstances.
6. Inadequate Planning and Strategy: Companies don’t plan to fail; they fail to plan. As the cliché suggests, working in the business instead of working on the business limits proper planning. Successful dealers know why they exist and develop a strategy to execute it. Disaster can result when there is a lack of clarity about where the business is heading. With a well-
defined road map and compelling vision, companies can navigate challenges effectively.
5. No Defined System or Process: Without acknowledging mediocrity, many kitchen and bath dealers are just going through the motions and relying on their past successes to carry them through. Some may have sound systems in place, but lack of training and poor execution can cause their failure. In today’s climate, defined systems and processes are critical to efficiently ensure the business and team function. Examples include a sales process that all designers follow and establishing a lead-
tracking and sales forecasting system. It’s not enough to have a process in place; continuous training is required to maintain proper execution. Football teams spend a lot of time practicing blocking and tackling during the week, all in preparation for a game on the weekend. Why should we expect a salesperson to leap into the sales arena without proper practice?
4. Operational Inefficiencies: Not having control of your operational costs, break-even points, and monitoring your job labor and material costs are certainly a setup for disaster in business. Today, more than ever, leaner companies that have tight controls will have the advantage. The first step is developing a three-year budget or profit plan so you know firsthand what you need in gross profit dollars to finance your overhead and desired net profit. A company’s financials tell a story, one that is required reading. The information gleaned provides where or how you can improve your operations to match efficiencies that others have achieved.
3. Dysfunctional Management: Often, kitchen and bath dealers become entrenched in doing things a certain way. They are managing with blinders, unaware of their surroundings. A competent and visionary management
team is crucial for a business’s success. Poor
decision-making, lack of leadership and ineffective organizational communication can lead to disastrous consequences. It’s why many management experts suggest managing by walking around and observing what is happening in all facets of the business and reacting accordingly. Effective management involves strategic planning, efficient resource allocation and fostering a positive work culture.
2. Inability to Adapt: Adapting and pivoting to market and economic conditions is critical for any successful business. Sustainability occurs when adjustments are made to changing conditions. A pivot may be required to attract a different customer base or seize upon a fashion trend in our industry. Other pivots may center around technology as new processes advance. Successful dealers will learn, embrace and adapt their businesses to these changes.
1. Ego/Pride: The number one reason a business fails is the owners themselves; it’s the self-righteous syndrome – they know it all and cannot take the advice of others. They refuse to acknowledge the need for help or assistance. An over-abundant ego is an obstacle that resists coaching, continuing education and peer reviews that could lead to tremendous success.
While the path to success is fraught with challenges, understanding the common reasons for business failure can empower owners, managers and entrepreneurs to make informed decisions and avoid repeating mistakes. You can chart a course toward sustainable success by applying the lessons learned. ▪
Dan Luck owns Bella Domicile in Madison, WI. He has been a SEN member since 2002. He has led the SEN Leadership Team since 2018, conducting scores of the group’s educational programs. Please visit http://sendesigngroup/education for information. Dan welcomes questions and comments at [emailprotected].
