Reasons to Fail
There are a lot of ways to fail in business, but only a few reasons.
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Businesses fail in many ways. Sometimes they run out of money, and other times the market for their product disappears. Sometimes new competitors come along and crush the business and other times the team gets tired and wants to move on. While all businesses start the same way, there are many ways to end.
Despite the many ways to fail, there are only a few reasons that businesses fail. Those reasons are the root causes of the events that lead to the failure of the business. Companies don’t accidentally run out of money, for example, there are underlying reasons the company burned through its cash and couldn’t raise more.
I don’t think it’s good to dwell on failure, as focusing on negatives is always a losing strategy. However, being aware of the reasons you might fail can help you avoid them! As a result, I always refer back to them to make sure I’m on the right path with a business.
Think of this like a checklist of things you should be avoiding.
Reason 1. Wrong Strategy (long-term)
The most common reason for failure is that your strategy is wrong. There are a lot of definitions for “strategy”, but in this case I’m referring to your long term plans. That includes not just your revenue targets, but also your product design, your target customer profile, your pricing model and your cost structure. All of these are long term bets and long term goals that you cannot easily change.
Your strategy is a theory about what you can sell to your market in order to grow fast enough to keep the business running. There is always an element of risk in any strategy, and that risk is based on the assumptions that underlie the strategy. Maybe your strategy is counting on a shift in the market that never comes, or maybe your strategy is based on a customer need that doesn’t really exist. It is often the failure of the assumptions in your strategy that lead the strategy to fail.
It’s hard to know if you have the wrong strategy in the moment, but it’s easy to spot in retrospect. All of those assumptions are plausible until the market plays out and you know for sure if they were correct or not. When looking at a failed company, it’s easy to wonder why they made bad decisions but remember they didn’t know what we know now.
We don’t want to wait until your strategy fails to make adjustments, so it’s important to look at leading indicators!
A good strategy should make everything in the business easier. It makes your marketing easier because you stand out in the market, and it makes your product better because customers love it more than the alternatives. If you feel like you are swimming against the current, you have a bad strategy. If you feel like the current is pushing you, then your strategy is not a problem.
Reason 2. Wrong Tactics (short-term)
If you have a good strategy, it does not mean you execute against it well. The tactics that you implement are the short term actions you take in pursuit of that long term strategy. Your tactics include growth experiments, hiring decisions and your product development process.
Companies involve so many tactics that it’s impossible that all of them will work, but you need enough of them to work to overcome the ones that don’t. For example, everyone can survive making one mis-hire, but you can’t have most of your team be mis-hires. Often, companies with great strategies fail because most, if not all, of their tactics fail.
Failures of tactics are easy to spot, because these companies continuously fail to achieve their short term goals. They miss quarterly targets for revenue, hiring, product delivery and everything in between. If the company misses ALL of their short term targets, it’s likely a bad strategy, but if they are missing different targets all the time it’s the execution that is missing.
Instead of trying to force things to work in pursuit of your great strategy, it’s important to take stock of the reality of your execution. If you can’t consistently do what you say you will do, then your tactics are wrong.
Reason 3. Wrong Team
Even if you have the right strategy and choose the right tactics, you might not have the right people to execute against them. The right team will have experience, focus and cohesion that has everyone pushing in the same direction as fast as possible. The wrong team is lacking at least one of those things, sometimes more than one!
This is the hardest reason to spot, because it’s easily conflated with the other two. A bad team can make a great strategy look bad, and make the right tactics not work at all.
The good news is that a great team makes everything work better!
So, the easiest way to make sure you don’t have the wrong team is to hire amazing people. It takes longer, and requires a lot of dedication, to hire well (see A Better Hiring Process). Most companies rush to grow their headcount and later wonder why their great strategy and solid tactics aren’t working. It’s because they rushed their hiring and have the wrong team.
Avoiding Failure
Again, it’s not worth dwelling on the potential of failure as it distracts you from what you need to do to succeed. However, keep these reasons in mind when reviewing your performance to make sure you understand what might kill your business. The best way to survive is to catch these problems early and prevent them from becoming the reasons behind the way you fail.
On a regular basis, sit down and ask yourself which of these reasons is most likely to lead to your failure. Then make sure you are doing everything you can to prevent that from happening.
While we can’t always avoid failure, we can fight like hell to keep it from happening.
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