Businesses don’t fail; people fail

Blame who or what you like, but the truth is that when a business goes under the owner will probably find the reason in the mirror.

Businesses don’t fail; people fail

Here’s a statistic to give you pause (it certainly did me): 90% of family businesses do not see the second generation.

I heard it at a conference last weekend run by the Family Business Association of Australia. Peter Fox, son of Lindsay Fox (Linfox) mentioned that figure as part of his talk about his experience in a family business and of some of the factors he believed were important in securing such a stable and sustainable enterprise without going the route of an IPO or taking on private equity.

I was also on board as a speaker and did some research and found another statistic. I researched the Fortune top companies over the period from 1990 to 2007 and discovered that 56% of companies in the top 20 in 1990 were not in the top 20 in 2007. Fortune had done a study over 20 years and found that the attrition rate was 76% over that extended period.

Then, of course, there is the usual statistic that one in three businesses fold within three years. (I suspect this is mere folk lore – I have never seen the source of this oft quoted figure).

It suddenly occurred to me that with all the talk going on at the moment about risk, going into business must be one of the riskiest things we do in life and yet there is no stopping us.

What we don’t see a lot of are explanations for failure. Sure, we get the usual suspects: the economy, climate change, security risks, stupid customers, cash flow problems, too rapid growth poor staff, unreliable suppliers, dishonesty and unsympathetic banks. But we know in our heart of hearts that these are all baloney.

We are the reasons businesses fail. We, the intrepid group of entrepreneurs who day in and day out take on the risk, despite the odds, challenge the universe of business with our offering. Once we do this, forget about blame because if it doesn’t work; we are the reason. We simply haven’t got it right and no amount of blame with alter this fact.

I have been called into organisations by people who believed that they had reinvented the wheel but had not bothered to check whether anyone would want it enough to back it.

I have been involved in other businesses where the owner/manager (who I often call the “patriarch”) drives the business with his or her own vision without sharing it with the people working in the enterprise. Even if there had been value in the vision, the fact that it was not shared puts it at risk.

At the end of the day, people pay money on the basis of the value of the business proposition. If the proposition is not seen by the potential customer to create value for them, then it has not value and they will not part with their money.

I suspect that the main reason that family businesses rarely see the second generation is that the original owner has not shared his or her vision with the next generation. I believe that many business fail because people do not test their value proposition before taking on all the obligations involved in running a business. Instead of convincing themselves that they have a great idea, it is better to test it to see whether others consider the offering to represent value at a cost that will make them happy and the business profitable.

In short, I believe that many businesses fail because the vision of the owner has not been shared with and tested by those who are critical to the success of the business: the employees and customers.

The next time we come up with that new beaut idea, just make sure before we get too far down the track that there are sufficient people who have the same view of the idea and are prepared to pay enough for the value proposition contained in it for the business to make a profit. Otherwise, we will add to that awful statistic of business failure.

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Comments

Mark Bergin writes: I take issue with the editorial line that if a business doesn’t exist for the next generation then something went wrong. A business may not exist for a range of reasons – trade sale – merger, wound us as maximum value was extracted and then dissolved, lack of vision, lack of funds and the list goes on.

I didn’t know that business was a length game – I thought it was a return of investment game – Tom Peters outlines in many of his publications that old listed companies perform well under the market average, so I wouldn’t blame an entrepreneurial next generation member deciding that a new enterprise might realise greater value, the issue isn’t about length of trading but the spirit of family based business.

Who wants to be in a business where a percentage of the equity holders are holding back, I’d want a business where all the equity owners were focused on creating vast returns – and that might be to a sale of the business. Rather than hold onto the memory of their family tree, we should be generating new wealth.

I don’t see why family businesses don’t have the same goal to unlock equity and then create the next investment, holding onto a position might not be in the spirit of the founder – often I wonder who the Family Business Association FBA are serving? The people who create future family businesses or the children of past innovative business leaders. I’d like to be with a group of current business innovators 🙂

By the way I’m a member of FBA and have meet many new innovators and many children of innovators.