Failing and Flailing: Why Businesses Struggle

Turnarounds and startups are eerily similar when it comes to business challenges.

There are many reasons why businesses struggle - or for startups, fail to get and keep their liftoff. Often competition, lack of innovation, government regulation, bad investors or board governance, misguided marketing spend, changing consumer tastes etc. are all mentioned internally and externally as reasons for the obstacles facing the business. While each is often a contributor to the current demise, they are rarely the major cause.? I was recently asked, from my experience across numerous companies, cultures and countries (mostly in the media, entertainment and consumer brand sectors), what are the most common issues across each that push companies toward turnaround or even bankruptcy?? I’ve boiled the answer down to the critical three below:?

1. Management. It all starts at the top. To paraphrase management guru Peter Drucker, all businesses are about creating customers. A productive, focused team that is clear in its mission regardless of the size of business, will find its way to success and therefore create new customers. Revenues and growth will follow. A smart, engaged team figures it out. Now to paraphrase Warren Buffet, “a bad business beats good management every time” is often correct though I’d argue superior management will not get itself into such dire situations. And, if that is happening, often one to two levels below the top team is your future management chomping at the bit to get into the game. And finally, one last option is a quick and decisive wholesale management change. Management needs to have a clearly focused action mindset. Without it, the company team, vendors, investors and finally the customers lose faith and become fatigued. The air of opportunity around the company will literally go out. The business will then move into a precarious, and often deadly, stall mode. So the bottom line is; it starts at the top.

2. Poor Resource and Capital Allocation. One thing businesses should know for sure are their expenses. Revenue projections and forecasts are usually a mirage especially for new ventures. Managing where funds go and how they are applied is the most important executive? job of all. It has become commonplace for the many failing and flailing?(DTC) direct to consumer brands to blame Facebook or other marketing spend challenges for their situation when the real drivers have been poor management decisions around resource allocation. Consider your own so you don’t fall into this trap.

A business rarely goes out of business because of bad customer service but it will go out of business if it pursues the wrong customer.?

3. Loss of Customer Focus. The first question I ask of any management team, whether in a distressed business or not, is "Who is your customer"? This deceptively simple query is often the most difficult to answer for leadership in a struggling company - and then down through the organization as a result. Obviously, any difficulty in answering is a red flag. The answer must be supported by customer data - and often in challenged businesses, there is little correlation. The company is removed from its actual business beneficiaries - the customers. Start with the customer and then walk back through the business to really determine how the business model is executing and where the inefficiencies remain hidden. A business rarely goes out of business because of bad customer service but it will go out of business if it pursues the wrong customer.?

Turnarounds and startups are eerily similar when it comes to business challenges.

Turnarounds and startups are eerily similar when it comes to business challenges. The need for speed and sense of urgency in both are the same. If a new company doesn’t have its team, resources and customer focus aligned, it will certainly become a turnaround - unless it runs out of time first. Similarly, struggling businesses need to rethink and reimagine their situation as a startup entrepreneur would. What would be done if we were starting the business today? By taking immediate action on the three key drivers above, struggle can turn into success.