Boiling Frogs, Bullfrogs, Tadpoles And Going Bust!
READ: 5 mins
AUTHOR: Robert Craven
I will now make myself hugely popular (not!) with people who have lost or are about to lose their agencies.
I believe that:
“business failure is attributable to one key factor in 99.9% of cases - the owner-manager or the management team. In other words, you.”
You hold the key to your business success, and you hold the key to your business failure. You are the bottleneck; you are the bottle opener! Had you run a better business last year then your pockets would have been deep enough to survive the current crisis.
The real ale pub list
Next time you are in a pub (remember them) and you overhear that inevitable conversation about business failure, listen carefully.
Listen to the language.
Also listen to the reasons given for business failure.
You can assemble the standard list from almost any pub in the country, and it looks something like the following.
Pick any five or six of the reasons given below:
“The bank pulled the plug”
“A key customer refused to pay”
“Most of our customers paused or suspended payments”
“The interest rate on loans/overdrafts/mortgages”
“Increases in rent/overheads etc”
“Couldn’t get/keep the right staff”
“The competition were better/faster/cheaper/nicer…”
“Couldn’t afford to invest…”
“New products of competitors were better/faster/cheaper/nicer”
“Couldn’t get/keep the right customers”
“The product wouldn’t sell”
Of course, the big one is the Covid19 crisis bringing the economy to a halt and killing entire industries for at least six months.
“I must stop repeating myself… I must stop repeating myself…”
The real reason for business failure, in 99.9% of cases, is managerial incompetence. The responsibility lies in the hands of the person/people running the business. After all, it is the job of management to look after all of the above. It is no-one else’s job.
Your job, as owner and director, is to be on top of the internal and external aspects of the business, both in the short term and in the long term.
I agree that seems to have nothing to do with running an agency, but it is everything to do with running a well-oiled business. For today and tomorrow you are responsible for what happens inside the business. Both today and tomorrow you are responsible for responding to what happens outside the business.
“It’s all your fault” (Pink)
Most business failures tend to blame everyone else but themselves for their misfortune. (Psychologists call this an ‘external locus’ of control.)
On the other hand, most business successes tend to take full responsibility for the success and the failures of their business. This is called an ‘internal locus’ of control. When push comes to shove, the successful recognise that it is up to them (and no-one else) to make a success of their business. They don’t use victim language to describe their position and they don’t blame others. They look, they decide, they act.
And the research says
Research always lists a depressing catalogue of reasons for failure including the usual suspects:
Cash control
Demand evaporating
Costs
The market/the product
Pricing
Red tape
Sales forecast/over-trading
Human resources
Risk taking
Location
Drawings and
Unforeseen circumstances
Sorry, but it is your job to plan for all of these, including the act of god or unforeseen circumstances!!! In other words you should have a rainy day fund to allow for the inevitable crash that seems to happen every five or so years… It should be built into your day-to-day costings.
The most fascinating finding was and is as follows. When the directors of failed businesses are asked for the main reason for failure, they blame operational issues (40%) and then strategic problems (24%).
On the other hand, the Official Receiver (who sees all the failures come through their office) blame operational management in 71% of the instances of business failure. In other words, the Receivers were absolutely clear that the failure was due to the incompetence of the owner.
“50 Ways to leave you lover” (Neil Simon)
There must be 50 ways to leave your lover and there are, apparently, 65 ways to go bust! The 65 most common reasons for business failure can be found in a fascinating old link from The Insolvency Helpline that states:
“More than half of Britain's small businesses collapse because of cash flow problems.”
The UK Insolvency Helpline published ‘the most up-to-date and fully comprehensive list of reasons for business failure’. The list of reasons for business failure was taken from the last 65 cases they had dealt with (www.insolvencyhelpline.co.uk).
The list starts:
Failure to focus on a specific market because of poor research
Failure to control cash by carrying too much stock, paying suppliers too promptly and allowing customers too long to pay
Failure to control costs ruthlessly
Failure to adapt your product to meet customer needs
Failure to carry out decent market research
Failure to build a team that is compatible and has the skills to finance, produce sell and market
Failure to pay Crown taxes (PAYE and VAT)
Failure of businesses' need to grow. Merely attempting stability or had even less ambitious objectives, businesses which did not try to grow didn't survive
Failure to gain new markets
Under-capitalisation
Cash flow problems
And ends…
The business is unsure how much it owes and is owed
The bank is calling the business to say it has exceeded its overdraft limit
Under-pricing
Over-trading
Poor quality of product or service
Bad labour relations
Niche businesses - These suffered from narrow customer and supplier bases and an inability to react to changes in the market.
These are all symptoms of the root problem. Owners are not savvy enough to save for a rainy day. I admit that no-one expected the current ‘rainy day’ but those with deep pockets who had a great year last year (because they run good businesses) will survive 2020.
Four reasons why businesses fail
Based on a study by Jessie Hagen of the US Bank, here are the main reasons why businesses fail:
poor business planning
poor financial planning
poor marketing
poor management.
And all of the four reasons are YOUR responsibility!
Boiling frogs! Different types of failure
I have just come across a great piece by FM Richardson, who uses the analogy of frogs and tadpoles to provide an interesting, alternative method of classifying reasons for failure. As a past frog boiler myself (when I was 11!) I found it fascinating that he was able to classify different types of failure by different types of frog (boiled, drowned, bullfrog and tadpole!).
1) Boiled frog failures
These are long-established organisations that show introversion and inertia in the presence of change.
2) Drowned frog failures
These are more to do with managerial ambition and hyperactivity (and less to do with management complacency). In the smaller company context, this is the failed ambitious entrepreneur; in the bigger context this is the failed conglomerate kingmaker
[eg Robert Maxwell].
3) Bullfrogs
These are expensive show-offs who flaunt the trappings of success. The bullfrog exists on a continuum from the ‘small firm flash’ to the ‘money messing megalomaniac’. The behaviour of bullfrogs often raises ethical issues due to a failure to separate business expenditure from personal expenditure.
4) Tadpoles
Tadpoles never develop into frogs and represent the failed business start-up in the small business setting. Small tadpoles usually fail to become frogs because of over-optimism, a failure to make contingency plans and a lack of interest in overall success as a result of too much focus on the product.
Business rises and falls on leadership
According to business guru, Brian Tracy,
"Leadership is the most important single factor in determining business success or failure in our competitive, turbulent, fast-moving economy."
It’s all about you
Leadership is all about having the confidence and belief in yourself.
Leadership is about having the confidence and belief in your business.
Leadership is about having the confidence and belief in your product.
Leadership is about having the confidence and belief in your plan to win.
Leadership is about having the confidence and belief in your advisers and your team.
Leadership is all about having the confidence and belief to take massive action… now!
Leadership is about being on top of your numbers and running a profitable and sustainable business!
Go for it!