It is quite a known fact that 8 out of 10 entrepreneurs who start businesses fail within the first 2 years. This was according to Bloomberg and there is probably a lot of truth to it. I’ve personally seen many start up’s fail. It’s heart breaking, especially if you know the entrepreneur personally and have shared in his joy and excitement as he started the business.

But what exactly is business failure? Most often a business failure is defined as when the business ceases to exist. Usually it is because the business ran out of cash. Yes, that certainly is a business failure and there are many reasons to such a failure. It could be because of poor leadership, poor financial management, an unprofitable business model, lack of sufficient capital or a combination of two or more of them all. We all agree that when a business has ceased to exist, it has failed. But does that imply, if a business still exists, it has been successful?

I think not. If any business is not functioning on all cylinders, it most certainly is not achieving its goals. This is a business failure too. And usually it is because of a lack of discernment between investing and spending.

In my opinion, there are more types of business failures other than just “ceasing to exist”.

  • Businesses struggling to make ends meet
  • Businesses that are profitable but are cash poor
  • Businesses with a large amount of debt, often times larger than their receivables
  • Businesses with very little to zero market understanding
  • Businesses with very little to zero customer understanding
  • Business that have lost sight of their core values
  • Businesses with disgruntled and dissatisfied employees

These are all some examples of failed or failing businesses. A business that has “ceased to exist” is dead, but struggling businesses are like disease stricken individuals. They are alive, but far from optimum performance. The business processes, the staff, the assets and the day to day busyness portrays an image of a healthy company, but in reality is struggling within.

Example: Consider a person who lives in a massive mansion, owns a fleet of expensive cars, and dines in the finest of restaurants, wears the most expensive clothing and is famous but is up to his nostrils in debt. He has no peaceful sleep. He looks fine from the outside and the whole world knows him, but would you consider him successful?

Why not judge a business the same way? And why does this happen?

It’s usually because of a series of wrong decisions taken at critical moments. That is why it is essential to make “evidence” based decisions as opposed to gut feel.

Unfortunately, many such business owners are often blinded by day to day challenges. They lose their ability to discern the difference between an expense and an investment. The challenges and harsh experiences of each day have caused them to be overly cautious and they cling on to every single cent. Their intentions are good. They can see that their business is not what it should be. They are trying every trick they know to run a rescue operation but it isn’t working. They are hoping to build up cash reserves by controlling the out go of money. Right solution but wrong strategy. In the process they fail to invest in the very thing that can help. Now you have a perfect recipe for a business failure. Though the business might not “cease to exist”, it is almost a daily struggle to stay afloat. Considering that the business still exists, is it a successful business?

Of course, this might not be true of all businesses. A successful business in my opinion (as opposed to a failed business) is one which is thriving, expanding, growing, providing for many families and has the cash reserves to fuel the growth. There are thousands of such successful businesses, but you will also notice that these businesses are well equipped with ammunition and appropriate business tools that helped them get to where they are, from small beginnings. Business Intelligence is one of them. It didn’t happen magically. Those very tools are still being used to help them maintain their success, without which they could rapidly slide down too.

The difference: Mind set. The discernment to know the difference between an investment and an expense.

In reality, much of the above “business diseases” could easily be resolved by implementing appropriate tools. There are easy to use software tools that make complex data analysis a breeze. Some software tools even predict and forecast a most likely scenario based on the current trends. Business owners can then take both preventive and proactive measures and ensure business success. Timely evidence based decisions with minimal possibilities of going wrong, would now be possible. Now that would be an “investment” and not an “expense”. If anything can help avoid potential disaster and in fact help increase profitability, I would consider that an investment and not an expense.

One can learn some very basic yet profound business skills from a farmer. The secret to reaping a great harvest is sowing good seeds in good soil in the right season. The farmer also knows that some of his harvest HAS to go back into the ground for more harvest. Clinging on to seed won’t bring forth a harvest. In fact, it is very counterproductive. So also clinging on to profits just to protect cash reserves is not a cure. One needs to sow some of it back into the business for bigger and better returns.

In conclusion, yes there are many businesses that do fail due to poor leadership, bad finance management, unprofitable business models and a variety of other reasons. But remove all of those obvious parameters and most businesses need not fail….or even be disease stricken. All one needs is some discernment. The ability to discern between an investment and an expense. An investment made in the right time can give you back more and more each year.

An easy to use self-service Business Intelligence tool is certainly an investment that gives back much more than you spend on it. I would encourage business owners to set aside some of the harvest and sow it back into the ground in the form of Business Intelligence.

What do you call doing the same thing over and over again, and expecting a different result?

Santosh Chandran is the Business Development Manager for BOARD Management Intelligence at Olympic Software. He regularly blogs about business intelligence and corporate performance management. You can follow him on Twitter  or on LinkedIn.  Please contact him directly if you would like to find out how BOARD can improve your business results through better decision making, phone 09 980 3964 or email: santoshc@olympic.co.nz