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Staying Small Out of Fear of the Fall

Staying Small Out of Fear of the Fall

June 13, 2024
Deborah Edwards

I meet many, many people in business who have unfulfilled potential. It's not because they've saturated the market, or even maxed out their own customer base.

It's because they live and run their business in fear mode... In a "what if i fail?" state of mind.

This plays out in many ways. The fear

  • stops them taking on their first employee because they fear the responsibility of paying someone else's wage
  • makes them think that any success they've had in the past was a fluke. A one hit wonder.
  • says that they will experience rejection if they ask for more and they will lose everything

When people think of business failure, they often imagine a dramatic, waterfall-like plunge: one moment you're riding high, the next you're plummeting off a cliff. However, this perception is misleading. In reality, like success, failure leaves clues. Business failure tends to be a slow and steady decline, characterised by a series of small, incremental missteps and missed opportunities. Understanding this gradual process can help entrepreneurs better navigate their challenges and take proactive measures to avoid disaster. It's not surprising however. Sudden business failure is dramatised by the media! A popular high street shop, here one day, gone the next as if they happened overnight. In nearly all cases of business failure, there were years of poor decisions, ignored warnings and systemic problems that went unaddressed.

Early Warning Signs

Businesses rarely fail without warning. There are usually several indicators that things are starting to go wrong:

  1. Declining Sales: A steady decline in sales is often the first sign of trouble. This can be due to market saturation, increased competition, or changing consumer preferences. It also happens by a lack of action and energy from the entrepreneur and sometimes, undeliberate sabotage.
  2. Cash Flow Problems: Consistent issues with cash flow management can signal underlying financial instability. This includes delayed payments, increasing debt, and difficulties in meeting payroll.
  3. Customer Complaints: An increase in customer complaints or a decline in customer satisfaction can point to product or service quality issues that need immediate attention.
  4. Ignoring Feedback: Failure to act on (or even ask for in the first place!) feedback from customers, employees, and other stakeholders can prevent a business from adapting to changing conditions and correcting course.

The Gradual Descent

The descent into business failure is usually marked by a combination of the above factors. Here’s how the process often unfolds:

  1. Initial Neglect: Early signs of trouble are often overlooked or downplayed. Business owners might attribute declining sales to temporary market conditions or dismiss cash flow problems as minor setbacks.
  2. Poor Decision-Making: As problems persist, business leaders may make poor strategic decisions in an attempt to reverse their fortunes. This could involve cutting essential costs, diversifying into unfamiliar markets, or undertaking ill-advised expansions.
  3. Erosion of Morale: Continued struggles can erode morale, reduce productivity and further decline in sales efforts, service delivery or product quality.
  4. Loss of Credibility: As financial pressures mount, businesses may fail to meet their obligations to creditors, suppliers, and customers. This can lead to a loss of trust and damage to the company’s reputation, making recovery even more difficult.
  5. Desperation Measures: In the final stages, businesses often resort to desperate measures, such as drastic cost-cutting, selling off assets, or taking on unsustainable debt. These actions may provide temporary relief but often exacerbate long-term problems.

So What Can Be Done to Prevent the Fall?

Recognising that business failure is a gradual process rather than a sudden event provides a valuable perspective for prevention. Here are some strategies to help avert the decline:

  1. Regular Monitoring: Implement regular financial and operational reviews to identify early signs of trouble. Use key performance indicators (KPIs) to track business health.
  2. Flexibility and Adaptation: Stay flexible and willing to adapt to changing market conditions. Continuously seek feedback and be prepared to pivot when necessary.
  3. Strong Leadership: Invest in strong, transparent leadership that can guide the company through difficult times, with a growth mindset.
  4. Customer Focus: Prioritise customer satisfaction and be attuned to their needs. Building strong customer relationships can provide stability and a loyal customer base and a reliable sales pipelline

So you'll see, business failure doesn't happen as dramatically as we might think. The clues will always be there and with your strong leadership, you can stay one step ahead. Navigate the stream carefully & vigilantly, take calculated risks and keep your end goals in mind.