Acumen Partners Articles

Success or Failure…May the Odds Be Ever In Your Favor

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Business pundits often use stark numbers to capture attention. They throw out statistics like:
“80% of businesses fail in their first year!” or
“95% of businesses fail within the first 5 years!”

The truth is that new businesses are more likely to be alive after 5 years than to be dead. Better yet, for each year past their 5th birthday, the likelihood of survival actually improves! That’s the good news.

The real danger faced by entrepreneurs isn’t outright “failure” per se. It is actually the “failure to thrive”. After adjusting for companies with no employees and averaging across industries, the picture of operating companies posting consistent profits (i.e. “thriving”) looks very much like the standard bell curve. If we define “thriving” as EBITDA of 10% or better each year, that means that 85% of businesses are not thriving. It implies that 30% of businesses struggle to post profits or break even each year. The rest are actually losing money on an annual basis. Ouch.

The top reasons for failure to thrive hold true across companies of all sizes. They include:
  • Inadequate cash flow/poor cash management
  • Insufficient leadership & management
  • Lack of clear focus or purpose across the organization
  • Inaccurate market perceptions
  • Poor or faulty reporting/transparency
  • Emotions/politics trump over sound reasoning

All of these hurdles have at least one thing in common. They are all solvable. If all of these stumbling blocks can be removed, why do they continue to plague companies year after year? What do the 15% of companies that thrive know that their market companions do not? What practices can non-thriving companies adopt to change their trajectory?

  • Use Data to Get Your Bearings: Thriving companies employ strategies that prioritize data in the decision making process. The best data strategies collect information from both internal and external sources. The investment they make in data best practices is rewarded by ongoing profitable operations.
  • Prioritize Efforts to Make Changes: No company can address every element that needs attention simultaneously. Thriving companies have disciplined approaches to identifying challenges, understanding the impact, and focusing resources to resolve the challenges with the highest ROI.
  • Employ a Process of Ongoing Improvement: Thriving companies have adopted some form of ongoing continual improvement. Larger companies benefit from structured approaches like Six Sigma, Total Quality Management, or Lean. Smaller companies are able to get great results from less formal improvements models such as PDCA (Plan, Do, Check, Act). The key isn’t in which process gives the best results. It is formally adopting and executing some process of continual improvement that prioritizes objective data driven insights.

Bottom line is that most companies are capable of thriving. Their failure to do so isn’t tied to the market they are in. It is the result of an inadequate understanding of the metrics of both their own company and their competitive landscape. By introducing objective data into their decision-making and planning processes, they could quickly change the trajectory of their business and join the 15% of businesses that flourish.

Steven RowleySuccess or Failure…May the Odds Be Ever In Your Favor

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