Failure is a word that makes people feel uncomfortable, it’s not in our nature to embrace or celebrate fails, but there are many ways to learn from them, that can make us and everything around us better in the years to come. But in the business world, a failure can result in devastating consequences. For that reason today we are going to show reasons why a business fails, to better understand the ugly side of the corporate ladder. 

Why is it important to know the reasons a business fails?

There are so many things to learn from a successful business story, but those who failed show better lessons for the future. Making good research can prevent mistakes, and of course they will show reasons why a business fails. Surprisingly, when startups embrace failures, they can grow ten times within their area. You can even find conferences about why a business fails, like The FailCon that showcases different scenarios and examples to stop being afraid of failure.

Ten reasons why a business fails

Here are the most important reasons why a business fails, with examples for a better understanding, because, as Robin Banerjee said, «To err is human. The lessons are priceless.» 

– Missing innovation: for any company, innovation is key, remember the one who adapts better to changes has a high possibility of success. Besides that, the future is all about breakthrough innovations, taking into consideration the changing customer needs, and creating new strategies with that in mind. If a company anticipate the future, it can bring so many good results and success. Some companies failed to understand innovations such as Kodak, Blackberry, and GoPro; others need to change like Germany’s luxury car giants to embrace electric cars. 

– Business models: when changing technology to adapt to customers’ preferences in order to be innovative, some companies need to change the business model. This change can be a mix of the old and the new ones or a drastic change to embrace the new model. But in 2020, every company that wants to stay in the game board understands the digital approach and the new technology that it involves.

– CEO and founder problems: founders and CEOs are the natural leaders of every organization, but it turns out that the person behind those positions could not be a leader, presenting problems of authoritarianism and dismissing teamwork. Those in high positions need to be charismatic, open to teamwork, to hearing and accepting different opinions, stopping antagonism, working alongside the company’s boards. Being a capable leader with credibility and compassion is key in every business. 

– Quality: when a company starts looking for speed and cost-cutting processes, the organization’s general quality and the training are at risk. This just portraits huge incompetence and the disregard of warning signs. Few examples are the incidents with automobiles from Toyota and GM, exploding devices like Samsung Galaxy Note 7, or food contamination, which happened to Kellogg’s and Lactalis. Quality is an angular stone in every business; ambition could not overpower quality. 

– Family business: many of the big companies in the world are family businesses; they have been led for many generations. But as everything within families, ruling a company is hard, there are money problems, fights overpower, succession problems, among others. Family-run businesses need to stick to open communication among family members and stopping old models like arbitrary management, nepotism, and past glory. Good examples of family-run companies: Ford, Dior, BMW, Suzuki, Swarovski, and Samsung.

– Mergers and acquisitions: in theory, this can present many benefits for companies like market share, saving cost, synergy, resource sharing, more talent, and better growth. But in reality, mergers and acquisitions are a hard challenge and normally a failure. This is due to incompetence, bad timing, regulatory missteps, culture clash, and lack of due diligence. One example of a bad M&A was Microsoft and Nokia phones not comments on that part, but a successful example is Disney and Pixar, the first is the money muscle and the second is the creative team. For a successful M&A, each company needs to be open and willing to learn and negotiate with the other, building trust and respect. 

– PR fiascos: public relationships are so important nowadays that the image of a company is a good part of its success. In this world dominated by social media, a good image can increase the value of said company. One of the biggest mistakes for any business is to present a lie with PR, which principles are: humility, transparency, and regret, especially in the middle of a blunder. Examples of deceits through PR are Volkswagen’s deceit in under-reporting emissions from 2006 to 2015, BP’s oil spill in the Gulf of Mexico, and FIFA’s repudiation of corruption claims. 

– Governance ills: many companies work alongside their country’s government, but this can bring some shady business. Corruption, fraud, espionage, and lack of long-term thinking have been the downfall of many companies. Sony faced governance disputes and strategy shortcomings, and there are many cases of bribery of government officials from tons of companies around the world. 

– Debts: debts can be a terrible trap for small companies or startups, they will always need the loans, but they also need to master dealing with them. A failure within the payments can present lower credits ratings, negative employee moral, reduction in the market value, and even penalties. Sears is an example of a debt trap; they have been in close bankruptcy for years. 

– Human error: one of the worst mistakes in a company is the individualism of the employees, with short term thinking and inability to delegate. This can lead to mistaken judgments and missed opportunities. But this is just simply a part of human nature. One of the most famous examples here is that 15 publishers rejected JK Rowling’s’ work. The important improvement is to be as realistic as possible and have an open mind for advice and suggestions. 

There are many reasons why a business fails. At the end of the day to err is human, a robot can be in charge of processes as part of digitalization and innovation, but the organization of a company is in charge of humans. Learning from mistakes can enlighten a team, so every organization must cultivate a culture of open dialogue, feedback, corrective steps, and admitting mistakes. 

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