“Fail fast and often” is a common theme in many circles. The idea is that failure is a teacher that can lead to success. But there is a thin line between failing to learn and a failing business. And that line is often apparent if you know which signs to look out for.
Fifty percent of all new businesses fail within five years. And that figure moves to 70% after ten years. These failures are usually clustered around a shortlist of reasons. These include no market need, low or no cash, cost issues, bad team cohesiveness, etc. But what are the signs entrepreneurs can look for that signals the difference between failing constructively and failing in a way that takes the business under?
9 Signs to Look Out For
When a business needs help to get it back on track, there are signals that singularly or in combination can be disastrous. Here are nine signs that you can watch out for that will help motivate you to reach out for help when needed.
Many new companies go through a seed or investment phase where there is no profitability. But once the company has matured, profit is paramount. If profitability drops or reverses course, it may be a sign that something is wrong. It could be an operational problem, a management problem, or a finance or accounting issue. But if you can’t make a profit, you need help.
2. Negative Cash Flow
Many new entrepreneurs get into trouble calculating cash flow. Profitability may be there on the books, but if customers have negotiated payment terms (standard with selling to big-box retailers), then you may find that even with a profitable operation on paper, the cash has not come in to cover operating expenses. This is an especially devious trap to fall into for companies that have existed on the “cash burn” from a seed round where the proper cash flow for the next phase may not have been thoroughly planned.
3. Failing to Meet Customer Needs
Many startups operate under lean startup regimens. Because of this, they utilize minimum viable product (MVP) methodology to roll out their products. However, if this results in quality or field failure issues, customer expectations can tank. There are many other reasons why customers may lose faith, including lack of customer service, communication issues, and many more.
4. High Turnover
If you’ve hired friends and former coworkers in a new business, there is usually a cohesiveness that comes with that familiarity. But as the company scales, new staff are added. If job satisfaction, pay, conditions or communication are lacking, the result can be high turnover. This is compounded by the cost required to recruit, train, and carry the employee on the books.
5. Training Issues
Startups can be chaotic, fast-paced, and brutal for the owner. Depending on the complexity of the product, it may be hard to find well-trained staff. If employees are untrained or improperly trained or just fill a gap until the company “catches its breath” from the last wave of orders, training can create a drag on efficiency, quality, and profits.
6. Lack of SOPs
Lack of SOPs is another problem often related to scale. It may be that the business is growing so fast that there is no one skilled enough to write the SOPs and update them quickly enough to be understood. Or it may be the case that the owner is untrained in writing an effective SOP that can bring order and organized work instructions to those performing the day-to-day tasks.
7. Little or Bad Marketing
While entrepreneurs and founders are responsible and accountable for the whole company, that doesn’t mean they are experts in every functional area. Many need help with finance, manufacturing, operations, and other functions. And marketing is a critical issue. It requires specialized skills to create a buzz at the right place and time and drive interest in the product. If a new business owner doesn’t market or does so ineffectively, it may be a sign they need help.
8. Poor Time Management
Just because an idea is catching fire, that doesn’t mean an entrepreneur’s time management skills are equally revved up. The faster a company grows, the less time an entrepreneur or founder has per task. Many have invested blood, sweat, and tears into the idea. As a result, they may take too long on tasks or spend too much time dealing with minutia when other decisions need to be made. Principled time management with prioritization is essential.
9. Inability to Delegate
Because their energy and hearts are in the business, many entrepreneurs don’t know how – or when – to delegate. Because founders are required to do all functional management at some point (accounting, shipping, designing, etc.), they can get bogged down as the company grows. And many entrepreneurs wait well past the time when they need to pass the hat to a specialist. Often referred to as “many hat syndrome,” the result is that tasks within that area are not done or not done well, causing problems.
Where to Turn if Your Business Needs Help
These are just a few of the signs that your business might need help. Fortunately, the Henry Bernick Entrepreneurship Centre (HBEC) at Georgian College is here to help. By providing training, leadership, mentorship, and other programs, HBEC assists new entrepreneurs to hone their focus and learn where to identify resources when they need help. They can also find assistance in design and innovation for their ideas to help them learn the skills to identify problem areas before they occur.
And they can help train those leaders in business planning and growing their business using the expertise and resources available at the Centre. To find out how HBEC can assist entrepreneurs when they need help the most, contact us today.