Three major reasons for business failure

Business fails due to several reasons. Many of you might have some experience, somewhere in your life, in going through the mill over business failure. You might remember or perhaps forgotten the reason why you failed. Harking back let me joggle your memory over three major reasons for your business failure:

1. Not doing the maths right 

Business is all about numbers, this is irrefutable fact.  You buy or manufacture a good in monetary terms; you hold it in inventory in the interim which costs money; then you sell the goods for cash or credit; if it is cash money flows in straight away; if it is credit the period of such credit costs you bank interest which you have to pay. Everywhere you turn you see numbers. Beginning from the planning stage to the final implementation of your business plan you are slapped with numbers. In sum, if you do not concentrate on facts and figures your business is vulnerable for failure.

2. The Big Picture is lost

Business strategist tends to emphasize on getting global picture for a firm and the business it carries out rather than merely concentrating on day to day admin that too in making profits only. This arises due to worries about survival in the short term entailing in constant fire fighting between marketing and production departments. Marketer wants to cut price in a short term deal with a new buyer; production department grumbles because lowering price means either lowering quality or reduction of manufacturing profit. Taking the big picture a firm must manage price reduction selectively so that it gets short-term cash-flow as well as long term survival.

3. No reverse engineering in the value chain

If you see your income statements, first and prominent figure is sales or turnover. However in most cases value chain process starts with production. You manufacture or stock goods first and then find out how to sell these. In this case the value chain goes from production to marketing. In business strategy, value chain needs to be on the other way around. That is marketing precedes production. This is known as reverse engineering. While doing your annual budget you must first ask the question what the market demand is and how it works out for you. From this point onwards, you must focus on your value proposition and go reverse gear to find out how your production department can cater to the market needs with a good offer!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist