Be Honest - Is Your Business Failing?

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I think it’s important for a business leader to consider the scenario, “What if the business does not work?” Of course, it’s not something that anyone wants to contemplate. But it does happen, and how you respond to it could have a great deal of impact on your stress and happiness.

Typically there are two ways that this situation plays out:

  • Failure of demand

  • Failure of execution

In a failure of demand, there has usually been some hypothesis about the existence of a profitable market that does not pan out. In a failure to execute, it means the market may have existed but the business loses out through making the wrong moves or has been too slow in exploiting it. 

A large enterprise can often absorb the shock of a failed product - multiple ones, even. For a startup/SME, however, it can quickly become an existential issue. The investment required to test the market (especially if a product is developed) can be enough to seriously compromise its future.

When things go wrong like this it is both painful and sad for all concerned, but its not necessarily the worst possible outcome. A failure can be a great learning experience and, after taking some time to recover, it is possible to start again with a new idea, team, or both. But in many cases this is not what happens. Why? 

It’s often the case that people have a lot invested - both financially and emotionally - in their business. The ‘sunk cost fallacy’ may then lead them to throw good money after bad in keeping the business alive. Realistically, the more pragmatic move might be to shut it down.

It’s been my experience that smart, determined, people can often find clever ways to ‘preserve the corpse’ so that, while the business is no longer alive in any meaningful sense, it continues to live on for quite some time as a ‘zombie’.

Why is this a problem?

1. It’s depressing. A zombie business tends to tread water and never quite creates the momentum it needs, which drags everyone down.

2. There is an opportunity cost to be paid in terms of other ventures that you could be pursuing instead, but are not.

3. Lastly, while it may be that a rabbit can be pulled from the hat and the zombie business comes to life, more likely it will shut down at some point. You’ve just stretched out the hurt. No one needs that. 

This last point is a difficult one because there is a good chance that, despite all the evidence that you may be wrong, you still *believe* in your business. After all, if you didn’t -you wouldn’t have started it in the first place. There is a tendency to hang on as long as you can. Understandably, so. 

It may not be fun, but the wise thing to do is to think up front about what kind of meaningful signs of life and progress you should expect from your business. Put a system in place to evaluate these on a regular basis. Know what decision you will make depending on what you find.

Here are some concrete steps you can implement:

1. Evaluate your investments - If you are already in a business, recognise that what you have invested so far does not justify making future investments. You need a way to objectively evaluate future prospects. Read some poker books and look into the ‘sunk cost fallacy’.

2. Be realistic - Face up to the possibility of failure. It could happen. Read some stories of entrepreneurs who have failed. Some were able to turn it into a positive, growth, experience that improved their future ventures. It probably won’t be as bad as you fear.

3. Set progress milestones - It’s okay to be generous in how you define these but you will know what constitutes real progress and what looks like treading water. For example, “The business *must* deliver an MRR of at least £X by year Y”

4. Seek support - Put in place a system for getting objective feedback, advice and support, such as regularly checking in with a navigator or advisor. It needs to be someone who, if they suggest things are trending the wrong way, you will give a hearing and really listen to what they say.

You don’t need to publish this or talk about it in within your business. It’s here for you as a backstop and a way of getting a better perspective into whether you have a thriving business worthy of your blood, sweat, and tears or not.

If you don’t, have a wake, give it a Viking send-off, lick your wounds, and then go on to do something better.

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