Why do small and big businesses fail? And what makes a successful business? How do you know if you're headed in the right direction as a business owner?
There are many troubling statistics on the failure rate of start-ups and small businesses. Maybe you're one of them, but you're surely not alone.
Estimated reading time: 5 minutes
Drastic Failure Rate of Businesses
Giants and long-time retailers such as J.C. Penney, Neiman Marcus, Sears, Toys "R" Us, and GNC have all declared bankruptcy in the past few years. They are reminders that size doesn't guarantee customer loyalty or invincibility. A few wrong decisions, poor leadership, and even an unexpected crisis such as the COVID-19 pandemic or the 2008 recession can take down a company quicker than we'd like to admit.
In November 2020, the Bureau of Labor Statistics reported that approximately 20 percent of small companies fail within the first year. By the end of the second year, 30 percent of businesses fail, and half will have failed after five years. Only 30 percent of businesses will remain within one decade, meaning 70 percent of businesses will fail.
Yet, as many as 637,000 new businesses open every year despite this dramatic failure rate. Additionally, the pandemic has prompted many more people to join the Gig Economy. In 2020, 4.38 million business applications were submitted.
Do You Think Passion Is Enough to Build a Successful Business? Think Again.
Many entrepreneurs begin a business because they have a passion. Unfortunately, they often don't have the necessary business experience. It's common to overestimate one's abilities and underestimate the challenges. And many discover too late just how much staying power, leadership, and emotional intelligence are required to make a business thrive.
After more than two decades as a business owner and business consultant, I know just how hard it can be to avoid or navigate costly mistakes—even if you specialize in teaching others how to be emotionally intelligent leaders!
Below are five mistakes and how you can leverage emotional intelligence to avoid them.
Costly Mistakes to Avoid in Business as an Entrepreneur
MISTAKE #1: Believing That Having "More" Will Solve Your Business Problems.
In working with entrepreneurs and companies over the years, I've often seen the desire for "more" slyly cover the real problems. This challenging mindset arises when we're looking for someone to rescue us or catapult us to immediate success. For example:
- More employees. Hiring more employees when inefficiency, poor leadership, and workplace drama devour resources is a mistake. These problems should be addressed before additional hiring.
- More knowledge and expertise. Business owners often bring in a new C-Suite leader believing their knowledge and expertise will solve the company's issues. But how can you hire the right leader before defining your core challenges?
- More money. Funneling more funds into a company by an investor with deep pockets or an SBA loan at low interest can prolong careless leadership and poor decision-making.
- More time. Giving employees more time or a different position when their work is subpar only postpones the unpleasant but inevitable decision to fire them.
As a business owner, discriminate between adding "more" as a quick fix versus having a thought-out strategic plan that enhances your company's primary objectives. Lean into problems with eyes wide open.
As M. Scott Peck has said, "A healthy organization is not one with an absence of problems, but one that is actively and effectively addressing its problems."
MISTAKE #2: Hiring Too Quickly.
I've heard the common advice to hire people to handle everything you don't love doing or aren't good at in your business.
Of course, this can be smart advice if your company is growing exponentially and you need to concentrate on your core services. However, it can be easy to hire too quickly and prematurely delegate responsibilities before clearly defining what is most needed. This short-sightedness consumes precious resources necessary for crucial channels.
You must take full charge of your business before passing the baton.
Take time to compare your employees' strengths to the company's goals. Identify your greatest needs before hiring, and then employ skilled applicants to fill the jobs that would limit or harm your business without their expertise. Particularly, delegate those tasks that take you away from your most valuable contribution to your company.
MISTAKE #3: Delegating Without Guard Rails.
Many business owners delegate tasks haphazardly because they are eager, even frantic, to get things off their overflowing plates. Yet, giving employees too much responsibility too soon without enough guidance or measurement is a major misstep.
An example of delegation at its most basic form is watering plants. In an attempt to get something off my perpetual to-do list, and thinking that watering was a no-brainer, I asked my employee to water more than a dozen office plants. Unfortunately, the employee watered so profusely that plants sat in 2 inches of water, which many varieties don't like.
Boy, was I dead wrong not to give more guidance—and so were a few of my plants!
Take time to plan adequately and give clear direction. Then, provide the specific ingredients for your employees to succeed—even excel—without micromanaging them.
MISTAKE #4: Hiring People Who Value Efficiency Over Effectiveness.
I discovered the hard way that efficiency is only a valuable trait when matched with effectiveness, clear guidance from an employer, and deliberate and achievable goals.
Another past employee of mine once prided herself on efficiency. For instance, she ordered an extra hundred event brochures for future events and saw this decision as forward-thinking efficiency. Unfortunately, there were no further events planned. Plus, she neglected to notice that the brochure's cover prominently displayed the title and dates of a specific event, making it impossible to use the extras in the future. Ouch!
Checking things off a list releases dopamine in the brain and often makes people feel good about themselves, but efficiency is only as good as one's decision-making.
Build a structure that gives employees clear direction and open communication to ask questions along the way. Be intentional in defining company goals and initiatives, measure everything to get desired results, and hold your managers and employees accountable to do the same.
MISTAKE #5: Ignoring Market Trends.
Blockbuster, the video rental franchise, was at its peak in 2004 and by 2010 closed the doors of all 1,000 locations! The franchise had the opportunity to buy Netflix (founded in 1997) but declined.
Then, convenience took the public by storm: no late fees and mailing DVDs at their leisure. It was a winner! Netflix continued to soar and remains at the top of TV and streaming choices, receiving 44 Emmys in 2021. Netflix quickly took market shares and embraced the video and TV series streaming popularity, becoming a leader that still stands head and shoulders above its competitors.
To survive a fast-changing market, we must be able and willing to quickly pivot with new trends and changes. Business agility and resiliency are no longer a luxury. If the pandemic has taught us anything, it is this!
Choose wisely where you put your attention and resources. Listen to the feedback of your customers and employees. Frequently consider shifts in the market and potential opportunities. Reevaluate projects when they demand too many resources; there may be a better direction or use of resources.
Aligning with company values creates stability while also allowing for flexibility.
I built Heartmanity to be an organization of thrivers who love to help other business owners thrive, too. For over two decades, we've helped businesses avoid and overcome these costly mistakes so they can thrive. Let us train your leaders and teams in emotional intelligence. Contact us at email@example.com.