Wednesday, April 17, 2013

Small Buisness and the Strategy for Avoiding Failure.

In a recent report published by the Small Business Administration reported on the biggest reasons small businesses fail. Based on these statistics. This data revealed common factors that greatly increased the probability a small business would fail. One this list, the 5th factor  that was listed was the failure to develop a plan. This included financial plans, goals and visions, supply chain management, competition analysis and budgeting.

Of all the factors that were multifaceted  the failure to develop a coherent plan was the only factor that involved a variety of different parts. Failing to take one of these steps into account, even if one portion of a strategy is perfectly developed, its a guaranteed way to let your business fail.

In "Seven Ways to Fail Big," by authors Paul Carroll and Chunka Mui highlight a variety of ways in which large business fail to succeed. In my opinion  the ways to fail in "Seven Ways to fail Big" are just as applicable to the small buisness as they are to large businesses  The difference, is that small businesses have so much more to loose.

For example the authors highlight Faulty Financial Engineering as a way to meet failure as a business. The authors highlight how a large mortgage company was selling 30 year mortgages on assets that only have a life span of 10 years. This eventually lead to a large number of defaults. In the short term, the company did well off these mortgages, but eventually this plan backfired. The failure for this company to see the long term financial ramifications of their actions is still haunting them to this day.

Such other examples presented by Carroll and Mui included failure to rethink company goals annually and purchasing the wrong capital. Small business can apply these lessons to their own business the same way a large firm would. The small business should always make a plan with a high level of scrutiny  and the assumption that any failure in planning could end up making them close up shop.

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