Introduction to Principle One

Quick Summary: Business failure, not success, is the norm for businesses of all sizes and stages.

Abstract:

Principle One, Stay in Business, is so obvious that it is often dismissed.  Unfortunately, business extinction is the rule not the exception.  Businesses are not started or operated to fail but, in most cases, they do.  Keeping this notion in mind and taking action when the first signs of potential trouble appear is critical in planning appropriate responses.

This principle, Stay in Business, is so obvious it is often questioned as being even necessary to discuss with the common quick response by many of, “of course.”  However, as discussed in author Arie De Geus’s book “The Living Company”, the average life expectancy of a large, multi-national company (~ Fortune 500) is forty to fifty years.  In the U.S., less than half of all new companies still exist after five years and 80% fail within ten years.  For startups, the survival rates are far lower.  As a depressing exercise, perform a Google search on startup failures and read any of the articles.  The quoted survival rates will vary from one article to another, but the overall numbers are not good; typically quoted in single digit percentages.  These startling statistics seem to indicate that company extinction rather than company survival is the norm.  Boards, management, and all employees need to focus on this first principle to buck the odds and keep their institutions alive and well.  If the company does not stay in business, the other six business principles described in this collection simply do not matter.

It is interesting to note that the often-stated number one reason that companies go out of business is due to the incompetence of the entrepreneur, CEO, or senior management.  This is a convenient but simplistic explanation, usually determined by outsiders after-the-fact when hindsight is 20-20.  Perhaps a better explanation is a lack of understanding or willingness to take action about some facet of the business or its environment that has occurred.  Any number of issues could cause the lack of understanding.  It could be a blind spot in which the reality of the marketplace or current competition is not realistically assessed.  It could be due to a lack of expertise in a critical or new area.  It could be a rapid and unexpected advancement in technology.

In recent years, the appearance of a disruptive approach to the business has gained widespread recognition as a major factor for established companies quickly losing market share or even disappearing.  Actually, disruption has been occurring for centuries; even long before the beginning of the Industrial Revolution. Only today, it appears to be occurring at a faster rate.

The “matching” capability of suppliers and sellers through the Internet is an excellent example of disruptions that are occurring every day.  An ongoing example that we all are witnessing in real time is the decrease in viewership of the classic television broadcast channels.  Just as the VCR allowed time displacement of television shows, broadband access is now allowing most broadcasts to be viewed any time, on any device, at any location without the necessity of setting a VCR which, incidentally, probably still has the blind 12:00 on the time display!

Another cause of business failure could be the result of a totally unrelated event such as the September 11, 2001, terrorist attack that impacted many businesses.  In fact, many businesses far away from the actual attacks did not survive because of the resulting economic downturn.  The sensitivity to any of the aforementioned root causes could be especially problematic for entrepreneurs or small companies.  They may have excellent skills in one area, perhaps engineering, but lack skills in others such as sales, marketing, or finance.  Or, it could be a lack of grasping the concept of Adapt or Die.  In today's fast-paced environment, maintaining the status quo is akin to moving backward.  Like a coin tossed in the air, if it is not moving up, it is moving down.  Unlike a coin that is primarily impacted by gravity, there are many factors that can cause a company to begin an ever increasing downward spiral.  We cannot stop gravity, but through awareness, we can stop many of the factors that negatively impact our businesses.

Staying in business is everyone’s responsibility.  Rarely does a business failure happen quickly or is it a surprise.  There are, of course, exceptions such as the 9/11 attacks, but in general, someone always seems to see the potentially fatal issue coming while it is still on the horizon and there is time to make a course correction.  Unfortunately, in most environments, bringing up or predicting bad news is culturally unacceptable.  Individuals that ring the alarm bell are often characterized as not being team players or not embracing the company’s vision.  The more comfortable approach is to avoid facing reality, often until it is too late.  It is easy for entrepreneurs to fall into this trap.  As passionate evangelists for their creation, they are used to naysayers and overcoming objections.  When actual, potentially fatal possibilities are brought up, they may naturally fall back into their well-rehearsed, overcoming objections response and not heed the warning.

Instead of focusing on just staying in business, a better approach is to be aware and take action to avoid issues that could put the company out of business.  The key words in the last sentence are “be aware”, “take action”, and “that could”.   Asking someone to act as a Devil’s Advocate to question different aspects of the business can be an effective method of starting a “what-if” analysis.  The article in this collection “Someone Will Put You Out of Business” describes some useful exercises to help create an environment and process that may uncover some significant vulnerabilities that are known but left unsaid and unaddressed.

It is never easy to talk about negative outcomes, but ignoring them will not make them avoidable.  They can happen, and the odds tell us that some will happen.  Address their potential head-on to remove or eliminate them.  Just as you do when driving, be aware of potential issues that could develop.  We refer to it as defensive driving.  Try it with your company.  Spend time on “defensive managing”.  Focusing on staying in business will significantly increase your odds of avoiding extinction while others will be scratching their heads during their bankruptcy proceedings saying, “I didn’t see that coming”.

 

Article Number : 2.020102   

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