Businesses have many differences, but one thing they all have in common is that they are created to make money. So whether it’s a mom-and-pop shop or a Fortune 500 company, businesses profit from their owners.
There are various ways to make money in business, from selling goods and services to investing in stocks and shares. But, no matter the method, the goal is always the same: to make more money than the business spends.
However, sometimes the business can’t prevent spending more than what it earns. This can lead to failure and the business filing for bankruptcy. Of course, many companies want to avoid this, but who is truly at fault when a business fails?
The Nature of Time
Only a handful of businesses in the United States have reached 100 years old. That number is minuscule, considering more than 30 million businesses in the U.S.
The S&P 500, an index of the top 500 publicly traded companies in the U.S., has only 79 members that are at least a century old. The average lifespan of an S&P 500 company is just 21 years. So how come some businesses stay afloat for much longer than others?
The answer may lie in what author and business consultant Jim Collins referred to as the “clock building” versus “time telling” orientation. In his 2001 book Good to Great, Collins argues that the most successful companies focus on building a great company ( clock building) rather than simply being the best in their industry ( time-telling).
In other words, these companies are not just focused on making money in the short term, but they are also focused on building a sustainable business that will generate profit for years to come. This long-term focus is what separates successful companies from those that fail.
It’s Not Just About Making Money
Of course, businesses need to make money to survive. But it’s not just about generating revenue—it’s also about generating profit. Profit allows companies to reinvest in themselves, pay their employees, and grow.
If a business is only focusing on making money, it will likely make decisions that are not in its best interests or employees. For example, a company focusing on only making money might cut corners on quality or customer service to save costs. In the long run, this can damage the business’s reputation and lead to fewer customers and sales.
A sustainable business is one that not only makes money but also reinvests some of its profits back into the company. This allows the business to grow over time and become more resistant to economic downturns.
When a business fails, it’s often because it was not sustainable. For example, the company might have been focused on making money in the short term without reinvesting in itself for the long term. This can lead to various problems, such as outdated products, poor customer service, and high employee turnover.
The Role of the CEO
The CEO is typically seen as the face of the company and is often blamed when things go wrong. However, CEOs are not always at fault when a business fails. Sometimes businesses fail despite the best efforts of their leaders.
For example, during the Great Recession of 2008-2009, many businesses failed even though their CEOs did everything they could to keep them afloat. In some cases, the recession was too much for the companies to handle.
In other cases, the business might have survived if it had made different decisions. For example, a company that decided to lay off its employees to save costs would likely have failed anyway. The layoffs would have led to a loss of productivity and morale, eventually leading to the company’s demise.
However, a CEO is usually at fault for a company’s failure when they bring their personal life into the mix. The most often brought-up personal life issue is divorce. It’s expensive, and it costs them a lot of money. Divorce is why experts suggest CEOs have a divorce lawyer ready. When a divorce happens during a company’s downfall, there’s good to be connected to such an event.
What Are the Consequences of Failure?
When businesses fail, it’s not just the owners who suffer— employees can also be left without a job, and customers can be left without a product or service. In some cases, failure can even lead to financial ruin.
So what are some of the consequences of failure? Let’s take a look at a few:
- The loss of jobs: When businesses fail, employees can lose their jobs. The loss of employment can lead to decreased productivity and increased unemployment.
- The loss of products or services: Customers are left without the products or services they need or want. The lack of products and services can lead to frustration and inconvenience.
- The loss of money: Businesses that fail often leave their investors without any return on their investment. The loss of money can lead to financial ruin for those involved.
- The loss of reputation: Businesses that fail often damage their reputation. A bad reputation can make it difficult to recover and mistrust customers and investors.
In conclusion, businesses fail for a variety of reasons. Sometimes it’s the fault of the CEO, sometimes it’s the economy, and sometimes it’s simply bad luck. Whatever the reason, the consequences of failure can be severe. So if you’re thinking about starting a business, do your research and make sure you have a plan for success.