Reprinted with permission of Evergreen Newspapers
What Causes Businesses to Fail?
When the economy turns down, there is always an increase in business failures. At the same time, there are always businesses which thrive even in tough times. I have thought a great bit about why this dichotomy exists.
I recently completed Jim Collins new book “How the Mighty Fail.” which studies the downfall of once mighty companies. He maps out a five stage formula to track the downfall and predict whether a turnaround is possible. Many smaller companies, don’t last through five stages, they simply go from viable to unable to make payroll as revenues are pushed down by a tough growth cycle.
One of the key points Mr. Collins makes is that successful companies must understand what has made them successful. That is, even in good times, what is it that attracts customers to the company?
My observations convince me that if asked, “What is it that attracts customers to you and causes them to keep coming back” many CEO’s would struggle to give a clear answer. Allow me some examples, please. Would the head of the post office know the answer, hmm probably not. How about Chrysler or Sears? I don’t think so. What about Southwest Airlines, Wall Mart or Fed Ex; you bet they know and they focus on the delivery every day.
So, the point is that all business owners should focus on maintaining whatever attracts and retains customer loyalty. If you have the lowest prices and the best deals in your industry, raising prices is a formula for disaster. If you differentiate yourself with personal service, reducing your service offering will do you in. Would Wall Mart ever give up their absolute fixation on low prices or would Nordstrom lessen its clear focus on the customer and the service excellence strategy?
In order to follow the simple idea of not giving up what makes you special, businesses must know what their differentiator is. The weak economy may hasten business failure, but businesses that don’t understand and protect what’s special about them are on borrowed time anyway.
As the economy improves, and business cycles dictate that it will, those businesses which strengthen what makes them special will recover faster and better. The business cycle doesn’t define business success, the ability to deliver what makes a business special does.
Jim Rohrer, Managing Partner of The Loyalty Partners is a business consultant and expert in loyalty
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