From Failure to Success Report

Outlook for 2012:

  Introduction

If a business has not been “proofed” for the future one of two things will happen:

1. The business will not attain its full potential, or
2. The business will fail

Business failure has been written about and researched many times and the underlying causes are usually a combination of factors, some of which are psychological. Unfortunately there has been a preponderance of work on failure and not enough on success. In this report we will look at the reasons for business failures, the current economic climate and will conclude with how to make a business succeed in 2012.

Business failures

There have been many studies on why businesses fail and why some businesses do better than others. The main cause of problems in businesses are the following, in order of the popularity of publication:

1. Insufficient planning – every single report places it as one of the top problems
2. Lack of capital or the wrong application of it
3. Inadequate financial control – cash flow and costs
4. Inadequate management of growth
5. Inexperience in the product  and in management
6. The inability to maximise staff potential
7. Outside factors such as not reading the trends or the economy slowing down

A very significant study was done by Robert N Lussier titled: “A non financial business success versus failure prediction for young firms”, which listed most of the above and more, but they applied statistical analysis models to the research and found that the two most significant differences between successful companies of comparable size and industry were:

1. Planning – Successful companies tend to develop more specific plans
2. Successful owners or executives used the services of professional advisors more than those companies that would fail. – Because it is never just one issue, that cause failure, but always a combination of them, having good advisors or consultants as part of the team helps the business owner to see issues which he would not have seen because he is so busy running the business.

 Current economic indicators

South African politics is heading left and a lot of international goodwill is being lost because of irresponsible statements by people who should know better. It seems thatSouth Africais not the only nation to be having problems with its politicians. The North African and some of the Middle Eastern Arab world have had enough. Loss of confidence in British politicians will affect the economy, and the Americans are set for another disruptive presidential election.

The South Africa Reserve Bank notes that the South African economy continued to grow in the third quarter of 2011, but at a lacklustre pace, while the manufacturing sector contracted mildly due to fragile global demand and strong international competition. The housing market is substantially down but the construction sector showed a modest increase, due mainly to civil construction. Disposable income in households improved slightly allowing the ratio of debt to disposable income to inch lower.

With international investors becoming more risk-averse and withdrawing funding from emerging markets as they sought the familiarity of their own markets, a significant depreciation in the exchange value of the rand was registered from September 2011. This contributed to upward price pressure, alongside adverse developments in the prices of food, fuel and electricity. Consumer price inflation continued its acceleration and by October 2011 had risen to a twelvemonth rate of 6,0 per cent, matching the upper limit of the inflation target range.

European leaders need to provide “credible and large enough firepower” to halt the sell-off in the Euro zone sovereign debt market, or they will risk a severe recession – that’s the assessment of the chief economist of the Organisation for Economic Co-operation and Development, and the root problem facing both policymakers and investors. Unfortunately, it stands to reason that the woes in the Eurozone will affect the ordinary South African because Europe is our biggest trading partner.

Gold will certainly top the $2000 mark, demand for oil could exceed supply, weather will continue to change and some will blame it on global warming. All of these changes will benefit some and be bad for others. Some problems will be catastrophic and there will also be some windfalls.

Having said that, some forecasts are for the oil price falling to $85 per barrel, Europe overcoming its problems and coming out stronger and the US economy starting to bounce back with Obama getting re-elected

Conclusion – how to make a business succeed

 Irrespective of what the economists say, the future of a business depends on the mindset and application of the owner of the business. If the owner thinks that the bottom has fallen out of his world, then it has. He will not succeed and the business will go down for many of the reasons noted previously. If however the business owner sees this as “opportunity time” then he will be able to capitalise on whatever opportunities are available. It is obvious though that some processes must be in place for the business to work. These are:

• Plan properly. Your plan must be strategic in that it has to cover your positioning and your high level direction. It must also be tactical and operational, dictating actions to be taken over a 5 year period and who is responsible for those actions and the results there-of.
• Ensure that you have good advisors on board. One of the reasons why large corporations are large is that they have a board which brings many differing views to the table.
• Have the right capital to do what you need to do. This also includes other resources such as skills and intellectual property.
• Your financial controls must be in place to cover cash flow and costs in particular.
• Be prepared for growth. If it is not part of the equation, you will not plan for it and it will not happen
• Experience is a crucial factor. Statistically, retired executives of large organisations are more successful at starting businesses than those who do not have that kind of experience. This is easily overcome by you, the business owner educating yourself, or better still bring advisors on board who can help in the fields that are lacking.
• Staff plays a crucial role in any business and the implications in a small business are more pronounced than in a large organisation. Some form of performance management system needs to be in place. Having said that, unless there is a culture of performance in the business, it will not work.
• Outside influences play an important role in any businesses future. Trends have to be read correctly, economic conditions must not catch you by surprise. Again, planning and advisors help in this area.
• Notwithstanding the above, it is tough out there. Businesses need to have an approach that says “I see the problems, I know my strengths and weaknesses and I am going to plan for the future that suites my business. This is almost a military approach and I invite you  to click on: Set Your Strategy