Source: Image of man holding head, money symbols, target and arrow, squiggly line, man talking to group, papers, clock, sun and cloud, male teenager, clipboard, female owner, female customer with bag, male customer, female customer with paper, female teenager, sun, abstract crowd, images by Video Scribe, License held by Jeff Carroll; Image of thumbs up and down, Creative Commons, Kelly Eddington; Image of storefront, Public Domain, http://bit.ly/1l51GoG; Image of coke crate, Public Domain, http://bit.ly/1ufst0W.
Hi, I'm Jeff and in this lesson, we'll learn about some of the reasons small businesses succeed or fail. So let's begin. When a small business fails, it is often due to one of the following reasons. Mismanagement. Running a business requires experience in many areas of management and a weakness in one of these areas can cause managerial failure. Financial miscalculation. If a small business runs out of money before becoming a viable profitable business, or if a small business doesn't have the cash flow coming in to handle growth, this can cause failure.
A lack of focus. Some small business owners don't devote full time effort to a small business, and this can cause the business to fail. Or uncontrolled resources. Now, small businesses often have limited resources. If those resources aren't used efficiently due to poor methods of resource management, such as poor checks and balances and no decision auditing, then a small business can fail.
Avoid those issues and there's a better chance that the small business will succeed. In addition, a small business should focus on the following. Management and leadership. The proper management of people working for the business, as well as the financials associated with operations, will improve the chance for success. Planning and organizing how you handle the demands from consumers as well as the production of goods or services is necessary for success. Hard work. This should go without saying, but starting a small business requires hard work and a devotion to all the details of the work must occur for a business to succeed.
And luck. Yes, luck, to some degree, is necessary for success. Delivering the right product to the right set of people at the right time helps greatly. But performing all the other steps necessary for success so your business will be ready if this happens is also a must. So let's run through a case study of a small business and review the areas where success and failure can occur.
Imagine you're starting a small business that sells cupcakes. You have your store front, you've set your price, you have your recipes. What happens next? In order to be successful, it helps to consider how you'll manage those who work for you. Perhaps you should outline the exact goals for the workplace so everyone knows the expectations. Specify the rewards for doing a good job and the consequences if they don't. Leadership is often associated with clearer communications.
On the other hand, ignoring the work necessary to manage the employees at your store could lead to failure. In addition, you shouldn't rely solely on employees. If you spend time at the store watching over operations and interacting with customers, then you'll understand what needs changed in order for your cupcakes to sell better. But if you lack the focus for that effort, then you might be blindsided by problems.
Now, imagine the cupcakes start to sell and sell well. There are lines around the block. That's success, right? Yes, but you also need to manage your cash flow well now. You might need to expand your operations, rent a larger space, hire more employees, and that all will take more money. If you commit to that extra cost, you need to be sure that future cupcake sales will support it. A financial miscalculation at this point can cause failure even after success. And of course, we wish you the best of luck, because any small business needs some of that, and so do large businesses.
Large businesses are far from immune to these same missteps that lead to failure. The Coca-Cola Company is one of the most successful international businesses in the world, but in 1985, they decided to change the formula for their soft drink. This became known as New Coke. Why was this done? The old Coke formula was being beat in taste test by Pepsi and the New Coke formula was doing better than both in early taste tests, so they made the change. But what Coca-Cola didn't realize is that those making this decision were subject to group think, where people with similar attitudes look at the same information in a biased way and ignore other information that contradicts their opinion.
There was no external audit to these decisions, and their failure was due to uncontrolled resources. At first, New Coke did well, selling in similar numbers to original Coke. But soon, a backlash started. Coke admit had spent many years developing its brand as a core value of America, and a number of people didn't want that to change. Pride in the product drove a campaign to restore the original Coke formula, and Coca-Cola eventually relented and original Coke was returned.
Coca-Cola failed, but notice that they quickly recognized this failure. In fact, original Coke sales increased over what they were originally. A large business can sometimes weather a failure like this in ways that a small business cannot.
OK, good job. In this lesson, we learned about success and failure in small businesses, and we reviewed a case study for small business and one for a large business to demonstrate how all businesses have similar concerns and issues. Thanks for your time and have a great day.
