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Small Business Success or Failure?

Small Business Success or Failure?

Author: James Howard

This lesson is an overview of why business are likely to fail or be successful.

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Small Business: Success or Failure

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Hello. And welcome to this tutorial on Small Business: Success or Failure. Now as always with these tutorials, please feel free to fast forward, pause, or rewind as many times as you need in order to get the most out of the time that you're going to spend here. So as we've already learned, 2/3 of small businesses end up failing within their first two years.

So, why does this happen? And more importantly, what is it that we could learn from these failures and successes that can help us when we run our own business? Well during this lesson, we're going to be covering success or failure. And we're also going to be looking at success or failure in practice.

Well, one of the big reasons that businesses fail is because of mismanagement. There's a management failure of some type. Management takes their eye off the ball. Management fails to do its job in creating wealth for their shareholders, and watching out for the stakeholders or the business.

One way management can fail is a financial miscalculation. In other words, there's simply not enough money to make it through the growth of the business. They didn't anticipate how much it would take. Or they anticipated incorrectly.

There's a lack of focus on the part of management or the employees. You'll see this a lot with small businesses. A small business owner simply may not have enough time to focus on the things that they need to focus on. You might say they're getting into the weeds of the business.

And there are uncontrolled resources-- things like group think or starting to believe your own press. There may not be adequate checks and balances on different departments within the organization. So there's no control system on decisions that are made. Any large scale decision that's made, no matter who makes it, there should be an audit process within the business. If there's no auditing process to ensure that the decisions are based on sound data, then one small mistake can have a very, very large impact on the business as a whole.

Well, let's get a little more upbeat and talk about business success then. Business success tends to come from both sound management of your finances and good management of your people. If you can't keep good employees, they're going to go to your competition.

Planning and organizing are also vital within a business. Correctly analyzing the demand for your product, not over estimating it, and planning correctly, and realistically, on how to meet those demands. Over promising can be a very big problem here.

Hard work, of course. Hard work and effort, especially in a small business. It's not easy to run a small businesses as we've talked about before. The workload is simply tremendous. So keeping your eye on the ball and putting in the hours that are necessary for the business are vital. And as always, you know a little bit a luck certainly helps.

So let's take a look at success or failure in practice. Now, the US auto industry has been in the news lately. And this isn't the first time that they've been there. Back in the late '70s and early 1980s, they started to believe their own press.

They believed that they understood solely what it was American consumers wanted in a car. And the Japanese were simply a fad. What they didn't grasp is the changing nature of the price of gasoline. It was going up dramatically. And most people simply could not afford to drive the big, hulking, always breaking down cars that American companies were supplying at the time. The Japanese automakers were making automobiles that were much cheaper, much more reliable, and much more efficient.

They ended up drawing so many customers away that actually Chrysler had to get a bailout in 1979. Nothings turnaround-- they got the message, they reworked their plan, their organization. They utilized there resources more effectively.

And during the '90s, they had a great success. Sales were through the roof. But again, they started to believe their own press that SUV's and large trucks were the way to go. And they missed the signals that brought them to where they ended up a few years ago.

Does anyone remember the story of the Titanic? The unsinkable ship. This is a great example of group think. Everyone believed that the ship was this technological wonder and marvel, and it was. And as a result, shortcuts-- mismanagement decisions were made. And this ended up with the loss of the ship on its very first voyage.

Another good example is the humble video store. You can look at Blockbuster or you can look at any mom and pop video store that happened to be around at the time. Now, some of you may not remember the hometown video store. But Blockbuster just recently had to go under.

Blockbuster was a huge success in its day. It was capitalizing on what the market was telling it to do. However, they failed to change their business model when videocassette started to go the way of dinosaur. They were replaced by companies like Netflix and Amazon, who were better readers of the market, and better analyzing the demand that the market was telling them it wanted, and planning to meet that demand.

So let's recap. We looked at success or failure of a business. And we also looked at success or failure in practice with the US automotive industry, the decisions that led up to the Titanic tragedy, and the humble videocassette rental business. I want to thank you for spending some time with me today. I hope you had a good time. And I'll see you next time.