Understanding Your Business 27 Mar 2014

Understanding Your Business

Business owners and managers should always be searching for a competitive edge to make their company more effective. In the commercial version of Darwin’s findings regarding survival of the fittest, business survival is at stake in more cases than generally realized. According to the Wall Street Journal, three of every four business startups fail. This is not an isolated finding.

Entrepreneur Weekly recently reported research covering 11 different industries in which the percentage of businesses operating after four years varied from 37 to 58 percent. Overall 71 percent of companies failed to survive 10 years. The primary reason for businesses failing involved a lack of understanding about the business. On a positive note, this is an avoidable mistake for most companies if management takes appropriate action to prevent such problems from occurring.

The Leading Causes of Business Failure

Business managers already know that the stakes are high when they make business decisions. While a common-sense viewpoint is that “failure is not an option,” the actual data suggests that a high percentage of businesses do in fact fail if they are not managed properly. As indicated by Small Business Development Center findings, three of the preventable factors causing most business failures are the following:

  • Incompetence:Lack of planning and inadequate pricing knowledge.
  • Lack of experience: Insufficient credit management and failure to have adequate inventory.
  • Poor market awareness: Non-existent research regarding competitors and the overall market.

Some industry categories are more prone to failure than others. Understanding your business includes a realization as to whether you are operating in a higher-risk environment or not. For example, about 55 percent of wholesale and services businesses are still operating after four years while the survival rate is only 37 percent in the information industry following a similar period.

Understanding Where to Find Solutions, Strategies and Expert Help

With today’s approach to lean management staffing, the business solutions and help needed to avoid operational failure are not necessarily available internally. The prudent use of high-level outsourcing and consultants must be considered as a practical strategy for avoiding undesirable outcomes. While the expense of using “outside help” must always be considered by both business managers and their accountants, saving money is not always the wisest choice for a business interested in surviving for both the short-term and long-term. To illustrate how spending can actually save money and improve the bottom line for a business, an astute use of research outsourcing can reduce expenditures for training, software and full-time staffing.

Understanding your business requires excellence in as many as several dozen key areas. Depending on which industry your company operates in, here are common candidates for increasing the odds of survival for your business by understanding each of these challenges:

  • Purchasing behavior patterns
  • Marketing research and data
  • Competitors
  • Collections trends
  • Risk and credit functions
  • Potential for fraud by customers, suppliers and employees
  • Pricing
  • Supply chain logistics and economics
  • Data mining opportunities
  • Business and media research

The risks of not understanding your business are unacceptably high in even the most basic industry. The prudent and predictable path to business success involves a specific effort to understand your business.

– Research Optimus

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