Demystifying Failure in Small Businesses

I just finished reading a book that will be published in late 2009. What a fascinating read. The author, Dr. John Watson has embarked into a review of success and failure on Small and Medium Size businesses (known as SMEs). Read on to be surprised!

He has spent years evaluating, among other things, the myth of the high failure rate. Someone said a long time ago, that the failure rate of SMEs was 80%. I have heard this statistic in the U.S.A, where supposedly the rumor originated, in Chile, Venezuela, Mexico, Guatemala, Australia and even in Bahrain! So much for globalizing failure rates!

What striked me most was the consideration that a business closure was not a sign of failure. It is one of those reflections where one realizes that common sense is not that common. John found time and again that the closure of businesses could be ther result of many non-failure related decisions: the owners may decide to close a company to retire or to separate pieces of the company to sell separately (I have done both). they might also sell to move on to other ventures or to do something else (been there, done that too). Of the 9 companies that I started, I have sold 5 and I have closed 2 at a personal loss. So, my personal stats are 12% ... I have worked with hundreds of entrepreneurs some in the most uncertain circumstances: taking innovations into markets outside of a corporation, the 80% failure rate is a myth.

John statistics prove that the failure rate of SMEs, at least in Australia using his work and revising many others, is 3-28% with a peak at 3 years, where companies that are less profitable compel the owners to take two actions: either reinvent (aha! I also had to do this) or closed (in my case, one closed one on year 2 and the other on year 4).

Demystifying SME's failure rates is very imporant for entrepreneurs to be, policy makers and for the community in general. With the current economic crisis, chances are that many people will move to start a business, yet, more than ever, we need entrepreneurs, not to form companies, but to create wealth ... right?

That is why we are turning our company to a Wealthing company.... more to come soon...

I hope John's work will help reshape the way you view SMEs, it has changed mine.


Alicia


PD: Next week I'll cover his work on performance!


Alicia

What a safari teaches us about Strategy

Lions, Crocodiles and Buffaloes

 

I love strategy as much as witty smart disagreements, the kind that break our paradigms.. The first time I faced reinventing strategy and competition was in the 90s, when we
discussed how to manage a shrinking market. I could see that whilst being concern with selling more, we were getting less. The issue was to sell different. Mind you I was an arrogant brainer, not
that I've changed much to my dismay, on the arrogant part, but I now love to be proven wrong, would that be age? or maybe I miss my kid's teenagery rebeliousness :-). 
The idea of simplistic competition just bothers me, the thought of stream line 'perfect' growth curve boring. Challenges make us thrive and a situation can suddenly change for better or if we manage it. The trick is to find a perfect fit, focus on the best outcome
leveraging what's in and out the company (or yourself), and keep reinventing the wheel.

I want to share with you a paradigm-breaking video of a safari...mind you every few steps ahhh something new happens.
Check the "Battle at Kruger" at www.youtube.com if you haven't already done so.. it is soo cool!

Two buffaloes and a baby quietly walk by the savanna, near a pond. Without realizing it, they approach a group of lions. Too late
one of the adult buffaloes becomes aware of the lions and gets frightened, running away. The lions chase them and capture the
baby.

Learning 1: If you're going to expose your weaker link, be alert even in an idyllic place. If you're running scared, you lose. That would the simply strategy: one won, one lose,
you do lunch or you are lunch. Too simple!

Lions fall onto the water with the baby buffalo. It is an unequal fight, without resistance or aggression. Suddenly a crocodile grabs the side of the
baby.

Learning 2: If you want to capture a market, better play in a known field or be alert to new competitors. If you are
loosing a battle, don't give up, yet save the energy (resources) in case there is a paradigm shift!

Finally the lions get the baby buffalo out of the water, the crocodile lets go.

Learning 3: Concentrate on where you have the greatest opportunities to succeed. Let the others win without an unnecesary
fight.

In the meantime, a large number of buffaloes has gathered, returning to the scene. The lions hold on the baby buffalo but get unease. A buffalo
attacks one lion, which lets go and runs away, being chased, The crocodile appears no where to be seen.

Learning 4: every one has a weak link, a direct approach might not work best, and in the case of the crocodile, if it is not your market, don't even show up.  

Gradually the lions lose confidence, and release the baby, which is pushed inside the heard and protected. Some buffaloes chase the lions, they loose interest.

Learning 5: If you really want to defend your market, take action quickly while your offer is still alive, look for reinforcements, work as a team and concentrate on the result.
There is always a weak link.

So is the life of an entrepreneur, a new market; a competitor wining customers; surprises and reactions.
Only in fairy tales there are winners and losers. In the commercial arena, there is a 'perfect fit' approach that depends on many circumstances: a weaker baby, a hungrier
crocodile, faster lions, smaller or lower herds. That 'fit' is a moving target, and rethinking the best approach is the healthiest, and most fun, exercise.  

The message is clear, each situation brings an opportunity to learn and recreate the story. The pile of broken dishes grows with our
learning if and only if, we decided to go ahead.

Here is to your action,