How Not to Do It: Two Failure Stories and What They Teach Us

Seasoned business leaders are typically no strangers to failure, it is not only the greenest of green BAMers who experience failure. For each superstar company in the world, there are burial grounds of companies that just didn’t work or that limped along without profit for far too long.

However, there are some common denominators among companies that succeed or fail – and their experiences can teach us something: often it is how not to do it!

Lucy’s Story

Lucy lived in a city where she had connections with many non-profits. She wanted to branch out and do business as mission but didn’t quite know how to get going. A non-profit presented a business opportunity, one that, as it turned out, was too good to be true. Under researched, unadvised, and unsustainable, Lucy fell headlong into a bad deal.

An NGO said they would produce soy milk, made possible through a grant, and give the fresh soy milk to Lucy’s new company to sell in the local community. Excited to begin her BAM dreams, Lucy jumped in and signed a three year contract with the NGO, secured a lease for an office space and hired three local staff to get the business started. 

Unfortunately, Lucy missed a few vital steps of the business planning process:

• Market research being one. Is there a market for soy milk in her location? The answer turned out to be: Nope. Nada. No.
• Product research did not happen. How long does soy last from off the production belt to expiration? Just 6 hours! Lucy only had 6 hours to sell the milk before it went bad. Her startup did not have the money to purchase refrigeration for vats of soy milk.
• How to get product to market? Lucy’s idea included one employee with a push cart walking the streets of the surrounding area. One man, one cart, with the clock ticking. She had no delivery container (milk carton) thus she had no shelf space in a location where people would usually go to purchase milk.
• No marketing campaign for introducing soy milk to the consumers meant that they had no education about her product. What was this foreign white liquid?
• An unreliable supply. Never questioning her business partner’s (NGO) funding model, while enamored with the idea that this profit-making soy milk would come at zero cost, Lucy signed the 3 year contract. The NGO pulled out after six months; with no more funding, there was no more project.

Within six months Lucy was out of business, having to lay off three employees whom she paid out of pocket for the prior 6 months, along with a broken lease.

Manuel’s Story

Manuel, grew up in a successful, business-minded family. He took over his uncle’s shipping business upon his uncle’s passing. He was eager to build this into a BAM business, to connect his faith with the world around him. He had a general sense of the business but having only worked in some parts of the company, there was much he didn’t know.

The rough times started immediately. Manuel kept doing the things the only way to he knew to do them. Three years later, the company was still constantly borrowing money for operating costs, morale was at an all time low, and there were only a few return clients due to slow email communication and delivery dates being constantly late.

Here are some of the things that went wrong:

• The staff, inherited from his uncle, were used to a very different style of leadership. For years they struggled with the change and productivity stayed low. Manuel thought they had just become lazy. He didn’t think about the complexity of HR issues in his business. Leadership transitions need to be maneuvered carefully to maintain morale and efficiency.
• The accountant left the company soon after Manuel took over. Manuel could keep track of simple accounting but had almost no visibility or understanding for how to translate the numbers into road markers and strategy. He kept track “enough” and used his intuition to “get by”, losing money for years.
• Client relationships were severely hindered by a lack of communication and inability to deliver on time. His uncle’s pursuit of on-time delivery was replaced with Manuel’s more carefree attitude about deadlines.
• After years of paying bills late due to poor cashflow, the company developed a lackadaisical attitude towards paying their debts. This created a delicate maze of debtor and payee relationships spreading in every direction.
• They moved to a larger facility because Manuel thought they needed more space for inventory. In actuality, the problem was a distribution issue, not an inventory issue. Rent increased, straining the already over-burdened ability to pay the bills.
• All the decisions came through Manuel. He was a bottleneck. From “how many of this” to “when to send that”, Manuel was always the main decision maker. He didn’t trust his employees to do the job.

Manuel survived for 3 years barely making ends meet and never asking for the help he needed. After failing to make a profit for three years Manuel gave up.

Takeaways

What can we learn from these real stories of complete business failure?

Lucy, new to business, made a significant number uninformed, under-researched decisions, going ahead with a business that was likely a non-starter, inevitably leading to failure. Manuel, acquainted with a family business for years, still did not have the know-how to push past the red.

Sound advice, ongoing mentoring, a strong business plan, financial forecasting, and understanding of the market are just a few of the missing pieces that would have helped both Manuel and Lucy at least have a better chance at avoiding failure.

The beginning of wisdom is this: Get wisdom. Though it cost all you have, get understanding. – Proverbs 4:7

A common denominator for successful companies is wise utilization of available resources and know-how. Companies, or rather business leaders, that fail are often in isolation. Look around and tap into the vast resources and expertise available. Experts and advisors will help answer the questions you know to ask, and more importantly help you identify the questions you don’t even know you should be asking.

Lucy and Manuel’s stories make this clear, if business leaders do not surround themselves with advisors and expertise to make up for their own short-comings then the business will fail to flourish. Seek wisdom and pursue it, as Proverbs 4:7 reminds us.

 

By Amy S, with thanks to ‘Lucy’ and ‘Manuel’.

Amy is a regular guest contributor for The BAM Review.