“It’s fine to celebrate success but it is more important to heed the lessons of failure.” – Bill Gates
We all know that making mistakes can be a hugely positive learning experience, so what about business failures? Blogs, books, and podcasts are full recipes on how to succeed but largely silent about how to cope with failure. Why is it taboo to talk about failures in the context of business and leadership? Understanding and learning why business fail can give us greater insight into how to successfully manage and grow our business.
So why do business fail?
Is it a lack of leadership or bad management? Shrinking or declining industry? Cash flow problems? Lack of business acumen or financial skills? Lack of planning? Over the past 15 years I had the opportunity to lead FCP from inception to over $20 Million in annual sales. We’ve teetered on the brink of insolvency more than a handful of times and I’ve learned a lot along the way. In my real world experience businesses fail for 5 primary reasons:
1. Bad Numbers
“If you don’t know your numbers, you don’t know you’re business” – Marcus Lemonis
Arguably the most important part of any business is the money that comes in and the money that goes out. With bad numbers, or no numbers at all, you’re flying blind – and you’re not in control. Without good numbers you won’t be able to track the performance of the business which will always lead to bad decisions. If you’ve got good numbers and you watch them closely, they’ll tell a story. Understanding that story can be one of the most important factors that determine your long term success. We’re not talking about the kind of understanding of numbers that an outside hired accounting firm that files your taxes has, but someone inside the business in a financial leadership role that tracks and reports on critical numbers monthly, quarterly, and annually.
2. Bad People (Culture)
“Culture eats strategy for breakfast” – Peter Drucker
The people of your business, their habits, and values collectively make up the culture, good or bad. Without a strong culture your change initiatives will fail, there will be limited interaction and collaboration between employees and departments, and no progress will be made on critical business initiatives. There will be high levels of inconsistency and ambiguity, and there will be a sharp decline in levels of service resulting in a loss of customers, ultimately reducing the value of your brand. If you don’t have the right people or culture in place, your business (and brand) will not succeed.
3. Lack of Focus
“Here is the prime condition of success: Concentrate your energy, thought and capital exclusively upon the business in which you are engaged. Having begun on one line, resolve to fight it out on that line, to lead in it, adopt every improvement, and know the most about it.”— Andrew Carnegie
As businesses grow and become more successful they often tend to diversify away from their core business. Businesses decide to focus growth on the weaker areas of the business, mistaking them for areas of opportunity, and the core business suffers as a result. This results in lack of clarity, over-commitment, and improper allocation of business resources. You need more infrastructures (and costs) to support more product and revenue generating opportunities and you become increasingly complex, making it difficult to adapt to change when you’re less agile. With so many priorities, you and your team’s bandwidth quickly diminishes and you’ll end up doing nothing well. If you’ve got more than one or two core businesses, your business is likely to fail.
4. No Change Agents at the Top
“It didn’t matter how bleak the situation or how stultifying their mediocrity, they all maintained unwavering faith that they would not just survive, but prevail as a great company. And yet, at the same time, they became relentlessly disciplined at confronting the most brutal facts of their current reality.” – Jim Collins
Every business must have a change agent at the top to endure over the long run. It’s the type of head-on management style that feels comfortable facing harsh reality of the situation, can evaluate a business without bias, have tough conversations, and can deliver those brutal facts that influence and impact the businesses decisions and strategy. Often small and medium size business owners are conflict adverse, feeling the need to be liked by everyone, or just stubborn to change. Even when the business owners are confronted by employees with the problems I the business and they recognize they employees are right, they refuse to change and continue to make the same mistakes over and over. If you don’t have change agents exposing problems and creating solutions, your business is likely to fail.
5. No Purple Cow (No Clear Differentiators)
“In a crowded marketplace, fitting in is a failure. In a busy marketplace, not standing out is the same as being invisible.” – Seth Godin
Finding and creating your market differentiators is crucial for business success. A “purple cow” is a marketing concept developed by Seth Godin that states that companies must build things worth noticing in their products, and if their product that isn’t in itself unique and somehow remarkable, like a purple cow, is unlikely to sell, no matter how well it’s advertised. With the internet, consumers now have global access and chances are your products and services are offered by someone else somewhere in the world. If you have no differentiator and you can’t answer “Why would a customer choose my business over a competitors”, your business is likely to fail.
In your opinion why do businesses fail?
FCP was established in 1986, by Harry and Kathy Bauer, as a brick and mortar store, in Groton, CT. They set out and served the local European and Asian Import auto parts market for years, making first-rate customer relationships and service, blended with top tier quality products, a priority from day one.
In 2001 their son Nick, noticing customers were venturing online for purchases, began selling the stores inventory on Ebay. This was followed shortly after with a new website.
I joined Nick, in 2002.
Together, with only two computers, five employees, a small 2,000 square foot office, and a tractor trailer filled with inventory, we grew the business to $8 Million in annual sales by 2007. We did this by keeping with the same priorities that the original brick and mortar store had, focusing on customer service, relationships with our community, and only the finest products at the most affordable prices.
In 2008, we moved the business to a 20,000 square foot warehouse and 6,000 square foot office in Old Saybrook, CT. At the same time, we introduced an order and warehouse management system to the business that allowed us to automate and streamline all of the basic eCommerce functions. This included a point of sale for the call center, automated inventory sourcing for purchasing functions, picking and shipping for the warehouse, inventory management for supply chain and fulfillment improvements, as well as a basic CRM (customer relationship management) functionality. We expanded the business to 33 employees and grew it to nearly $15 Million in annual sales by the end of 2013. All of this was done through re-investments of profits and a small credit facility.
At the time we were headquartered in an old-outdated-manufacturing plant, and it was during this period of growth and expansion, it became apparent that we were quickly outgrowing our current facility. The town was a tough fit for where we were headed. It was not conducive for a strong talent pool and the design and infrastructure of the warehouses and offices were not adequate to support growth. When this was realized, we began looking for our new eCommerce distribution center.
Space & Building Requirements
We then consulted with UPS supply chain solutions in order to help develop an Inventory Square Footage Growth Model based on current and future warehouse operations and growth projections. During this process, UPS conducted interviews with key FCP personnel and analyzed three years of sales and SKU data. By examining SKU and order characteristics, such as order size, lines per order, weight and cubic space per order and SKU, they were helpful in estimating the square footage needed. This was based on our existing racking dimensions and future growth projections. They also proposed new warehouse layouts that included optimized pick locations and cube optimization in our new distribution center.
UPS also assisted in developing a warehouse requirements and document that included specific building requirements, such as the interior layout, plumbing, HVAC, fire protection, general lighting, warehouse floor layouts, vehicle dock doors, general yard, interior, and structural frame of our new distribution center.
We also hired CTRR, a real estate advisory firm that provides strategic transaction and advisory services to better reduce risk and cost, while increasing value in commercial real estate commitments. These recommendations were based on our warehouse requirements document, produced by UPS Supply Chain Solutions.
CTRR was able to provide site selection and inspection services – financial terms, occupancy costs, geographic parameters, security needs, site infrastructure, accessibility – as well as, test-fits, preparation of offers, negotiation of business and operational terms, financial analysis of term sheets, and negotiation of the final term sheet.
When all was said and done, we settled on Milford CT. It was an excellent location within two hours from both New York City and Boston. This prime location also has quick and easy access to I-95 and the Merritt Parkway and opened us up to a larger talent pool with it’s close proximity to New York City.
Office Design & Furniture
Our overall floor plan layout was designed by RTSPC Pinnacle, an architectural design firm that specializes in commercial space build outs.
They refined the original office area layout by addressing potential conﬂicts within our existing building elements, provided room conﬁguration plans that accommodate desired furniture and furnishings, as well as furniture plans for the ofﬁces, open areas, and meeting and pantry spaces. They also provided power, voice, and data receptacle locations in a plan to correspond with the room configurations.
RTSPC consulted on the interior design palette for our ﬂoor, wall, ceiling, and lighting ﬁnishes. They recommended speciﬁcations for ofﬁce furniture and furnishings, including private ofﬁces, open area work stations, meeting and pantry furniture, and window ﬁlm (glass meeting rooms) versus window blinds. By surveying and evaluating our existing furniture and furnishings for potential relocation, they were able to find cost effective ways for us to reuse instead of throw away. They were also able to provide recommendations on custom designed items, including custom millwork and personal furniture speciﬁcations, that differed from job function, level of seniority, and personal preferences. – View FCP’s Final Design Control Document
We went with RTSPC’s recommendation for furniture, which included Allsteel’s Benching Solutions, to better help inspire creativity and collaboration within teams and promote the feeling of community. For seating, we chose the SitOnIt Sona Chair; an elegant-slim-profiled chair, that is ergonomically friendly. For our guest chairs, we chose SitOnIt’s Focus Side Chair and in the conference room sits Compel’s Mojo chair.
Echoes and reverberation were a big problem in the call center at our old facility, so we designed the new facility with noise reduction in mind. Fabricmate’s Sound Dampening Acoustical Baffles were brought in to absorb the reflected sound in our new call center. The baffles were suspended from the overhead structure of the call center by cables. They have already proven to provide fantastic sound absorption, even when all of our representatives are on the phone simultaneously.
Allsteel’s Benching Solution complimented the acoustic baffles with sound dampening dividers. This stopped at head height when sitting down to make sure that the room still felt open and collaborative, while providing just the right amount of privacy. – View FCP’s Final Furniture Design Control Document
RTSPC Pinnacle took FCP’s company culture, brand, values, and cultural bottlenecks into consideration throughout the entire design process. This ensured that the final product was aesthetically pleasing while complimenting the brand, as well as functionally designed to cure cultural bottlenecks throughout the organization. Our furniture was provided by The Atlantic Group.
Warehouse Design & SKU Optimization
We went with W&H Systems, a material handling system and warehouse consulting firm, based out of New Jersey, to assist in the layout and design of our new distribution center layout. This was to maximize efficiency and space and avoid any unnecessary re-work in the future. They performed on-site observations, interviews, and time study data gathering, to assess the current flow of material, equipment, space utilization, and processes.
The areas of observation included, receiving of materials, put away, replenishment, pick (freight and small package), pack, ship (freight and small package), and returns. While working with W&H Systems, we developed a layout that improved the receiving and put-away process, optimized the “Just in Time” operation that accelerates our orders, and inventoried the existing racks and shelves, in our Old Saybrook facility for re-purpose.
Best practices were also discussed in depth, specifically relating to inventory management, equipment, space utilization, and processes (receiving, put away, replenishment, pick, pack, ship, and returns). Highly visible magnetic signs lined the aisles for easy designation of picking zones as well as a “responsive” magnetic labeling system that allows to expand and contract the amount of locations on any particular shelf to maximize cube optimization. All of this resulted in a layout that was optimized for space. It produced significant labor savings, from the transport of inventory to the order picking to shipping.
FCP’s growth has mirrored my own growth and the growth of the employees that proudly call our new facility their home. The employees here continue to educate one another, refine our model, and build great, innovative things. Just in the first two months after our move FCP has already implemented an Online Pickup Center and built an automotive DIY video studio.
This facility is not the pinnacle for us, it is our foundation for scalability and growth. A long time ago we decided that to build an iconic brand and enduring business, significant investments needed to be made into the company, culture, and customers. It’s not the easiest way, but it’s the right way.
Yes, you can. In fact you should stop procrastinating and start right now.
We started our business initially with only $9,000 equity. With that said, you don’t much money, if any at all, to start a business. We turned $9k into $15 million all through reinvestment of profits and a small bank credit facility. We haven’t had to raise any equity from private equity or venture capital and we have no plans to in the future.
So how do you start a business with little or no money? Just start selling, anything.
You can find products through a domestic wholesale marketplace or distributor or international marketplace like Alibaba. Spend a couple hundred bucks on products you think you may be able to resell for a small profit (if you’re lucky, a decent profit). Can’t afford a couple hundred bucks, find something in your closet, garage, or attic you don’t need.
Start selling the product through a site like Ebay, or Amazon that requires no website startup costs but has a large, global reach. Learn how to ship through the US Post Office both domestically and internationally.
Every dollar you make for the first year, plow right back into buying more products to sell. You’ve got to be committed to putting everything back into the company and making little or no money. The primary focus should be growing your customer base at all costs. After a year, you should be at a point where there may be a little profit showing that you can start investing into growing the business.