Why Do Businesses Fail?

This is the title of chapter six in my book, Business Fits.   Here are some of the highlights from that chapter. 

“In my opinion, the number one reason businesses, and especially new businesses fail is under-capitalization.  If you’re starting a business from scratch everything takes longer and costs more than you expect.”

I give an example in the book of how increasing sales too fast in my Ford-Mercury dealership almost broke us.  Growth is not always good. 

“The second leading cause of business failure, in my opinion, is the lack of a successful proven business system.  People start or buy a business with no plan.  They often think they are going to learn as they go.  Think again.  It doesn’t work that way.”

The new entrepreneur often makes the mistake of getting so excited about their emotional perception of the demand for a product or service that they ignore the business system.  The new entrepreneur may also ignore what role they must play in the business to be successful. 

“Poor management is the third leading cause of failure, in my opinion.  Every business must have marketing and management.  A business can have the best business system in the industry, but if management doesn’t implement the system, it does no good.”

“There are a lot of other factors that contribute to a business failure.  One of the major reasons is divorce.  A divorce can mean dividing assets, which may mean putting the business in a position of under-capitalization.  The business may have to be liquidated.”

There are many other factors including changes in the market, changes in the competition, a bad location, changes in traffic patterns, economic changes, changes in government regulations and more.   Proper planning can prepare for these changes.

Franchise operations fail for different reasons.  A good franchisor will not award a franchise to someone that is under-capitalized.  A good franchise will have a proven business system, but a franchisee can still fail if they don’t follow the system.  Not following the system is probably the second most frequent reason for a franchise failing.  I find the number one reason for a franchise failing is divorce.

All of these issues and many more are covered in my book, Business Fits.  http://BusinessFits.com

Please note I have only addressed private sector businesses.  Government and especially our federal government don’t have to operate at a profit.  Federal agencies are seldom as efficient or productive as the private sector.  They have unlimited resources.  They just increase the debt and tax the working middle class to stay solvent.  It is time to change that philosophy.

War On Poverty

Lyndon B. Johnson became President of the United States after John F. Kennedy’s assassination.  He moved quickly to implement a liberal plan to increase the size of government. 

President Johnson’s vision for the country was what he called The Great Society.   The number one objective was what he called the War On Poverty.  In addition to welfare expansion, huge spending programs for urban problems, medical care, transportation, and education were put in place.  

How has this worked out after fifty years?  The War On Poverty has cost taxpayers over $22 trillion.  Yes, that is trillion with a T, and we are losing the war.   We have enslaved people in some urban areas to a life of welfare.  We now have second and third generations that know no other way of life. 

When I was a Ford-Mercury dealer in the early 1970s, I overheard one of my salesmen talking to a female customer.  She was shopping for a new car.  When he told her what the payments would be, her response was, “I will have to have another kid to afford that payment.”  I later learned she had several children and had never been married.  Her only source of income was welfare and Aid to Dependant Children.  This was in a relatively prosperous rural area.  I can only imagine how many examples of this we’d see in urban areas today. 

Some of our earlier Presidents like Woodrow Wilson, Theodore Roosevelt, and Franklin D. Roosevelt were advocates of helping the poor, but their approach was providing work, not handouts.  They would be appalled if they knew what we were doing today. 

The rest of The Great Society spending programs also seem to have failed.  Urban decay is beyond help in some cities.  Our infrastructure needs work.  Thanks to the federal Department of Education our education system is no longer the best in the world. 

Medical care takes a larger and larger portion of our income.  Obama Care is more concerned with people having medical insurance than having health care.  In case you have not noticed, they are not the same thing. 

The Great Society was a great success if the objective was to increase the size of government and the power of the political elite.  Liberal politicians have bought the votes of everyone who is on the government teat.  What happens to this country when the number of people paid by the government exceeds the number paid by the private sector?  Take a look at any communist country.

Government debt is now over $18 trillion, and will double during Obama’s Presidency.  The working middle class is continually suffering the consequences.  The top 1% and the political elite continue to get richer, and the welfare class continues to grow and live better every year.  Isn’t it time for some Real Change?

Prejudices

   There are all kinds of race, sex, and religious prejudices.  They may not be justified by facts, but prejudices can be very real as perceived by an individual.  Politicians use these prejudices to divide America and win elections when their policies, agendas, and qualifications would otherwise prevent them from being elected.

How do people become prejudiced?  The most common prejudices are learned from parents, teachers, and close personal peer groups when we are young.  Some are learned from actual experiences.  When we look back on some of these prejudices now they might seem funny. 

I was married very young and had two sons before getting divorced.  My second wife and myself both happened to have been raised Lutheran.  My second wife told her mother there was something she had to tell her about me after we were dating.  She than told her I had been married and had two sons.  Her mother responded, “Good, I thought you were going to say he was Catholic.”  It sounds silly today, but as with most prejudices, they were not funny at a specific time in history. 

I have a prejudice against a certain religion, which will remain unnamed, and I am not talking about Muslims.  It started when I was in undergraduate school.  The instructor for a product management business course practiced this religion.  The instructor was lacking in both knowledge of the subject and teaching ability.  One of my best friends at the time was also in the class and we probably did not do a very good job of hiding our opinion and failed to suck up to the instructor.  Part of the course was to design a board game and a marketing plan.  My friend and I probably deserved a B in the class.

The last day for grades to be posted, my friend found me and said he had heard a rumor the instructor had been fired for trying to sell a board game as his own design that was actually one of his student’s.  My friend suspected the instructor would fail us before he left town.  We went to find him at the final hour he was required to post the grades.  He had cleaned out his office and was ready to leave after posting the grades.  When he saw us, he tried to run to his office, as he was afraid of us.  We stopped him and told him we had no intention of assaulting him.  He had not failed us, but had given us a D.  We probably should have appealed the grade, but did not.

In later years, I had problems with people from this same religion when I worked in the recreational vehicle manufacturing business, the open-wall home manufacturing business, the franchising business, and the collector car business.  We had such bad experiences with people from this religion in the collector car business that we explored ways we could legally avoid doing business with them. 

Are my prejudices against this religion justified at this point in time?  No, but it was a problem the dozen times I have done business with someone I knew was from this religion in the past.   They were all lying, backstabbing people.  I won’t tell you how I really felt. 

I know my prejudice is based on a small sample but the negative experiences for me are about ten out of ten.   It takes a very high margin of error to disregard those results.  It is hard for me to emotionally ignore those experiences.  Would I work with, do business with, or vote for someone from this religion now?  Yes, I can honestly say I would give them the benefit of the doubt. 

We all have prejudices.  The best we can do is recognize those prejudices and deal with them.  We should try to defeat politicians that try to win votes by dividing the country by race, religion, or sex.  Partisan politics is another form of prejudice.  We should vote for the best-qualified individual and not always vote the party line.   This is one way to improve the quality of candidates from both political parties.

Robert E. Lee

    Robert E. Lee was my older brother.  I attended his funeral in Tulsa, Oklahoma last week.  The services were very nice, and attended by many friends and family. Bob was part of the Greatest Generation.  He was a veteran of WWII and proud of it.  He believed in putting God, family, and country before personal interests.  He was 89 years old and had lived a full and active life in his own home until entering the hospital thirteen days before his death. He took three exercise classes at the Y three days a week.  He even took care of his own yard, pool, and hot tub until the end.  He greatly enjoyed playing in the pool with his children, grand children, and great grandchildren.

Bob was in high school when Pearl Harbor was bombed.  He immediately enlisted in the Navy, but finished high school before being sworn into service.  After Bob graduated from high school, he received some college education through the Navy pilot training program.  There were too many Navy pilots in training and Bob was offered a commission in the Merchant Marines.  He served to the end of the war on a tanker transporting fuel and other highly flamiable liquids.

After World War II, Bob went to work for Douglas Aircraft in Tulsa. He worked in a plant represented by the United Auto Workers.  Bob got promoted to management twice and sent back to labor twice. He refused the third time they offered a management position. The labor contract had been changed so his seniority with labor would stop if he took the management position.  Bob spent his entire career working in the same plant. He survived the McDonald merger and the takeover by Boeing.

This career path worked for my brother Bob, who was nineteen years older than me.  Bob retired at sixty-one with full pension and benefits. At eighty-three, he told me that he'd received more money from his pension than he'd received in wages for all the years that he worked. We may never see that situation in manufacturing again.

Bob and I were raised on Iowa farms, which our father worked, but never owned.  Our father felt a high school education and going to work for a big company with security and benefits was the best way to be set for life and retire from that company.  This was a good option for the working class America in the 1940s and 1950s. The 1950's were one of the greatest times of prosperity the United States has experienced.

With the changes in business, manufacturing, and unions, anyone joining the work force today should not count on being able to retire from the same company.  I discuss this in my book, Business Fits.  Mergers and acquisitions are big business, and the only way they make money is by eliminating costs such as duplication in personnel. A lot of people lose their jobs. Unfortunately, the higher you've been promoted in your company, the more vulnerable you are to having your position eliminated.

Many businesses downsize in order to stay solvent in tough economic times. We see entire plants shut down with production moved to other states or even out of the country. Sometimes companies just go out of business. Increased technology and specialization is often good, but job descriptions are changed or eliminated with new technology.   Many people are put out of work through no fault of their own.

Our government and representatives from both parties have not helped working middle class America.  The rich have gotten richer and the welfare society has grown because of politicians buying votes with Free Stuff.  The working class continues to be squeezed.    

Our Federal government is out of control.  The debt is over $18 trillion and will double in the eight years Obama is President.  It is time for some real change if we want to return to prosperous times like the 50’s with good-paying jobs available for anyone willing to work for a living.  

State of the Union

The State of the Union Speech was originally referred to as the President’s Annual Message to Congress.  This was a message delivered to a joint session of Congress. It was not called the State of the Union until Franklin D. Roosevelt became President. 

George Washington gave the first President’s Annual Message to Congress.  It was only seven hand-written pages long. 

President Thomas Jefferson stopped giving a speech to Congress and instead gave a written report to be read by a clerk to Congress.  Jefferson felt the speech was too “Monarchical”.  That is just one more reason Jefferson is my favorite President.  

Woodrow Wilson resumed the practice of a speech to Congress, but some Presidents have still sent a written report.  Jimmy Carter was the last President to send a written report. 

With the advent of radio and TV, the state of the union has become a public event.  Citizens were interested in the health and future of their country. 

Interest in the State of the Union has declined, and I understand why.  I watched last week’s State of the Union.  I did more than watch it.  I recorded it, watched it again, took pages of notes, and studied it.  I concluded that the State of the Union has turned into a partisan, political campaign speech.  It has few accurate facts and even fewer realistic agendas for the future.  The Washington Post corrected President Obama on eleven Facts.  

        President Obama’s speech sounded like a dusted off and revised 2007 campaign speech.  It had little correlation with his actions over the last six years.  He said he wanted to work with Congress, but if they did anything he didn’t like, he would veto it; and if they did not do what he wanted, he would do it himself with executive order.  

        The President took credit for the improvement in the economy, in spite of the facts showing we are making a very slow recovery.  The improvements the country has made are primarily due to hydraulic fracing of oil and natural gas, and frac sand mining.  America’s great resources, and America’s ingenuity and entrepreneurial spirit accomplished this, in spite of the government doing everything possible to discourage oil and gas exploration and production.  Fracing has given us new jobs, more disposable income, energy independence, and a stronger position in world politics in spite of the government.

        A typical politician, the President suggested a lot of free things, but no way of paying for them.  He did admit the richest 1% has gotten richer under his watch, and the working middle class has been hurt.  He suggested tax reform, but unfortunately, the type of reform he suggested is just more of the same old tired unworkable solutions that will further hurt the middle class.  Why not suggest the Fair Tax that could actually work?  Sorry, that was naive thinking on my part, as a Fair Tax would hurt the political elite. 

        I will not go over the speech on a point-by-point basis, as my notes are considerably longer than this blog.  It was interesting that some of the biggest challenges facing this country like Islamic Jihad terrorists were never mentioned by name. Our President never mentioned run-away government spending and debt, but he did make sure to plug his favorite wealth distribution plan, the global warming hoax.  Any bets on what he does after the Presidency?

        Joni Ernst gave the Republican response to the State of the Union.  She is a freshman Republican Senator from Iowa representing a traditionally Democratic district.  Her response was only seven minutes long with little pomp and circumstance.  It sounded rather like a campaign speech, but gave more realistic facts and options than Obama did in an hour.  She stated the last election showed that the American people wanted real change in Washington.  I think that is true.

        I can certainly understand why there is less and less interest in the State of the Union address and why the politically informed public is so disgusted with our federal government.  It is indeed time for real change and not just campaign promises.

Theocracy

      Merriam Webster dictionary defines Theocracy as, “a form of government in which a country is ruled by religious leaders.” Here in America we have serious problem with radical Islamic terrorists.  Our country fails to recognize or identify the problem because of extreme political correctness. 

Radical Islamic Jihad beheads people and uses young girls for suicide bombings while we release known Islamic terrorists from Guantanamo Bay.  Our government still refuses to use the term Islamic terrorist.  What will it take to get us to deal with this problem, and who has to die to get us to wake up?

Not all Muslims are terrorists, but all radical Islamic terrorists are Muslims.  It should be impossible to ignore this basic logic.  The Muslin religion advocates Jihad and Sharia law.  Jihad is a holy war of Islam that is the sacred duty of all Muslims according to the Quran.  Radical Islam interprets this to mean “death to all infidels.”  Some more moderate Muslims do not believe everyone has to convert to the Muslim religion as long as everyone is forced to live under Sharia Law.  This is theocracy.

Sharia law takes away the rights of woman and gay people.  Honor killings are acceptable in many cases.  Leaving the Muslim religion or dating outside the Muslim religion is grounds for an honor killing.  This is totally counter to the laws of any free country. 

Islamic terrorists recently attacked a French paper because it exercised freedom of speech and freedom of the press.  This kind of action cannot be tolerated, but, sadly, no country has the resources for continual surveillance of every suspected terrorist. 

France has given Muslims too much autonomy.  There are recognized No Go Zones where the Muslims are left to govern themselves under Sharia law.  This policy does not and cannot work in any country. 

People that fought and lived through WWII are often referred to as the Greatest Generation.  They defeated the Axis powers in WWII.  This was an all out war and we won.  There was no problem with political correctness, interrogations, or civilian casualties.  Many Japanese Americans were put in internment camps.  We bombed German cities and dropped atomic bombs on two Japanese cities. 

This was a necessary part of war and done to protect our country.  There was no quarter given and there were civilian casualties.  The Axis powers were defeated at great cost to both sides.  Today Germany and Japan are some of our best allies, and the both enjoy freedom and a good standard of living. 

I am not advocating putting all Muslims in internment camps, but we must take this radical Jihad war serious.  What will it take for our government to recognize this threat to our freedom and put an end to it?  Critical action is necessary before it escalates into WWIII.

New Years Resolutions

      I think we should have some political resolutions for 2015.  We have some serious issues that need to be resolved.  They include:

·       Government bureaucracy unaccountable

·       Government spending out of control

·       Government debt crisis

·       Poor economy

·       High unemployment

·       Healthcare costs out of control

·       Illegal immigration problem

·       Terrorism

·       Freedom of religious expression is being denied

·       Welfare and poor problem getting worse

·       Urban decay in some of our major cities

·       Problem with earmarks

·       Campaign spending out of control

·       Special interest groups controlling politicians

·       Fiscal problems with Social Security, Medicare, and Medicaid

·       Trade deficit problem

·       Big banks and corporations are still protected and bailed out by the government

·       Unfair tax system

·       Our educational system is no longer the best in the world

When we look at all these problems, they have one major cause or contributing factor.  The federal government has grown out of control, creating and/or increasing the problem. 

A recent Gallup poll asked for the top U.S. problems the responses supported the issues stated above.  The results show:

·       18% - Government and politicians.

·       17% - Economy

·       15% - Unemployment

·       10% - Health care

There is a simple KISS solution.  Comply with the Constitution, the Bill of Rights, and, most specifically, the 10^th Amendment. 

This sounds like an over simplification, but think about it.  Every problem listed above can be eliminated or improved if government powers are limited to those given by the Constitution and the government is held responsible for carrying out the duties assigned by the Constitution, in particular enforcing the laws.

I hope people will study these issues and think about how reducing or eliminating government involvement will help.  We need to eliminate political apathy, shrink the government teat, and demand that the media covers the news accurately. 

It’s a new year.  I can always dream.