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.