By Mike Myatt, Chief StrategyOfficer, N2growth

What reallycauses businesses to fail? These tough recessionary times havemany pondering the answer to this question as we watchbusinesses fail on a daily basis. I don't believe there's too muchdebate among "the experts" that the most frequentlycited cause of business failure is a lack of capital.While the recent events in the capital markets might lead youto believe it's true, capital while clearly a nice luxury, isn't anecessity (here I go picking on "the experts" again). You see, Ihave witnessed well capitalized ventures fail miserably, andseverely under-capitalized ventures eventually grow into categorydominant brands. A lack of capital can provide a sociallyacceptable excuse for business failure, but it is not the reasonbusinesses fail. That being said, the unfortunate reality is thatwell more than 50% of all new business ventures fail within thefirst three years, and especially during tough economic times, manymature, even once category dominant companies fail over time. Intoday's post I'll share my opinion as to the real number onereason why businesses fail...Let's begin by putting afork in the lack of capital excuse...While it may be everyentrepreneur's fantasy to launch their business with 5 yearsoperating reserves in the bank, the reality is that this veryrarely happens. Additionally, it is not really the amount ofcapital a venture secures, but rather the relationship between theamount of capital raised and identified capital requirements...aswe've all watched in recent months, the real issue is not howmuch capital you have, but rather how effectively the capital isdeployed and managed.I would go so far as to say that wellcapitalized start-ups may have a higher mortality rate than theirthinly capitalized counterparts. When capital is a scarcecommodity, each spending or investment decision tends tobe made with great care. A lack of capital forcesentrepreneurs to prioritize their decisions, and to focus theirefforts on high impact areas. Well capitalized ventures on theother hand often make ill-advised decisions, and frivolousexpenditures that lower margins and increase commitments tooverhead creating unnecessary operational burdens on theenterprise.The reality is that you can ask 10 different people whybusinesses fail, and you'll likely receive 10 different answers.While each answer could well be a contributing factor to the demiseof a business venture, there is in my opinion one singularcause for all business failures...a lack of soundleadership. When I refer to leadership in today's context, I'mpointing specifically to executive leadership as representedby the entrepreneur or CEO. In the 10 points listed belowI'll examine some of the more common reasons attributed to businessfailure, and I'll likewise assess the roles andresponsibilities of leadership as they pertain to the followingreasons:

  1. Lack of Vision: It is the role of the CEO toclearly define and communicate the corporate vision. If thereis no vision, a flawed vision, or a poorly communicatedvision, the responsibility falls squarely in the lap of executiveleadership. Moreover, if the vision is not in alignment with thecorporate values there will also be troubled waters ahead. Novision equals no leadership...
  2. Lack of Execution: Everything boils down toexecution, and insuring a certainty of execution is job number onefor executive leadership. If as an entrepreneur orCEO you don't focus on deploying the necessary talent andresources to insure that the largest risks are adequately managed,or that the biggest opportunities are exploited, then you have aleadership team destined for failure.
  3. Lack of Capital: Raising, deploying, andmanaging capital is ultimately the responsibility of leadership.The amount of capital required to run a business is based upon howthe business is operated. Therefore if leadership operates thebusiness without consideration for capital constraints, orirrespective of capital formation issues, then the blame shouldfall squarely on the shoulders of leadership. Morever, ifexecutive leadership squanders capital through irresponsibleacts, there will also be severe consequences.
  4. Lack of Management: It is the job ofleadership to recruit, mentor, deploy, and retain managementtalent. If the management team is not getting the job done that isthe fault off executive leadership.
  5. Lack of Sales: A lack of sales is ultimatelyattributable to a lack of leadership. Pricing, positioning,branding, distribution, or any number of other metrics tied tosales force productivity all rest with executive leadership.
  6. No Market: Good leadership pursues soundmarket opportunities. Pursuing the wrong market, or pursuing theright market improperly is also the fault of executiveleadership.
  7. Poor Professional Advice: Nobody has corneredthe market on knowledge and wisdom. If leadership doesn't seek outthe best quality advice available to them, then they will likelynot make the best decisions. All CEOs and entrepreneurs need topquality professional advisers.
  8. The Inability to Attract and Retain Talent:Great leaders surround themselves with great talent. Theyunderstand that talent begets more talent. If your companydoesn't possess the talent it needs to achieve its businessobjectives no one is to blame but leadership.
  9. Competitive Awareness: A business does notneed to be the category dominant player to avoid failure. Thatbeing said, it is the leadership's responsibility to understand thecompetitive landscape and navigate it successfully.
  10. Obsolescence or Market Changes: Ifexecutive leadership is in touch with the market it will bedifficult to be caught by surprise. It is the responsibility ofexecutive leadership to make sure that the properattention is given to innovation, business intelligence andmarket research to manage the risk of obsolescence and marketchanges.

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