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Small Business Q & A: The Business Autopsy: A Fact Of Life

Last week we discussed the importance of performing an autopsy
on a dead business. No, I haven't been watching too many of
those wonderfully graphic, TV forensic investigation shows. The
reason I recommend you do a business autopsy is to uncover the
exact reasons why the business died. This is valuable information
that can not only heal feelings of personal failure, but also
better prepare you for the pitfalls of business should you ever
take the plunge again.

Starting a business is never easy and the odds of your success
or failure are about even money. The fact is, approximately
half of all small businesses fail within the first four years.
And a large percentage of those failures occur within the first
year. These are the statistics that keep many entrepreneurs
awake at night. Like Sisyphus, always pushing that boulder to
the top of the hill only to have it tumble back to the bottom
each time, you never know when you're going to lose your grip
on your business and have it tumble back over you.

OK, so far in this column I have managed to squeeze in references
to modern American television and ancient Greek mythology. Enough
highbrow beating around the bush. Perform the autopsy and learn
from it. Only by knowing the real reasons your business died
can you identify and hopefully stave off those maladies before
they take you down next time, if there is a next time. And if
you're a true entrepreneur there will be a next time, trust me
on this.

There are many reasons why businesses fail, but according to a
recent survey by U.S. Bank, the majority of business failures
can be attributed to three reasons: bad management, bad financial
planning, and bad marketing.

Bad management comes in many forms. The survey showed that
seventy-eight percent of the business failures examined were due
in part to the lack of a well-developed business plan and a
business owner who had no business being in the business he was
in. In other words, the business owner did not have an adequate
knowledge or a thorough understanding of the business he had
chosen to start. This is why software entrepreneurs like me
don't start shoe stores. I have feet, I wear shoes. That's
not enough to qualify me to go into the shoe business.

Next, seventy-three percent of the business failures in the
survey were also manned by owners with rose colored calculators.
These business owners over-estimated revenue projections (the
number of expected sales) and under-estimated the burn rate
(the amount of money required to sustain the business per month).

It gets better. Seventy percent of the failed businesses in the
study were led by entrepreneurs who were in denial regarding
their own competence, or more to the point, their own incompetence.
These business owners either didn't recognize or chose to ignore
their own entrepreneurial shortcomings. These entrepreneurs also
did not seek assistance from others who might have made up for
their inadequacies. It's sometimes hard to ask for help when you
are supposed to be the one with all the answers.

Believe me, I know.

The final contributing factor to the death of sixty-three percent
of the businesses who died from bad

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management was that the owners
had no relevant or applicable business experience.

Bad financial planning was the second reason sited by the survey
as to why most businesses fail. In business, it's always about
money. According to the U.S. Bank study, eighty-two percent of
the business failures studied reported poor cash flow management
as a contributing factor to the death of the business.

Seventy-nine percent of the businesses were inadequately funded,
and seventy-seven percent miscalculated the cost of doing business.
In other words, they failed to take into account all of the costs
involved when setting the price for their products.

Let's move on to my favorite subject: bad marketing. You've
heard me preach this sermon before. You can have the greatest
product in the world, but if your marketing efforts are inadequate
or ineffective you will end up with a warehouse full of the
greatest product that no one in the world has ever heard of.

The study showed that bad marketing was a contributing factor in
the death of sixty-four percent of the businesses surveyed.
Many of these misguided entrepreneurs either minimized the
importance of marketing and promotion or ignored it totally.

A vital part of marketing is knowing who your competition is and
always knowing what they are up to. The entrepreneur who ignores
his competition is a fool (gee, was that too harsh?) and is always
destined to fail, as proven by the fifty-five percent of the dead
businesses in the survey who either didn't even know who their
competition was or simply chose to ignore the competition
altogether.

Here's a nice hole in the sand for you, sir.

Please insert your head…

Another mistake made by forty-seven percent of the deceased
businesses was that they relied on just one or two customers for
the bulk of revenues. This is a common mistake made by many
business owners who devote all their energy to one huge client.
What they don't seem to understand is that if that one customer
goes away, so does most of their revenue.

When performing your business autopsy you might identify other
contributing factors that were beyond your control, such as a
down economy, the lack of qualified employees, new government
regulations that negatively affect the way you must do business,
the failure of a strategic partner, etc..

There will always be things you can't control. The key to
business success is to keep control of those things you can and
do everything you can to prepare for those things you can't.

Next time we'll discuss a few things you should and should not
do to help ensure your business success.

Here's to your success.

Tim Knox
tim@dropshipwholesale.net
For information on starting your own online or eBay business,
visit http://www.dropshipwholesale.net

About the Author

Tim Knox as the president and CEO of two successful technology
companies: B2Secure Inc., a Web-based hiring management software
company; and Digital Graphiti Inc., a software development company.
Tim is also the founder of dropshipwholesale.net, an ebusiness
dedicated to the success of online entrepreneurs.
http://www.dropshipwholesale.net
http://www.smallbusinessqa.com