Failure hurts. When you have invested endless amounts of time and energy and money into a business project, and you see it crumble before you-it will hurt like hell. A startup can ‘go under’ for a variety of reasons. And usually, founders will point fingers at each other, attribute it to forces outside of their control, or just blame bad luck. The reality is that startup failure is often like the story of the Titanic. The factors that lead to catastrophe are often refused to be acknowledged until the ship is already sinking. Any entrepreneur would obviously like to avoid failure like the plague. Successes and failures around us are a much cheaper source of learning than one’s own failure. Just as a lot can be learned from business success stories, there is a lot to learn from mistakes, failures, blunders, errors and lapses, as well. The lessons of hindsight and research can help avoid failures on your part as well, and prevent the destruction or erosion of value.
Here are some of the types of errors or lapses that failed startups have encountered, and it would behove well for startup owners embarking upon their journey to fulfil their business vision, to learn from them.
1. Blunders by CEOs and founders
Mistakes made by founders and CEOs – errors of judgement leading to wrong decision making, faulty or inappropriate leadership styles, or integrity lapses lead to the business going down the tube.
Bill Gates underestimating the search engine market and opting NOT to enter it, FITBIT CEO James Park ignoring the entry of Apple Watches, Tony Hayward remaining unrepentant about BP’s disastrous oil spillage and last but not the least Vijay Mallya splurging millions of dollars on socializing when Kingfisher Airlines was had huge unpaid debts, are all examples of ‘goof ups’ by CEOs in one way or the other.
One common thread in these examples is that leaders were too autocratic. Charismatic leaders who listen to diverse opinion tend to fare better.
2. Absence of a culture of Innovation
“Innovation is about anticipating the future, responding to changing customer needs, or creating a new need for customers to consume. Companies need small as well as breakthrough innovations for sustenance. There are hundreds of examples in the market place, of companies either failing to innovate, or innovating for the sake of innovation etc.
Examples of forms of innovations that failed are
• Harley-Davidson failed when the huge motor cycle company and brand diversified into perfumes. Ditto for Colgate that that had been in the oral care business, decided to diversify into frozen desserts.
• The failure to see the strengths and capabilities of new entrants in the market is a mistake best illustrated by the example of the Blackberry phone.
• Kodak decided that it was not willing to live with cannibalisation of its old offerings in the face of their new inventions, and lost out big time. A market leader once in photographic films, Kodak remains only a name once films disappeared from the photography industry giving way to digital photography.
• Companies like Mercedes and BMW cannot afford to remain content with good quality. They need to look ahead and move into futuristic segments like electric cars, self-driving etc.
3. Compromise on Quality
To pursue a zeal for business speed or cost cutting, many companies compromise on quality, or cut corners, so to say. Quality is the most important aspect of the promise delivered to a customer. It is the quality of the offering that either establishes trust between the company and the customer, or breaks it. And once the trust is gone, it takes years before it can be re-established.
Quality failures have disastrous consequences for any manufacturer – brand recall, losses, erosion of brand value and so on. There are many examples of quality failures – not of small manufacturers but of large well establishes and reputed companies. These include the battery explosion of Samsung’s Galaxy7, falsified and manipulated data related to pharmaceuticals made by Ranbaxy, product contamination by Kellogg (corn flakes) and ConAgra (Peanut butter), and faulty brakes in TOYOTA cars.
4. Business Disputes
Business disputes can occur due to Intellectual Property Rights (IPR), partnerships, trademarks or Industrial Relations. Disputes can also lead to allegations of unethical advertising and corporate espionage. If not prevented or checked appropriately, these can drive a company to damage if not disaster.
5. Mergers and Acquisitions
Mergers and acquisitions can result in faster business growth, cost savings, and synergies. However, many mergers and acquisitions can result in disastrous consequences where there is lack of due diligence in the process, or a culture clash, or regulatory default, even bad timing.
Many mergers failed for one of the above reasons – like Volkswagen – Suzuki, Microsoft – Nokia phones, Sankyo – Ranbaxy etc.
6. Public Relations disasters
The right approach to good public relations is for the company to be humble, transparent and to be willing to express regret when something goes wrong. Deviation from any one or more of these principles will amount to a PR Fiasco.
Examples to learn a lesson from are – BP’s handling of the oil spillage in the Gulf of Mexico, Volkswagen’s under reporting of emission in 2015-16, and Uber’s handling of accusations of a toxic work culture.
7. Corporate Governance
Corporate fraud, espionage and lack of long-term vision and thinking have led to companies on the brink of disaster. Some of the companies only exist on paper today.
Examples include some Public Sector banks which because of complete disregard to process, or corrupt officer who were hand in glove with a deviant debtor company, loaned out billions of dollars to companies who defaulted on the loans, thus putting tremendous pressure on the ex-chequer. The Sahara Group who defaulted on its financial commitment to its lenders and to its customers faded away into oblivion.
The above examples should provide an inexpensive lesson to startups and entrepreneurs, about the different ways in which a business can fail, if adequate care is not given to all of the above aspects of business.
Puneet Mathur is a Certified Life Coach, Certified Business Coach and a Certified Organization Development Coach. He specialises in helping business leaders to transform their enterprise into a professionally run Company by implementing state of art systems and processes, and building a highly motivated team Puneet is an experienced business leader, with about 30 years of Corporate Leadership experience in reputed Multi National and Indian Companies in the FMCG and Chemicals sector. He started his career with Britannia Industries as a Management Trainee. He has worked varied roles in Britannia Industries Ltd. Marico Industries Ltd. Coca Cola, and the Jubilant Bhartia Group. His last corporate stint was with Jubilant Industries Ltd. As Senior Vice President and Business Head of a strategic business unit (SBU, Puneet supervised Global Business Development, Global Key Account Management, Manufacturing R&D & New Product Development.
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