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C-Suite Advisory

The Three Categories of Businesses Failures and How to Deal With Them

If you’re a business owner, the vast majority of the problems that you face could have been prevented. A business is a complex human system that you oversee — and you are the answer to the “why” and “how” of problem development. You started the business, set it in motion and created the goals.

There are often elements that arise that can make it a challenge to establish and maintain your business’s systems. Those issues, while seemingly may feel like real-time failures, can still be appropriately managed and resolved to avoid problems in the future.

The good news is that all failures — as well as unforced errors — fall into three categories. In effect, these categories frame the three essential questions that you — or your general counsel — need to ask about your business. Addressing them will map out your weaknesses:

  1. What foreseeable disasters can strike my business?
    Catastrophes are the natural and man-made disasters that originate outside your business and hinder your goals. They may derive from forces of nature, such as a fire or hurricane. They may stem from market fluctuations. Here in western Oklahoma, a considerable number of companies depend on oil production for their livelihood. In 2014, the oil price crashed from $120 per barrel to below $30, a catastrophe for those who did not see it coming. But my firm did see it coming, and helped our clients prepare for it. It was not a catastrophe for them.

    A catastrophe could be caused by a disgruntled former employee, or an unhappy customer who decides to disparage your company on the Internet. It may come from the competition. The only catastrophe you do have control over is a health crisis: too many business owners are entirely blind to their own vulnerability. But for these truly beyond your control, you can anticipate their likelihood and prepare for them. The key is sound foresight, coupled with preparation and often insurance.

  2. What particular skills or knowledge do my team and I need to run the business effectively?
    Unlike catastrophes, ignorance is on behalf of the business owner or potentially other managerial employees but recognizing your ignorance is a great first step. Failure due to a lack of knowledge regarding your business can strike either the management or the operations side of your business; consequently, it applies to both you and your employees. You can fix this problem with education, such as an ongoing crash course in business management or the technical aspects of the work.

    Whether you are a skilled tradesman running a service company or a merchant running the corner quick shop, your business requires a remarkable number of skills that you likely do not possess. However, you can learn them — or hire someone who has them. As your company grows or changes, there will be new things to learn and new skills to master.

    This is where outside firms — such as legal, consulting, accounting, human resources, or marketing — can advise, assist, and help you rigorously address the ignorance in your company’s personnel. There is no shame in ignorance for your employees: an MBA may not understand the practical skillset that’s the backbone of your business. But the converse is true for you: You devoted your life to becoming a pro at what you do rather than the intricacies of business management. Now take that crash course.

  3. What systems and procedures do we need in order to ensure that the work is executed efficiently, safely, and correctly the first time?
    Ineptitude is different from ignorance. It covers things that you and your employees actually know but screw up anyway. The fixes in this case entail tasks like systems, checklists, and routines. Your goal is to minimize or, better yet, prevent, the element of human error, which can be avoidable using sound management. On one hand, this is the most tedious part of a business owner’s job. On the other, it is the most liberating when done correctly. Once you get your systems, checklists, and routines in place for your employees, you’ve just made their job, and yours, much easier.

    Business owners and managers who routinely and systematically address these three questions will generally avoid the stupid mistakes that would otherwise impede a business’s performance. Ask these questions often. By framing your worries within these three categories, you can deal with them in an organized, effective manner. As a result, running your business becomes infinitely easier.

The Chinese military strategist, Sun Tzu, said, “If you know your enemy and know yourself, you need not fear the outcome of a thousand battles.” Consider these problems your enemies. Use these three questions to understand them, and you need not fear the outcome of the battle — because you will win, or at the very least be prepared to deal with what happens. And dealing with a problem you can foresee is considerably easier than one that comes unexpectedly.

If you have a problem in your business, ask yourself the right questions to help get a handle on how to address it. This is a vital step in a longer process of learning how to get ahead of problems instead of living in reactive mode. The more you practice it, the more confident and steady your leadership will be.


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Matthew Neill Davis
Matthew Neill Davis is an author, speaker and attorney. He owns and manages Davis Law, PLLC, a firm dedicated to helping business owners make smart business decisions. His new book is The Art of Preventing Stupid: How to Build a Stronger Business Strategy Through Better Risk Management (An Inc. Original, April 2, 2019). Matthew is a regular contributor for the CEOWORLD magazine.