The 7 Business killers

By Mike Roberts

If you ask any businessperson what causes a business to fail, the answer is nearly always, lack of money; Lack of sufficient revenue, costs were too high, sales were too low, not enough start-up capital, etc. While this is not untrue, it’s a little like stating that the cause of the death of a person is that their heart failed. Obviously, if the heart had kept beating the person would still be considered alive, even if the heart was kept beating artificially and there was no detectable brain activity (insert your favorite business jokes here). But the stopping of the heart is a lag indicator. A heart doesn’t often just stop, there is always an underlying, often predictable cause: High blood pressure, cholesterol clogged arteries, faulty valves, arrhythmia's, complications of diabetes, a bullet hole, there is always something. 

A business is similar and cash, revenues, profits are the heart of a business. So to say that a business died because it ran out of money is just like saying a person died because their heart stopped beating. It ignores the underlying causes and identifies only the obvious lag indicator.

When a business dies, the underlying basis is nearly always one of only seven causes, or more accurately, the triggering of one of seven vulnerabilities or dependencies. By their very nature, nearly all entrepreneurial businesses carry many of these vulnerabilities throughout the life of the enterprise, and almost inevitably and invariably, one or more of them becomes the underlying cause of the death of over 95% of them. 

What are the 7 vulnerabilities?

1. Dependency on just a few Customers

2. Dependency on just a few Key Employees

3. Dependency on just a few Products or Technologies

4. Dependency on just a few Markets or Market Approaches

5. Dependency on just a few Financial Resources

6. Dependency on just a few pieces of Capital Equipment 

7. Dependency on Legal/regulatory issues and protections

The translation is that businesses living within the entrepreneurial level have very few of each of these, making each one more significant to the viability of the company than they should be. The loss of a few customers or a significant customer has a much larger impact on an organization than is healthy. The same is true for employees, vendors, or if/when a product becomes obsolete by advancements in technology or changes in market acceptance or taste. Entrepreneurial ventures are particularly susceptible because, by their very nature, they are small. 

As obvious as this statement might be, it remains the most neglected problem within an entrepreneurial enterprise, primarily because of the assumption that there is nothing that can be done about it. The mistake here is believing that the only answer to each of these is to add more, which can only be done through growth, which is precluded by associated costs and the limited resources of the entrepreneur. The truth, however, is that each of these vulnerabilities can be effectively and strategically addressed with minimal expense. In most cases, greater efficiencies and profitability is also achieved, while limitations to growth are reduced or removed. 

No doubt you recognized your most significant vulnerabilities as soon as you saw the list, and that is good news. The unfortunate thing is that it is not always the most obvious one that will kill you. In fact, most often it is not, it’s the one you weren’t focused on that sneaks up on you. It only takes one, and it doesn’t matter which. It is critical that you measure your organization against all seven of the vulnerabilities. I have many examples of companies who were very successful, made a lot of money, had 6 of the 7 vulnerabilities very secure, but were killed by the one that wasn’t. 

The basis for the measurement

So how do you know how vulnerable you are? To do so ask yourself the following questions for each item.

If you were to lose your best, or most important _________ to your competitor, what impact would it have on your business? 

1. It would not be noticed.

2. It would be unfortunate, but have no major impact.

3. It would be noticed, but we would be fine.

4. It would certainly have an impact, but we would be able to recover.

5. We would notice it immediately, and would have to react quickly.

6. It would kill us.

If you can answer 1, or 2, clearly you are safer, and further up the business security scale than those who answer 5 or 6. As you evaluate your answer, recall back to earlier days in your business when this was not the case. You may have recognized your dependency and grown past it. 

If your answer is higher than that, you are in one of the lower levels of security and need to correct that as quickly as possible. If you answer 5 or 6 on any of the seven vulnerabilities, this needs immediate attention. 

To truly measure your level of security however, you need to increase the number for each of the items. What if you were to lose your top 2, 3, 5, or 10 of your best customers, employees, vendors, etc? Can you answer the same way? A critical analysis that needs to be constantly performed is what will it take to kill me, and how can I prevent it?

So is the answer to add more? More products, more employees, more everything? In some cases, but mostly not. Each one must be handled individually. Each one reduces vulnerability, together they increase revenues and profitability and actually more than pay for themselves. They are what build the foundation for growth into the higher more secure business levels.