Hidden Factors That Destroy a Business

A typical business owner focuses on the rise and fall of their profits, revenue, customers and competitors. They strongly believe that those are the essential areas that will affect the value of their entity. Of course, that’s part of it, but not the entirety. Certain less unidentified factors may hinder the progress of a business and eventually lead to its collapse. They secretly drag down the value of a business. In this article, I will describe them as termites.

As we all know, termites are very active social insects that ravage our clothing, home furniture and food items among others. They are sometimes underestimated due to their size. Most people tend to neglect them and focus on the bigger enemies, such as rodents, bills or fire outbreaks.

In business, termites possess threats like a heart attack. Without any outward symptoms, they clog the arteries until their final beat. And that’s where it becomes so thwarting. You can only fix a problem that is identified as ‘a problem’.

Today, you will be learning the termites that decrease the value of a business as well as approaches to fixing them.  

1. Sole Provider

Most establishments tend to restrict the supply of their “raw material” from one person, group of individuals or a clan. While this initially saves you a lot of time and resources, it might start “eating the furniture of your company’s value”.

Doing business with a sole supplier is like building your mansion at the edge of an unstable cliff. This will gradually cripple your company’s value. Leverage is that advantage that gives the other party the better chances of reaching an agreement he desires in a negotiation. A sole supplier always has the advantage in negotiation.

Once there is a slight change in the economy, they are in a better position of authority. They have access to more information or resources than you do. Plus, they tend to gain leverage in negotiating any deal.

How to Kill It:

• Hunt for an assortment of sources for your raw supplies.
• Look out for value at the cheapest prices.

2. Customer Attention

This termite may retard the value of your business. Customer concentration is focusing your sales on a particular or a set of individuals. It is not a good thing for a business to continually sell-off over 25% of their products or services to a single individual or group.

Customer focus is exclusive in terms of the stable patron. In the future, there is a 0.5 probability that it may affect your business cash flow. For instance, you produce about 50% of clothing materials for a single textile company. The fault observed by the consumer of that product will affect your customer as well. That is, a fault observed by the final consumer created a fault in your establishment.

How to Kill It:

• Diversify your customer base.
• You can partner with the customers instead.

3. Short-Term Employees

If you don’t paddle the boat, it will fall to the tide. Continuity drives a business. Unstable workforces drive away faithful consumers. The staff of an establishment can greatly influence the success of the organization. Aside from the normal productivity and efficiency in jobs they carry out daily, they also influence the customers.

In instances where there is inconsistent management or constant change of staff, it may result in “emotional infection”.  Here, the new employees get to learn from scratch even when they see themselves as experts. They are compelled to act like zombies and will scare customers away.

In addition, constant changes in staff tend to create stronger competitors. A single ant can bring down an elephant. All that is needed is communicating with its colony.  

How to Kill It:

• Lock your employees with incentives and other plans.
• Only give your employees constructive criticism.
• Acquire the personal needs of each employee before employment.
• When you let go of an employee, give them a reason to smile.

4. Owner’s Dependency

The owner’s dependency is another termite that may crumble your business value. To do well in a business, it is important for you to separate your business from your personality. Some business owners cannot go on a vacation without receiving a “distress” call in less than an hour afterwards.

I call this ‘Moses and the Israelites’. Without Moses, the Israelites went astray. Without you, the business crumbles.

What defines a business? A business should have the ability to be sold or survive even after you’re “gone”. A business that can’t be unglued from its owner cannot stand the test of time. Every investor knows that.

How to Kill It:

• Get a very good organizational flow and policy.
• Strive to make sure that your business can survive with you absent.

5. Pleasing by Prices

Pleasing your customer comes with great challenges. It should not be at the expense of losing your business. They will cripple your business sooner than you’d expect. To meet up with family expectations, sell more products, acquire more customers or obtain popularity, we have a tendency to reduce the prices of our products and services. In the long run, this will reduce the ‘gross margin’ of the business. 

A gross margin is a mathematical tool used to weigh the revenue of a business with the cost. It is usually expressed in percentages. When there is a decline in the gross margin of your business, you will gradually lose out on thoughtful customers. They will sense that your competitive advantage is dwindling. It shows that you are competing on the basis of price to get more customers.

How to Kill It:

• Get your product right by improving and not rebranding alone.
• Draw a separate line between family and business
• Flee from favouring a particular set of customers and ignoring others.