Starting a new small business is like being promoted to a management position for the first time, but it comes with a higher risk. According to the SBA, 50% of businesses fail in the first five-years. It has been well established that 60% of new managers fail in the first year. Is there a common theme to these new challenges? Yes, I believe there is.
There are many reasons that businesses fail in the early years, and first-year managers fail. There are five reasons that I believe are very impacting and fit both. The order of importance is matter of debate. Just one of these issues can bring the downfall of either a business in the early years or a new manager.
- A lack of a good plan and lack of a macro view.
- Inability to connect with the base. (employees-customers)
- Inability to communicate in a clear, concise way that creates buy-in.
- An undefined or vague message that provides no direction or sustained interest from those they are trying to impact.
- Leadership breakdown.
The first cause for business failures can be defined as an inability to create a profitable business model. Usually when someone starts a new business, the initiative is based on a specific skill-set or a product they are comfortable with. Without a “big picture view in the plan that considers all operational elements, creating a sustainable business becomes difficult. We set ourselves up to be unprepared for challenges we could not have envisioned. This lack of understanding just compounds itself with industry changes that occur along the way.
Before too long, the business has transitioned into a constant reactionary mode of operation. A simple example would be an entrepreneur who has a strong sales background, but lacks any financial expertise. It is hard to factor in an understanding of an area we have not had to focus on before. Another example would be an individual who has a very technical skill, but lacks sales and public relations skills. Lack of an understanding of two critical areas of a business eventually has its impact.
Like the new business, the first-time manager arrives from a particular well-defined background and understanding. Functioning in this new position with a narrow focus based on comfort level leaves a lot unattended. In a nutshell, like the new business with a deficient model, an individual going from a micro focus to a big picture focus becomes difficult. It is diversified knowledge with varied experience that helps create a macro focus.
The second reason mentioned that may cause new business failure is an inability to be in touch and connect with customers. Again, new business owners become too focused in their comfort area. This leaves little time to focus on what is a major key to success. That key is the connection they create with their customers. This lack of connection with customers is a bi-product of an inability or desire to create good dialogue. A good dialogue is a prerequisite to a healthy business relationship. Business at its core is about relationships. This is what creates loyalty and results in a growing base.
For the first-time manager, an inability to create effective communication with staff can have dire consequences. Like the new business, in order to create loyalty and a connection, there must be effective relationship building. Unlike a new business, this deficiency in a first-time manager can impact at a faster pace. The reason many new managers have this difficulty is again due to that narrow focus going in. An example is a manager who does not leave his or her office often enough to interact, observe, teach, coach, and motivate. It is one thing to focus on individual results; it is quite another to make the adjustment of managing, and helping others achieve results. This “hands on” with staff is what helps create effective and productive collaboration.
The third cause for early failure is an inability to communicate in a clear, concise, and compelling fashion. As a business this means not defining value in a direct and clear marketing message. What value does this product or service provide? I’m sure we can all think of local businesses that have fallen into this trap.
For a first-time manager, this means understanding the difference between managing and leading. This can be also defined as not offering any direction in terms of mission and vision. The opposite of leading is not just following; it is being in a constant mode of reacting.
The fourth reason for early failure for new businesses and first-time managers is not providing unique value-no difference or change from the status-quo. This lack of an ability to offer new value creates lack of interest very quickly.
For a business this takes form in an inability to differentiate their product or service from competitors. A vague presentation equates to a confused customer who loses interest very quickly. We don’t buy what we don’t understand; we go elsewhere.
For the first-time manager this issue is caused by an inability to bring a clear message and perspective to the team. Examples of this problem are a lack of consistency in managing, and a lack of leadership—not getting buy—in and collaborating effectively. This is easy to recognize. We see it in the manager who spends all of his or her time just managing, just containing what is already in place.
The fifth reason new businesses and first-time managers fail is due to a leadership breakdown that creates conflicts and turmoil that is left unresolved. It hurts morale which kills productivity.
For a business, this leadership breakdown means simply making bad decisions. In this very competitive business environment today, customers and clients can be very fickle. The wrong product, process, or service decisions can have disastrous repercussions. Loyalty does not come easily and is hard to maintain due to many different offerings customers have available today. There are many examples of these bad decisions that have occurred on a national or international level.
A new manager can have the same problem, and it surfaces as a result of bad decisions. These bad decisions most often are a result of a lack of a “hands on” approach in working with the “team.” Being detached limits the needed information to make informed decisions. This lack of dedicated “hands on” occurs when a manager is spread too thin, unprepared, overmatched, or gets complacent. The results can be the same, a breakdown in leadership.
The best way for a business or first-time manager to reduce the chances of this failure could come down to one simple term. That term is “mentorship.” For a new business owner, having that mentor is invaluable. The process of starting a new business or new position is more impactful to one’s life than just an everyday purchase. It is a life changing decision that requires proper analysis, and a business model that can prosper and sustain itself.
For the first-time manager, and really for all employees, the importance of having a mentorship program in place cannot be overemphasized. The fast pace of business today combined with increasing and overlapping responsibilities demand preparation. That is where that trusted advisor/teacher becomes important. It is not just a matter of helping someone adapt to new responsibilities, it is more importantly laying the groundwork for success.
There is no replacement for awareness and understanding. There is a level we reach when we are aware, prepared, and enjoy what we do. It is called “fully engaged.” Not a bad place to be whether you are starting a new business, new position, or becoming a first-time manager.
