Numerous studies and polls have been conducted on the failure rate of small businesses. Some experts estimate that 50 to 70 percent of new businesses fail within the first 18 months.
While those numbers seem bleak, we don't often stop to wonder whether these promising initiatives failed due to cultural decisions made along the way. Take a look at these three companies' failures and the lessons learned the hard way.
In 2010, after Damian Kimmelman's London-based digital design agency, We Are VI, posted a loss of approximately a quarter of a million pounds and let go 25 staff members, Kimmelman, who was the sole owner, shut down the company.
Last year, when Kimmelman discussed his business's closure with CNBC, he blamed the failure on his having spent too much time planning and not enough time doing. We Are VI was unable to juggle the demands of its big name clients, he added, and said that it hadn't established a recognizable niche in the advertising space. He also claimed that the firm would have grown if it had stuck to a single, distinctive product offering.
But perhaps most telling was Kimmelman's comment that he gave up the business because he "really hated agency life." This suggests that Kimmelman wasn't fully aware of the day-to-day rigors involved with managing a creative agency, and a firm with an unenthusiastic CEO at the helm will not be able to survive in the long run.
The lesson? Before you launch a new business, make sure that the type of company you're planning to run, including the company culture, is a good fit for you.
When Starr Hall, a San Luis Obispo, California-based PR consultant, became overwhelmed with requests for social media help, instead of stressing out, she spotted a business opportunity. In 2009, she launched SmartyVA, an online social media management training program for virtual assistants.
Hall invested $10,000 to create SmartyVA's training materials and launch a website with a search engine that aggregated job leads. She charged clients $1,000 for the six-week training program, and when graduates landed jobs through leads on the site, SmartyVA received 10 percent of their earnings. In a sense, the graduates were both Hall’s customers and her employees.
Although the company was successful at first, SmartyVA’s long-term profitability depended on graduates following up on job leads they received through the system. Unfortunately, many of them didn't seek employment, and SmartyVA just couldn't sustain itself based on the training fees alone, and Hall shut the company down in 2011.
When discussing the business's failure, Hall told The New York Times that she didn’t anticipate that the mindset of the people she was training would be different from her own. Her failure to understand what motivated her customers cost her her new business.
The lesson? Small-business success is about the team, not just the founder. If you want your company to succeed, you have to build a culture of open communication in which your whole staff benefits when they work toward a common goal.
On his blog Innonate, New York-based serial entrepreneur Nate Westheimer described the 2008 demise of his company, BricaBox, a social content-sharing platform. The primary issue, according to Westheimer, was that there just wasn't a market need for the company’s solution.
Westheimer launched BricaBox to address a technical problem with which only a small number of people were grappling. He says he didn’t realize that a full-fledged startup wasn’t necessary and that he could have gotten the job done with an informal team using open source code. Just six months after starting the company, Westheimer was forced to shut it down.
In other words, Westheimer’s vision for a complex performance culture didn't suit what was, in the end, a basic concept that wasn’t relevant to the masses.
The lesson? Always perform extensive market research to determine that there's a clear, unmet need for your offering, and once you do this, devote your culture to addressing your customers’ requirements.
Have you ever had to shut down a business? What role do you think culture may have played? Share with us in the comments below.
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