Avoiding Business Bankruptcies : The Root Causes and Helpful Institutions

Cellier, J. & Unsplash. (2019, January 3). “Bankruptcies spiraling for companies large and small” [Photograph]. Journal Record.

Entrepreneurship may seem like an exciting, profitable and a really cool job for certain people. However, it should not be forgotten that it is a highly risky, stressful job as many entrepreneurs face the fact that the companies they started might fail and this might cause a lot of disappointments whether they are from the public or from the employees. As many of them do fail according to the statistics, this article would like to explore the reasons why many of the businesses fail in the early stages, how certain businesses such as Microsoft handled almost being on the verge of losing its position in the market and became the world’s most valuable companies succesfully (Carr & Bassand, 2019). Also the other topics that will be got into are the accuracy of the new business failure rates, how and where the business owners are able to get support, advice or financial support, also to collect information about the type of organizations, people, institutions who supply these kinds of supports and help for the newly launched or already existing, succesful companies.

The first focus on this topic is that what are the possible reasons that underlie the fail of many businesses. The failures of businesses are categorized in four major aspects: leadership issues, marketing issues, financial issues, system and facility issues. (Bovee & Thill, 2015). We might not see or hear much about the failed businesses on the news, the internet or other sources. On the contrary, we know and hear all about well-established, succesful businesses everywhere such as Apple, Microsoft, Google, Android and so on. This shows that the good news spread faster than bad news in the business sector. An entrepreneur should consider the ways that may cause failure at present or in the future, or should check out what other mistakes failed businesses made. Mistakes are probably as important as success stories to understand how businesses survive succesfully in the market. They teach entrepreneurs a lot of lessons on how to and not to run their businesses. In this article, what can be those major mistakes and how to prevent them will be examined and some success examples in the business sector will be showed.

Let’s elaborate on the four major aspects of business failures and explore the general reasons behind them more specifically. First, leadership issues should be mentioned. These issues include managerial mistakes that managers, leaders and bosses are responsible for. Managers, leaders and bosses are responsible for keeping the business functions stable and achieving success in their fields. To give examples, organizing, planning, leading and controlling are some functions; certain errors, lack of foresight and incorrect calculations are some mistakes. However, the managers’ roles on these certain mistakes must be to capture and encourage the employees to fix these problems and help them showing some ways for how to solve problems and talking about damages that may bring the company to ruin. According to investopedia.com, one of the six major problems or mistakes that entrepreneurs make is not to investigate the market very well. This of course includes their competitors in the market, the volume of the market, the number of the possible customers for them and the market as well. What their other competitors do in order to attract and keep customers, how they can compete and be superior to their competitors in one or multiple aspects are also other issues to deal with. To know all of these in a particular market, managers must be experienced and have all the knowledge that they need to keep the business stable and eventually achieve its goal in the industry. Also, owners may not think through or guess all the possible obstacles in their start-up process. This negligence may cause the manager to build a weak strategy for the business to survive in the future. Besides all these reasons, managers might not endure some multi-taskings in their companies. The administrative position requires immense knowledge about management, technology, marketing and many other details to make a business successful.

The other major field is marketing and sales issues. Marketing is an important business field which makes you sure that your brand is well-represented and it reaches to the right audience. One of the problems is that small companies may struggle to gain recognition in competitive and congested markets. Generally, they have small amount of money for marketing and advertising in the market at the start. Also, when it comes to sales, companies can be greedy when they establish their businesses, and in the early stages, they might get many more customers than they need and their capacity to provide company’s product or service to the customers. This leads to a crisis in the companies and even damages to the brand images on the media, and eventually makes people shut their businesses down. Also, lack of balance between customers and companies may cause some problems such as focusing on certain customer profiles too much and omitting other customers. Even though a company focuses more on its important customers, it is important to not to miss and forget about the rest of the customers.

One of the other major fields is financial issues that businesses are required to work on, plan and manage them. Based on my observations, this is one of the most complicated parts as many people fail by investing too much, so do others by investing smaller money than businesses need. For example, investing less than they need creates a lack of supply in every possible way. Also, even in a situation where a company is financed properly, it may not be invested wisely. For example, if a company spends too much on non-essentials and does not fulfill and meet their more important needs, these may cause bankruptcy. Another point is that when entrepreneurs are not able to balance their incomes with their expenses, they might leave their companies with debts. If a company is not able to use its funds and investments efficiently, it cannot collect enough funds to maintain its business. Some companies also spend excessively on things that do not directly serve their purposes or selling functions.

Sometimes companies may have poor location choices that result in increasing expenses on retail operations and so on. Inefficient inventory management can also be devastating when companies spend too much of their funds to inventories that leads up their costs to raise, also this may not satisfy the demands for products. These mistakes can be placed in the last major field: systems and facility issues.

Microsoft Chief Executive Officer Satya Nadella gives a speech at Microsoft [Photograph]. Emmert, D., Getty Images, & AFP. (2017, May 11).Fortune Magazine.

Let us continue with an example of efficient management. Microsoft has recently become the world’s most valuable company which passed $1 trillion as value on April 25 and it is up more than 230 percent since their CEO left Apple behind with a very small deficit. The company’s CEO Satya Nadella has been working with it over the past five years. While Windows and Microsoft were with the blue screen in the early 2000’s, it missed some technologies such as mobile phones, social networking, search engines (Carr & Bassand, 2019). Microsoft was a little stagnant and not that innovative before Satya Nadella. After Satya Nadella became the CEO of the company, he wanted to emphasize the importance of growth and put this idea into practice in the company. Nadella calls corporate “empathy” and a shift from a “fixed mindset” to a “growth mindset” (Carr & Bassand, 2019). This shift focuses more on culture than technology as Satya addresses it. Through this example, one can see that managerial aspect of a business can be crucial. As we touched upon the mistakes, we can observe that the mistakes that led Microsoft to lose its value were managerial mistakes and they had to be about planning, organizing, controlling or leading functions. These functions can also include strategic planning and forecasting. It can be said that Microsoft was inefficient to solve these problems and lacked operation on these functions. The company was suffering from these problems and managers had to take charge of the situation of Microsoft. When the current CEO replaced with the former one, he saw the problems the company went through and needless to say, as he knew what lacked in the company, he planned how to make the company strike further in the market and revive it. The leadership issues, as they were discussed previously, in the company were being solved by him and he managed to encourage employees to change their perspective on what the company must produce its technologies and this brought them a new perspective on their way of working and eventually the company’s way of working. In that way, Satya Nadella solved the problems and issues that former executives were not able to see, address or deal with. This Microsoft example shows us how critical a manager’s role is, and how much their mistakes and behaviours can affect the entire company. Be it good or bad, one can not deny the fact that the effect of a manager is massive and they lead the company by making decisions. With that being said, how managers control and lead the company will be more crucial to the company than what the employees do. Because of that, every decision a manager makes containes a risk. This decision making responsibility is critical for managers and the future of the companies they administer. So that, they must be experienced in how to run a business and knowing how decisions affect the companies' future.

Keeping a business stable and making right decisions during the process need experience and it is clearly not that easy. For the entrepreneurs, there are a lot of sources and advices to get benefit from them. Apparently, there are five major sources and organizations that businesses may seek advice of: government agencies, business partners, mentors and advisory boards, print and online media and business incubators.

U.S. Small Business Administration Entrance. (2020, March 19). [Photograph]. Greater Atlantic City Chamber.

There are numerous government agents that help businesses, offer them advice and even offer funds to start-up companies. In the USA, there are governmental institutions that help small businesses such as Small Business Administration (SBA). They help them with management, financing and selling. Also, the Minority Business Development Agency offers advice and programs to the businesses that are owned by minorities in America. Moreover, there are other organizations run by government such as Service Corps of Retired Executives (SCORE) in which old and experienced managers and executives give advice to new managers and enterepreneurs and share their knowledge and wisdom about businesses. Many colleges and universities have programs for entrepreneurship and business. The U.S. Chamber of Commerce offers programs for newly-launched small businesses as well. Also in Turkey, there are government based institutions such as KOSGEB to help new entrepreneurs funding them and offering entrepreneurship and business programs. Other than governmental agencies, there are banks, credit card companies and many other firms that give support and advice as well. Open forum.com can be a great example for this. It is created by American Express. It has a wide variety of educational content in the forms of video, article, tutorial and forum. It can be a pretty useful tool for the small business owners to have network opportunities to get help with their questions, problems and issues when they start. In addition to all of these sources, some people do the business advisor job individually. They are called mentors and also a group of people with the expertise on this area is referred as advisory boards that give advices to new entrepreneurs and help them with their decision making process. Internet sites also provide tons of information. Networks and support groups can be found online or in real life. Some entrepreneurs organize events and support each other. Besides all of these opportunities, there are business incubators that small businesses, entrepreneurs or any person who has an idea can appeal to make their ideas happen. Business incubators are companies that help new companies to develop by providing services such as management training or office space. They can be for profit or non-profit organizations. However, they essentially support baby businesses financing, giving business inside information to them and so on. These supports can be very specific from how to finance their marketing office to how to raise funds and deal with legal issues and they can be anything that new launched businesses need to grow and sustain themselves later on.

References

• Business In Action, L. Bovee, J.V. Thill. Pearson, 2015.

• The Most Valuable Company (for Now) Is Having a Nadellaissance, A. Car, D. Bass. Bloomberg Businesweek, May 2th 2019, bloomberg.com.

• Deane, M. T. (2020, February 28). Top 6 Reasons New Businesses Fail. Investopedia. https://www.investopedia.com/financial-edge/1010/top-6-reasons-new-businesses-fail.aspx

• Rubin, Tzameret H.; Aas, Tor Helge; Stead, Andrew (2015-07-01). "Knowledge flow in Technological Business Incubators: Evidence from Australia and Israel". Technovation. 41–42: 11–24. doi:10.1016/j.technovation.2015.03.002.

Image Resources

• U.S. Small Business Administration Entrance. (2020, March 19). [Photograph]. Greater Atlantic City Chamber. https://acchamber.com/u-s-small-business-administration-fact-sheet-economic-injury-disaster-loans/

• Emmert, D., Getty Images, & AFP. (2017, May 11). Microsoft chief executive officer Satya Nadella gives a speech at Microsoft [Photograph]. Fortune Magazine. https://fortune.com/2017/05/10/microsoft-satya-nadella-george-orwell-aldous-huxley/

• Cellier, J. & Unsplash. (2019, January 3). “Bankruptcies spiraling for companies large and small” [Photograph]. Journal Record. https://journalrecord.com/2020/11/12/bankruptcies-spiraling-for-companies-large-and-small/