Seven Warning Signs of a Dying Business

Published
12/05/2012

What are the warning signs of a dying business?

Every dying business sends out certain warning signs before the eventual collapse. For the observant entrepreneur, this disaster is avoided by taking certain strategic measures. But for the non-observing entrepreneur, this disaster seems to creep in suddenly.

The death of a business is not as sudden as many tend to assume. Just as there is no such thing as overnight business growth, there is no such thing as overnight business collapse.

Accidents seldom kill businesses like it does kill humans.

Sicknesses seldom kill businesses like it does kill humans.

So what kills businesses then?

Businesses die as a result of these 3 deadly factors:
1. Negligence.
2. Inexperience.
3. Greed.

Negligence: I am writing this unusual article to help you fight against this number one deadly factor that kills most businesses – negligence!

Negligence is simply not paying adequate attention to your business. Negligence is about being too busy "working in" your business that you forget the importance of "working on" it.

Working in your business = doing business
Working on your business = building a business

Later on in this unusual article, I will be pointing out 7 warning signs of a dying business. Knowing them will help you to be less negligent.

Inexperience: this is the second factor killing most businesses and to some extent, this also has its root in negligence.

How do I mean?

Inexperience is not an excuse for failure. It is true that the best teacher is experience. But it doesn’t always have to be your own experience. Leverage on the experience and expertise of others ahead of you in different areas of your business. That’s why smart entrepreneurs always surround themselves with mentors, consultants, coaches and other professionals generally smarter than them on specific areas of their business.

You cure inexperience with borrowed experience. It doesn’t have to be your own experience!

Greed: this factor is self explanatory. Any attempt to bite more than is ethically allowed will kill your business faster than the first two deadly factors.

Your business will die if you give customers less value than they pay for – greed.
Your business will die if you give your employees less than they contribute – greed.
Your business will die if you think your own needs are far more important than the needs of others –greed.

You cure greed by following the golden rule of business.

Those are the three deadly factors that can kill your business. Let’s now identify the seven warning signs that inform you of their presence. In other words, the seven warning signs of a dying business are the different ways Negligence, Inexperience and Greed manifest their selves in your business. They represent the symptoms of the three deadly factors that can kill your business.

The 7 Warning Signs of a Dying Business
What are the obvious symptoms of a failing business?

1. Low sales
This is the most obvious sign of a dying business. Why? Because sales are the lifeblood of every business. Without sales, there is no cash flow and without cash flow, there is no business continuity.

Sales are to a business what blood is to we humans.

So when you begin to notice a period of low sales in your business, be on the alert, your business may be dying!

In this unusual article; what to do when business is slow, I described the first step you need to take in managing a low sales period.

2. No innovation – nothing new
Variety they say is the spice of life. Meaning, people love new things. Your business will always be at the front of your customer’s mind if you regularly innovate – come up with new things.
So here’s the big question; when was the last time your business introduced something new (product/service) into the market?

To remain in business, you can’t afford to rely on past glory alone. You’ve got to keep reinventing yourself through innovation.

IBM held on to their past glory as the industry leader of mainframe computers and watched Microsoft steal away the global market of desktop computers through their user friendly Windows Operating Systems.

When there’s nothing new about your business, you bore existing customers and discourage potential new ones.

3. No differentiation – nothing unique
Be careful of making the mistake that innovation is the same thing as differentiation. I listed these two warning signs after each other to make this clarification.

New and unique are never the same.

New ≠ Unique.
New = better than former
Unique = different from others

What is differentiation?
When you list out all the characteristics of your business, product or service and compare it with that of others in your industry; differentiation is those attributes of your business, product or service that isn’t on any of your competitor’s list of attributes.

Differentiation is about having a competitive edge above your industry peers.

Differentiation is about focusing on a specific point of uniqueness separate from your industry peers.

Businesses that last stand the test of time because they are different from others in the same industry. Customers treat you like others when there’s nothing unique about you.

So here’s the big question; what’s unique about your business in comparison to your industry peers?

4. No positive word of mouth – referrals and testimonials
Are people talking about your business, product or service? If yes, what are they saying? If no, then you are as good as dead. Period.

When customers no longer talk about your business, then you don’t matter. Businesses that matter get talked about by their customers.

How do I know?

By the number of referrals and testimonials such businesses get.

So here’s the big question; how many referrals and testimonials has your business generated this year?

If your customers aren’t talking about you to their family and friends, watch out. They aren’t talking because you are not worth talking about.

To make them talk, give them something worth talking about –innovate, differentiate, blow their mind!

5. Low employee morale
Until now, the four warning signs discussed above have focused mainly on your business’ relationship with your customers. That is, what customers expect from your business and what you expect from them. Now it’s time to shift the focus to the people who make the products/services you sell to customers –your employees!

How are they? How is your relationship with them?

They are the first customers of every business. After your purpose, they come next. They greatly determine the success of your business, because the products/services you offer for sale in the market come from their collective efforts.

So here’s the big question; how well are you paying attention to your people? How well are you taking care of them? Are they working with a clear unity of purpose? Are they at their best possible self ever? Are they working as one – a team?

A business with high employee morale is a healthy business. So to know how well your business is doing, check how well your people are doing.

6. Poor cash flow management
If sales are the lifeblood of a business, it is so because of cash flow. After sales, the next financial indicator of a healthy business is how well they manage their cash flow.

Oftentimes a profit & loss (P&L) statement may show that a company is profitable, yet the company is struggling to survive.

Why?

The answer lies in their cash flow.

Successful small businesses become successful large businesses when they understand that cash is king and actually focus their business on generating, and preserving, cash.

What is Cash Flow?
Cash flow refers to the inflow and outflow of cash within a business. That is, the flow of money – where is it coming in from (account receivables) and where is it going out from (account payables)?

Managing your cash flow properly is ensuring you never run out of the financial resources necessary to sustain your business. A business that runs out of cash is a dead business!
So here’s the big question; how smooth is the flow of cash in and out of your business?

To accurately answer that question, below are two key indicators of poor cash flow management, both must be avoided to keep your business healthy financially.

Overstocking Goods
Having stock that you cannot shift or sell quickly is a serious waste of funds and points towards poor cash flow management. Cash is tied up in inventory, the less stock the better. So only order what you can sell: you can always order more as demand increases.

Poor Ordering and Invoicing Practices
Do you meticulously keep detailed invoices and accounts, outlining who has bought what, when they bought it, how much they owe and whether or not they have paid yet? If the answer is no then this must be fixed quickly.

There are 10 more symptoms of poor cash flow management besides these two, but I can’t cover all here.

7. No learning and development
Innovate or die.
Differentiate or die.
Change and grow or die.

Learning and development is the secret of competitiveness in business. To remain relevant in the market, you need to keep changing and keep growing. The moment you stop learning, you start dying. This is as true for individuals as well as businesses.

Your capacity to innovate is dependent on how much you learn and develop.
Your capacity to differentiate is dependent on how much you learn and develop.

So to do more, learn more.
To be more, learn more.
To have more, learn more!

Your Turn
From experience, yours or that of others, what other warning signs of a dying business can you add besides the seven mentioned above?

Which of these seven warning signs are you currently experiencing in your business and how do you intend to strategically correct it?