Every entrepreneur starts with the confidence that their idea has tremendous potential, and the hope that hard work will be enough to turn it into a reality. Unfortunately, most businesses end up failing within the first few years of operation. The business world is full of ups and downs, some of which are both unpredictable and unfair, so no matter how thoroughly or effectively you plan the future of your business, there’s a chance you could end up in a “sinking” position.
So how can you tell if your business is gradually starting to fail? And what can you do about it?
Understanding Failure
First, we need to establish a clear idea of what “failure” means in business. For some business owners, “failure” might mean that the company is striking a profit, but is having trouble expanding, or is heading in a different direction than otherwise intended. For our purposes, we’re going to define failure as an inability to make a profit and an inability to move forward. Usually, this happens when a business runs out of cash and is unable to pay their bills; at this point, the business can file for bankruptcy, which either demands a thorough reorganization process (explained in detail by Bridgepoint Consulting) or the complete closure of the business.
There are hallmark signs of progress along this path, so it should be evident when your business is heading in this direction; for example, cash flow will start getting tighter, growth will begin to slow, and there will be fewer and fewer opportunities on the horizon to look forward to.
How to Recover
Let’s say your business is currently in a sinking position, headed toward eventual failure. What can you do to slow down the process, or even reverse it entirely?
- Find the root cause. You can’t stop a sinking ship if you don’t know where the leak is. Your first job is to perform a thorough root cause analysis and figure out exactly why and how your business got to this position. Is it a lack of market interest? Did you expand too soon or too quickly? Was there a new competitor that started eating up your revenue?
- Cut costs aggressively. Next, start cutting costs. Look at your equipment, your subscriptions, and your other assets. If you don’t need something, get rid of it. You may also need to lay off some of your staff members if you’re truly in a pinch; the leaner you can operate, the better. If you’re interested in more specifics, American Express has a great article on the subject.
- Invest in yourself. It may seem counterintuitive to talk about cutting costs, then recommend spending more money, but you must invest in yourself if you want to grow. Look to new marketing campaigns, new research, and other areas that can stimulate your business; without a financial boost, they may not be enough to carry you.
- Find new partnerships. You can also try to form some new partnerships with other businesses. If you have trouble bringing in new customers, start a referral program that incentivizes other organizations to forward leads to you. If you can’t control costs in the supply chain, partner with manufacturers or distributors to make things cheaper.
- Choose a new demographic. If you’re struggling with generating market interest, consider offering your products and services to a new demographic—either to replace your current target market or complement it. If you’re new to the area of market research, the SBA has a detailed, free course on the subject.
- Rebrand. If you feel like your business can’t recover from its current situation, but you don’t want to scrap your central idea entirely, you can consider rebranding. Essentially, you’ll rebuild the business from the ground up with a new skin and a new set of goals; you’ll be breathing fresh life into your enterprise.
- Consider selling your assets. If you know the business isn’t going to recover, but you’re not in a bad enough position to file for bankruptcy, you may consider selling the company to a bigger rival, or selling your most significant assets to another entity.
These seven strategies aren’t enough to guarantee that your business will turn itself around, but they can significantly improve your chances of staying alive—even if you have to change dramatically to do it.
They’re certainly worth a shot if you feel you have no other options.