The Most Common Reason Why Businesses Fail After Being Profitable
You will be shocked how one small mistake snowballs into a business going bust
Introduction
I’ve written various posts about what you need to do to ensure your business keeps growing with every working day.
However, to ensure growth of your business, you also need to have information about what not to do in your business. Right?
So, let’s talk about…
Why do businesses shut?
Technically, there could be multiple reasons for a business to go bust.
A business is like a living organism, so like in the case of any living organism, a business could also have multiple causes/ points of failure.
Just to name a few, bad management of finances, people, vendor payments, not being able to maintain the quality of service, etc.
However, I’d like to double click on a particular situation that’s worth contemplating on.
The two types of businesses
The most common segregation of a business would be:
1. A new business, and
2. An established business
As mentioned earlier, there are multiple possible points of failure with a new business, but the intention to write this note is to focus on the subject of…
Why do established businesses fail?
Isn’t this intriguing?
An established business is profitable.
They have a list of existing clients.
They have managed to connect the dots between the vendors, people, processes, sales, customers.
And yet, we see old businesses perishing once in a while.
Based on my observation, analysis and studies I can confirm that there are a few reasons that get covered by the media suggesting why established businesses go bust.
These reasons are:
1. The company doesn’t upgrade their products
2. The business owner retires and there is nobody to handover the business to
3. A new alternative enters the market (when was the last time you bought an alarm clock/ a camera roll)?
However, there’s this one reason which I think deserves a special mention.
This is a very powerful reason that is actually the root cause of the demise of most established businesses.
What’s unfortunate is that this reason has managed to slip under the radar more often than not.
The sheepish reason that has caused millions of businesses to shut down
There’s no easy way to say this, so let’s just dive into it head on.
Businesses shut down when they get too “transactional”.
Humans love convenience, and we love to spend on experiences, and we look for deals and discounts as often as we can. However, one subconscious behavioural pattern that is never going to change is “human connection”.
There is a reason why we like ordering to a specific waiter/ captain when we visit a restaurant that we frequent.
There is a reason why we like to get our haircuts/ salon services from the same person as much as possible.
Of course, being skilled is a core underlying reason, but what’s also important is how you feel when you connect with someone, when you interact with them.
When established businesses get complacent, they tend to look at every customer as a mere means to an end (read: transaction).
Business growth is all about sales, but it’s impossible to sell, if your customer feels uncared for.
Humans are (and will always remain) extremely emotional, demanding and convenience-oriented customers.
If you’re a regular with reading these notes, you’d have observed that I’ve now (read: with this note) started segregating the note in various sections.
Why am I doing this?
To ensure your experience is effortless, the note becomes easier to skim, and you actually manage to extract maximum value.
When a business stops caring about the customer and the only thing, they care about is getting the transaction closed, they won’t care to train their team members to smile at you, greet you and ask you how is your day going?
They will only focus on getting your order delivered and move to the next transaction.
Businesses like these are perfectly well-oiled engines, but over a period of time, the customers start finding alternatives and sooner than later, these businesses start running dry and go bust.
Your Thoughts?
Do you agree with this observation?
Have you stopped giving business to a store/ service provider because the entire experience with the brand felt very transactional?
Do you have a particular favourite brand that you frequent only because your experience with that brand has always (or mostly) been pleasant?
Let’s continue this conversation (or ask your questions about the post) in the comments below.
Keep Going Keep Growing 🚀
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Prompt used to create the image for the note
P.S.: Image made on Meta AI using the prompt, “Imagine a business owner who is about to cry because their business is shutting down despite being a really popular business until a few years ago”