The Real Reason Businesses Fail

There’s no doubt that business loans are hard to come by these days, and you’ve probably heard of at least one business that closed because the bank turned down their loan request. But is the lack of funds the real reason behind many business failures or is it something else? Here’s what one sales consultant thinks.

“We’re forced to close because the bank will not loan us the money we need.” Phrases like this have been heard too many times the last several years, and yes, it’s unfortunate, but here’s my perspective: Companies don’t fail due to a lack of financial capital. They fail due to a lack of intellectual capital.

Let me put it in even simpler terms: Companies fail because people don’t think. It’s always easier to blame someone else for our problems. It’s what most people do, and besides, we all believe we’re brilliant. Any set back could not possibly be associated with us; therefore, it has to be somebody else’s fault, right?

Now I’m not going to say 100% of all failures are due to a lack of intellectual capital, but I will say the number is probably close to 97%.

Let me explain why. Any business is in business to satisfy customer needs. If things work out correctly, they can fill those needs at a value for which customers are willing to pay and at an amount that is more than the company has to spend to prepare the item for sale.  It’s that simple – nothing complex, nothing behind the magic curtain. Just sell something for more than it costs to make it and you’re fine. Well, not quite.

We all know there are numerous other factors that can and do come into play with regard to how a business operates, and it’s all of these other circumstances that require the proper use of intellectual capital.  The level of intellectual capital in any business is going to vary dramatically. More importantly, how the intellectual capital is ultimately used is going to determine the success or failure of a business.

In my role as a sales consultant, I’ve watched a great number of people with incredible sums of intellectual capital not being challenged at all to contribute. At the same time, I’ve watched people who are, for lack of a better phrase, ‘a few dollars short upstairs,’ making all of the decisions without any input.

Whenever I work with salespeople or any other business professionals, including CEOs, I love to challenge them with a few simple questions.

Here goes:

• What did you learn yesterday?
• How did you apply today what you learned yesterday?
• What do you expect to learn today?
• What will you need to change next year to stay ahead?

You get the idea. I love to challenge conventional thinking.  Some people say that’s not my place as a sales consultant, but I say that is my place.

In sales, it’s all about fulfilling the needs people or entities may have, but many times these people or entities don’t know what their needs are.

Worse yet, they don’t understand what needs they may have tomorrow. This is my role as a salesperson – to not only help them today, but also to prepare them for tomorrow.

You might be asking how this ties back into the original idea of businesses failing due to a lack of intellectual capital rather than lack of financial capital. It is intricately related because no matter what our role is, it is our job to help those with whom we come in contact to fully use their intellectual capital. This means we need to be fully using our own intellectual capital. And that means we have to ask ourselves the very same questions I listed above.

In my own company, we ask ourselves these questions on a regular basis. We also challenge ourselves to go outside of our comfort zone to seek diverse opinions and ideas.

The opportunities before us have never been greater. I firmly believe due to advances in communication and the global business community, there are more opportunities for businesses (large and small) to grow and thrive.  I also believe the financial capital requirements are actually decreasing due to the advances in communication and the ability to grow a business.

These changes, however, mean the average business faces far more competition than ever before, and the natural lifecycle of any business is getting shorter. Intellectual capital is even more important today than it was yesterday.

One final thought: Who around you has intellectual capital from which you can learn?  What can you do each day to be growing your own intellectual capital?  And finally, what is the one breakthrough idea that truly defies gravity that you can work toward implementing in the next six months?