Companies need effective process, the focus of leadership and structure that can stretch to enable the company to grow safely as a massive 55% of businesses fail in their first five years of existence. The observers offer shallow explanations as to why this occurs. I consistently see three key reasons why this tragedy happens so often and to so many individuals with different backgrounds, qualifications and knowledge.

The primary reason is lack of market understanding.

No foresight. For example People dream up the idea, build the product and then sit back and wait for the market to come and purchase. In information age there is no excuse for lack of research prior to wasting any time and money on designing a product until you have solid confirmed there is a market.

The second reason is lack of understanding of fundamental facts about business.

The majority of folks starting a business know their trade, how to deliver a service or build a product, but not how to run a business.  Being able to understand and follow the balances in the Income statement or the balance sheet is a vital. The basic knowledge of accounting is not very often imparted well by the business books, internet resources and experts in the know such as CPAs and bookkeepers. The problem is worsened by greedy and short sighted technology companies such as Sage software misleading the market by providing only a portion of the functionality actually needed by small businesses.

Small business accounting software is only half of the solution.

Large enterprises way back figured out that all of their Information systems should be joined together to give them a total picture of the business and then along came ERP software solutions and packages. One technology business NetSuite had the vision to see the opening in the market and started offering its small business ERP software. NetSuite pricing has since increased and put their technology out of the economic reach of small companies.

The final reason businesses don’t survive is because of lack of process and procedures that provide the vital behaviours and consistency a business must have to work effectively.