Why Do Businesses Fail? They Forget the First Law of Business Creation

So ‘why do businesses fail’? I love to ask an audience this question. 

The answers are many and varied: strategy, resource, culture, timing, finance, leadership, budget, innovation, competition etc. 

Rarely do I receive the response I am seeking.

It was the management guru Peter Drucker who coined the phrase:

‘the definition of a business is to create a customer.’ 

Businesses fail because they do not begin with the end in mind, they fail to create a customer. 

House of Fraser, Toys’R’Us, BHS, Woolworths all ultimately disappeared because they were unsuccessful in creating a customer and empathise intimately with a meticulously analysed and targeted audience.

They failed the first law of business creation.

More than ever, to build a successful business demands crystal clear sense of purpose and clarity of direction - a defined winning proposition.

Why? Because the consumer is now bombarded daily with a multitude of choice, no matter what the product or service might be. 

At the turn of the last century, there were only two makes of jeans, now there are more then 2,000. Henry Ford famously mentioned that  ‘you can have any colour car as long as it’s black.’ 

Supplier was king, we bowed to their market dominance and the barriers to entry which restricted the capacity for others to enter the competitive fray.

Technology has turned this model on its head. Customer is now king, with a plethora of choice for products, services and size.

‘Catch-all’ product diversification no longer equates to a sustainable business proposition. 

To start a business you now just need a smart phone, a Facebook page and an idea which a target customer is attracted to because it satisfies a specific need  or alleviates a source of discomfort. 

Just think of Uber; hate the uncertainty of knowing when a taxi is going to pass by? No problem, Uber shows you the precise location of the taxi and it’s time of arrival.

Trying to be all things to everyone undermines the power of a company’s narrative and its brand impact - which may be defined as ‘the concept you hold in the mind of the customer.’

How powerful does a company’s brand image resonate with the target customer? 

It is not just the rational intellectual connection with the customer that now matters, ‘what’s in it for me’ but moreover, ‘how does it make me feel?’

Does the brand satisfy emotional as well as material needs? It is well documented that 95% of our decision making is governed by the limbic system of the brain and not by the rational pre frontal cortex of our human operating system.

Values, those attributes that govern behaviour and which influence intuition are as important as the ‘what’ of customer engagement.

It is not a question of controlling what people think but influencing how they react emotionally to a business proposition and for that you need to understand and empathise with a target customer, their needs, desires, fears and aspirations.

To create a winning proposition that pre-empts failure ask yourself the following 5 questions:

1.    Who is my target customer? 

2.    What does my customer value? 

3.   What customer need do I satisfy? 

4.   What is my plan? 

5.    How do I cement the trust?