The business dictionary defines business failure as closure or cessation of business activities that result in a loss to its creditors. According to the financial dictionary, business failure occurs when a company or other business cease operation because of the generation of insufficient revenue to cover business expenses. The goal of every business is to make a profit, but business failure is however common in the actual world, especially in trying times like now.
Prior to the COVID-19 pandemic, common causes of large-scale business failure included macro-economic factors such as wars, natural disasters, inflation, business cycles, high taxation, excessive regulations and recession. With all the traditional macroeconomic factors in place, the COVID-19 pandemic presents a major business challenge that is less forgiving and sparing no business.
How Covid-19 has affected business
The economic effect of COVID-19 on humanity is hinged on lockdown regulations imposed on a global scale, which affected commerce. The regulations require people to stay at home and avoid unnecessary movements to contain the virus. This means unavailability of both domestic and international customer traffic for the conventional business. In some countries, restrictions also include the movement of certain products and the opening of certain services, thus affecting trade.
Why businesses are failing to survive the COVID-19 pandemic
RCIEEN can describe the following factors as the major reasons businesses are failing to survive the COVID-19 pandemic.
1. Inexperienced management in dealing with disaster recovery
Philosophers often say that experience is the best teacher, but where there is no such experience, a single disaster suffices to drive business off-course. Many entrepreneurs and business managers have never experienced an unplanned global economic and social impact as introduced by the COVID-19 pandemic. Management failure to recognize and perceive the occurrence of certain business conditions is the principal reason most businesses are failing. COVID-19 has presented drastic changes in the business environment, which requires every business management team to revisit the drawing board to remodel their business model. Folding hands, thinking what worked in the past will always work, is the root to complete business failure. Management style which does not factor in market changes, new competition, changing technology, and value of experimenting with new ideas will not survive the COVID-19 pandemic. Without a complete business plan that includes financial forecasting based on predictable revenue, strategic marketing, and challenge management solutions to overcome potential obstacles and competitor activities, business is doomed to collapse.
2. Poor business communication skills
Poor communication with customers and suppliers: The Highest levels of lockdown required the temporary closure of most businesses, but the relaxation of the regulations allowed reopening of certain businesses under COVID-19 guidelines. Communication with customers and suppliers is therefore fundamental in ensuring business continuity. Customers need to know if the business has reopened, if there are new safe ways to access the business services, if there are new products, their cost, modes of payment and delivery, while suppliers require knowing if a business is still in need of supplies, acceptable delivery mechanisms, and the likes. Excellent communication skills can make a business unique, differentiating it from its competitors, leading to a powerful brand. Business communication should be two-way. Feedback from customers is important to understand their needs. However, most businesses are failing to put an eye on the interests of existing and potential customers leading to business failure.
Failure to sell the new business model of operation may lead to business failure. I have experienced great frustration as a customer when I wanted just to make a bank inquiry with a local bank in Zimbabwe’s capital city, Harare. I called many telephones on the bank website but did not get a response for at least 3 days, calling regularly after every 2 hours. Drove to the bank but still failed to get the inquiry service after waiting for at least 3 hours. Used email and forwarded my inquiry, only to get the long-waited response after two full days, bringing the gross wasted time to almost a week of hard trying. I had a similar experience with a medical aid company, a funeral policy company, and one of the largest retail supermarkets in the country, which I believe is a complete communication failure, which affects the business negatively under the COVID-19 business conditions. Instead of sending most of the workers home, and paying them for doing nothing, management should assign capable hands to man all communication networks to ensure seamless communication with customers, even if it means giving them resources to work from the comfort of their homes.
Communication within an organization: Within an organization, there is a need for every member to understand the new business strategies. Developing a good business strategy is one thing and cascading the strategic guidelines for adoption is the other. Many businesses are failing during implementation because of a lack of strategic understanding and incorrect implementation of the new strategies.
3. Lack of innovation
”A new type of thinking is essential if mankind is to survive and move toward higher levels”, said Albert Einstein (1879-1955). He also said, “we can’t solve problems by using the same kind of thinking we used when we created them”. So with COVID-19 related challenges at stake, a fresh approach to every challenge is sacrosanct for business survival. New thinking is the chief cornerstone that most businesses are failing to apprehend.
4. Poor marketing strategies
Businesses should use optimized digital marketing strategies to attract customer and supplier attention and interest, to capture a large market share and boost conversion rates. Strong social media and online presence is the new business order and failure to move with the times will cause loss of conversation between a business and its customers. Conventional marketing strategies are a thing of the past, today’s idle minds at home spend most of their time on social networks, which should be the new ground for business marketing. Extensive use of social media will set a business apart from its competition. Without migrating marketing services to digital platforms and listening to customer feedback, there will be an inaccurate understanding of the target customers’ wants and needs leading to business failure in the long run.
5. Absence of performance monitoring tools/ information
One of the greatest challenges that has led to the downfall of most business enterprises is the inability to set measurable goals for monitoring the business environment in actual time. The downfall occurs gradually without the management noticing the changes in variables until it is too late to react successfully. Some businesses may shut down prior to an expected failure, while others continue to operate in denial until court order marks the last stage of the business life cycle. Performance monitoring is necessary to see whether the demand for business products or services is growing, stagnating, or declining. It helps management to know, down to the last dime where business revenue is coming from and where it is going, the pivoting required on income and expenditure, the investment required, cash flow management, and timely credit arrangement. Without performance monitoring tools such as professional accounting software like FreshBooks, QuickBooks or Zero or business dashboard tools like Livepan, that keeps records of all financial transactions for auto-generation of financial reports, business failure may be the result, especially on large business enterprises difficult to manage manually without Enterprise Resource Management (ERP) Systems.
6. Loss of core values
Core values are the fundamental beliefs or guiding principles that drive business operations. In these trying times, most businesses are wondering from their core values, which are supposed to remain constant regardless of changes in the business environment. Integrity, trust, respect, responsibility, and teamwork are the most violated core values of the COVID-19 times leading to business failure. Most affected business owners and managers are not being responsible and honest to their creditors and debtors leading to loss of respect, trust, and integrity. Management may wander from the truth after failing to deliver services or goods fully paid, or when their financial position is heavily affected such that they no longer afford to pay their creditors. Misuse of business funds for personal use may take place, resulting in failure to pay workers, low staff morale, a decline in productivity, and failure to loom large on the horizon.
7. Insufficient capital
Many business entities are small to medium enterprises that are leaving only one day per day because of a lack of capital. The businesses are yet to break even and have little over their daily expenditure. They are the most vulnerable businesses at the moment because only a few skilled in financial management will pivot and make the adjustments needed for business survival. According to business insider, 82% of small businesses fail because of cash flow issues. Cash flow is the lifeblood of a business enterprise. To pivot, a manufacturer can suspend production of goods that are not selling well in the market, close branches that are underperforming or save themselves through bankruptcy protection, which allows them to restructure.
8. Lack of a succession plan
There are business owners conducting their business without a future continuity plan in the event of unexpected death. In the event of an unfortunate incident, the businesses get inherited by premature business people leading to business failure. COVID-19 is a disease claiming lives across the world and is affecting mainly the elderly and juniors with underlying health conditions. Most businesses are collapsing after the visionary leader’s death. Those who inherit the business usually lack insight into the vision, the business strategies, core values, and general business management attributes which enable them to keep the business afloat. When push comes to shove, the new leaders cannot gather information, weigh the facts, make prompt decisions, and act on them. They don’t have a clear pricing strategy, often setting prices too low or too high without factoring market forces. Without the right combination of market trends, customer demand, product quality and differentiation, and correct pricing, the business will fail.
9. Unexpected growth
While the COVID-19 is presenting a lot of business challenges, there are also opportunities that can lead to a business boom. However, rapid growth is tempting to open up new branches, to maximize profits, but leads to business failure because of over-expansion. Here, the business invests heavily and order way too much inventory that can not easily be sold or hires too many workers too quickly or spend too much on marketing. Premature scaling to the new areas is usually done without proper market research, including but not limited to measuring local and regional demographics and spending trends, future development plans for the area, and baseline services. Scaling is a good thing if done at the right time, but if the timing is wrong, it may lead to business failure. Ecclesiastes 3:1 reads, for everything there is a season, a time for every activity under heaven.
RCIEEN word of advice
Although COVID-19 is presenting unbearable business challenges, there are solutions to every problem regardless of the magnitude, and success comes by the ability to sail through the storms. Although the COVID-19 pandemic is considered a global problem affecting humanity, it also presents a lot of opportunities, which every manager should strive to know and take advantage. From a philosophical point of view, according to Salminen, Joni. (2012), there is no failure until an entrepreneur stops trying. He added that the business process is a continuous failure based on a cycle of trial and error, and ceasing business is a rational choice of seizing a better opportunity. We (the folks at RCIEEN) strongly believe that necessity is the mother of invention. There is a way to solve every problem. Refer to this post for possible solutions to COVID-19 related business problems.
If you need wisdom, ask our generous God (The Almighty God), and he will give it to you, James 1 vs 5, and when troubles come your way, consider it an opportunity for great joy. For you know that when your faith is tested, your endurance has a chance to grow, James 1 vs 2 and 3.