Why Companies Fail?

Companies going the way of the Mammoth!

There are many reasons why companies can fail. I think one major reason which leads to failure is the inability to change at the right time. Consider this approach to businesses:

  1. Core: Run the business - Fixed costs
  2. Growth: Grow the business - Discretionary costs
  3. Venture: Transform the business - Discretionary costs

Any change requires investment of resources and organizations have the most resources to spare during their growth phase. It is during this phase, companies or organizations may become complacent and not invest in new projects or business ventures. Instead, they choose to focus on the current growth and to keep milking as much money out of that particular product or service as is possible. This puts them at a competitive disadvantage in the future

When a company is doing well, it is of course a good idea to focus on the current market but it is also critical to focus on “what’s next.”

If companies/organizations do not transform their businesses then by the time they realize it, they are already in trouble with their profits declining or worse in a loss. Since they are no longer “growing” they do not have the spare cash or other resources to launch new projects and to take risks. At this point there is no other option then to try to protect their existing core businesses. And that generally ends up in bankruptcy e.g. Palm, Blockbuster & Borders books.

Today there are many other companies that are down to their core businesses or are on the on their way to becoming bankrupt - e.g. the music industry & RIM.

On the other hand there are companies that have successfully mastered the art of change and are thriving - e.g. IBM and Apple.

Why companies fail
Why companies fail