In my strategic management course at Ashford University, our professor, Dr. Thomas Steinhagen (2014) stated that there are a number of reasons why businesses fail. He purports that all too often businesses fail because entrepreneurs believe that simply because they are passionate about a hobby they can translate that hobby into a gainful venture. While as is too often case, they eventually learn that substantial business skills, a driven entrepreneurial spirit, financial issues, and a host of other challenges will plague companies that are started without a solid business plan and a focus on a product or service that meets their target market (Steinhagen, 2014).
Steinhagen also suggested that successful entrepreneurs acknowledge that even though they bring their knowledge to the business arena, successful outcomes require delegating the reins of the company to those who are more qualified to operate the management and supervisory components as well as navigate the strategic planning and execution process while implementing those strategic plans effectively. In other words, ineffective management is a common failure among small businesses and entrepreneurs.
To drive this point home, Steinhagen also shared a story with us about a new restaurant that had opened in the town where he lived. It was 50’s theme establishment called Studebaker’s. His observation was that the establishment was under managed and under financed in terms of capital. For example, only a few vinyl 45 records were sparsely displayed on the wall. In addition, he noticed that the youthful management did not seem to comprehend clearly, what it meant to have a 50’s themed environment. According to our instructor, it took approximately two months after they opened, until they had to close their doors. He had the impression it was someone’s dream, because it was apparent they amassed the capital required to open the business, however they had not secured the long-term capital necessary to continue their operations for the long term. He speculated that perhaps they relied on unrealistic expectations of the business, or failed to factor in projections and expectations from incoming revenue in the strategic planning process.
Finally, he asked us to consider that while many people talk about and focus their energy on location, location, location, in terms of the real estate factor, Dr. Steinhagen expounded on that concept by adding that although the location of a business is critical in terms of customer flow, business owners must also consider in addition to customer patterns, the demographics that relate to successful business operations in any given target market. In other words, businesses are more likely to achieve successful outcomes, when leaders put their focus on the consumer and include marketing strategies at the top of their list in terms of understanding the demographics of those customers and the locations. On Friday I will take a closer look at how resources can be used as a strategy. Until then … stay organized!
The essence of strategy is choosing what not to do. – Michael Porter
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Steinhagen, D. T. (2014, February). What it takes to run a successful business. San Diego, CA.