Business failure can be a self-fulfilling prophecy

nusiness failureIt is often also a predictable inevitability.

The financial website Investopedia defines irrational exuberance as unsustainable investor enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals.

Eventually, this becomes an unsustainable “bubble” as in the so-called “tulipmania” in the Netherlands during the 1630s, the dot com bubble of the late 1990s and more recently the collapse of many lending organisations through artificially high property prices that resulted in the 2008 Credit Crunch.

The result? Business collapse, often with repercussions well beyond those at the centre of the crisis.

Over-confidence among SME business owners may lead to failure, albeit anyone leading a company must have some self-belief and confidence to make a success of a business.  Taking risks should be based on a calculated strategy underpinned by a consideration of the risks versus the prospects of success.

But the opposite may also apply and equally lead to a business failure. Lack of confidence in a strategy and a reluctance to take risks may result in a business playing safe and stagnating. This can be due to managers not really believing their strategy will work and thereby anticipating failure in a way that reinforces their expectation. This is often the case when manages play it safe.

This may be exacerbated if the company is led by a CEO who is cautious and conservative, and who does not encourage new ideas.

It is common in businesses that have a blame culture where any new initiatives are suppressed.

But that is not how successful entrepreneurs, like the late Steve Jobs, create successful, growing companies.  Jobs was famous for ignoring preconceptions about what can and cannot be done.

What other influences increase the likelihood of business failure being a self-fulfilling prophecy?

Short term thinking can affect a business, not only when it leads to pressure from investors for profits and dividends at the expense of investment and growth.  It can mean that the CEO or business owner is distracted from thinking strategically for the longer term.

Caution over investing can become counter-productive especially when the general business and economic climate is pessimistic and businesses sit on money that could be invested. Over time this reduces productivity by not replacing old plant and equipment or hardware and software to the point where they are costing excessive time and money to maintain or use.

Failure to keep up to date with the latest innovations can lead to a business losing ground against its competitors and eventually losing customers and orders.

It takes a combination of courage and caution, wisdom and daring to keep a business growing and moving forward – and the help of a mentor or adviser to add perspective and help avoid a predictable inevitability.

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