≡ Menu

Pitfalls that Could Spell Business Doom and How to Avoid Them

Starting a business can be the most rewarding venture any person can take. Finding the right market with potential for growth and capitalizing on their high demands with a quality product or service can net you a fortune. However, with such high possible returns come high risks that can bankrupt you just as fast. Such is the way of entrepreneurship—that anyone who dreams of starting his or her own business should come wholly prepared with the real possibility of failing.

As evidence of the volatile nature of the business world, here are three big companies that experienced failure in enormous proportions.

Polaroid – This company survived its transition from making polarized sunglass to developing cameras. It introduced an innovation in the camera industry with its technology that was able to produce instant photographs right after taking a shot. Unfortunately, the company failed to adapt with the advent of digital cameras in the late 90s, resulting in its filing for bankruptcy in 2001.

Coca-Cola – As a global brand that continues to dominate the soda industry, Coca-Cola had also suffered its fair share of failure.

Its biggest mistake was altering the much-loved formula for its flagship softdrink, Coke, in the 1980s. By adding to its sweetness and rebranding the product as New Coke, the company received public outcry that demanded they return to the old flavor. The company had no choice but to relent, releasing Coca-Cola Classic which outsold New Coke to no one’s surprise.

Sony– Sony is another big multinational company that had to endure setbacks. It enjoyed great success in the 50s to the 70s, playing an important role in making Japan globally competitive. In 1975, it created the Betamax format for video cassette tapes, and the product did well in the early stages.

However, JVC would soon develop the superior VHS format, which challenged and ultimately triumphed over Betamax in the video cassette format war of the 80s. Sony admitted defeat, adopting the VHS format later on.

Businesses go through such failures for reasons that can be separated in two categories – internal and external.

Internal Reasons

As the name suggests, these are issues from within the company born out of conflict with how certain processes should be carried out.

  • Inept Management

Leadership is vital to any business’ success, as key decisions in charting the company’s direction always come from the bosses. The problem is when the management fails to realize where its strengths truly lie. A boss who believes himself to be correct at all times and surrounds himself with “yes men” will make rash decisions that can lead to financial ruin such as overspending on employee contracts or research and development when profits are slow.

  • Poorly Planned Marketing

Marketing is crucial to getting the company’s brand known, and failure to create a well-thought out plan to give it focus will only result in financial loss. A good marketing plan requires extensive research on the target audience so as to understand exactly what they want and how they want it “sold” to them. Businesses should also track how successful their plan is, and they should be flexible enough to change it if necessary.

  • Uncontrolled “Hypergrowth”

Growth is innately good in businesses, but it can very well turn into a drawback when left unchecked. When a company does not have the internal structure that can handle the demands of increased business, it will spiral out of control. Its cash flow will be drained quickly, trying to finance operations working at an exponentially faster pace without the proper equipment and capital.

External Reasons

These are the issues that a business has no direct control over. Of course, this does not mean that it excuses the company from failing to prepare for such outside forces.

  • Competition

As it is, competition is not only inevitable, it is also crucial for businesses to thrive. It drives companies to improve their products, services and technologies, among others. The problem is when a business enters a highly competitive market without having anything to differentiate it from the rest of the competition. Such business will either be undercut in pricing with a smaller business that can afford to do so, or be dominated in terms of brand awareness by market leaders.

  • Change in Technology

There will always be technological innovations that change the way the industry operates. Businesses should then be constantly aware of what is going on in the tech world so that they do not get left behind. They must be on the look-out for possible tools that can be leveraged to their advantage over other businesses.

  • Dying Market

Some markets eventually face a decline mainly due to shifting technologies. A prevalent evidence of this is the declining number of bookstores and record bars. More and more people are shifting from reading physical books to e-books, and they just get their music online from services like iTunes. This is something that cannot be truly solved, and it is up to the company to decide whether or not to cope with such shifts, and to know when to change its entire business model.

The Importance of a Business Strategy

As stated earlier, preparation is key to avoiding the pitfalls of business failure, be it internal or external. It is also what gives the entire company direction, from the actions of every frontline employee to the decisions of every executive, so that it all comes together as a unified whole to achieve concrete results. Therefore, coming up with a solid business strategy is of utmost importance.

Unfortunately, business strategies also aren’t immune to failing. This is caused by mistakes in the creation of the strategy itself or in its implementation.

  • Blunders in Creating a Strategy

A business strategy is more of a general guide for a company’s direction, so the focus should be on the big picture, not on minor details. It should also have a clear understanding of both customers and competitors, knowing what the former wants, and knowing the strengths and weaknesses of the latter. It should also take into account every other external factor mentioned earlier.

  • Blunders in Implementing a Strategy

The biggest problem in strategy implementation is failing to communicate clearly with the rest of the company’s workers. They need to know exactly what their roles are in going forward with the strategy, and they have to be informed of the changes. Giving them incentives that line up with the strategy is just as necessary, as those incentives will be their driving force for increased productivity.

The Importance of Marketing

Part of a good business strategy is a marketing plan that focuses on the customers. Of course, the company must first know who its customers are. This includes knowing their interests, their culture, their purchasing methods and behaviors, and more. The marketing plan should also be able to speak to its target audience in the “language” that they understand. Fortunately, this is much easier to do nowadays with the popularity of social media.

The Power of Social Media Marketing

Social media platforms such as Facebook and Twitter allow businesses and customers to interact directly. This leads to a greater knowledge of the business’ target audience, as it can instantly find out what they like and don’t like about the business’ products or services.

With these social media sites’ immense user bases spanning over hundreds of millions of interconnected people, there will always be a group of people businesses can market to. The endless stream of activity between all these people also lends itself to content going viral, and that includes marketing materials businesses create. By engaging with them through activities such as promotional contests and events, they can be unofficial members of the marketing team by spreading word about the business to their own networks.

What makes it even more effective is that it is virtually free while potentially having endless returns. There is no fee in registering pages in Facebook or creating accounts on Twitter. There also isn’t a need to be constantly spending on having marketing materials online for an unlimited amount of time.


It bears repeating that one of the best ways to prevent business failure is through meticulous preparation. This means developing a sound business strategy that takes into consideration every possible factor, from the company itself to its field of industry and its relation to society. With that, a business can move forward in confidence.

{ 0 comments… add one }

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.