by Ronald Manalastas

Created on: May 07, 2008   Last Updated: January 31, 2009

When businesses fail, to the point that failure exponentially spreads to bring down a vital industry (e.g. mortgage financing), all throughout the nation, severe financial dislocation happens.

Based on what transpires today, as business condition worsens, the vicious chain of financial hardships continues: people lose their jobs and purchasing power, household expenditures contract, aggregate demand dwindles, sales revenues shrink, companies close, credit stops, and new investments come in trickles. On a greater macro proportion, government financial health weakens due depressed tax collections and increased welfare benefits. This grim phenomenon highlights the very sensitive, critical, and cancer-like nature of business failure.

Businesses fail due to a singular factor: POOR QUALITY OF THINKING AND DECISION-MAKING. All other specific reasons as to why businesses fail are logical derivatives of inferior thoughts and decisions that business owners and managers do in running their businesses. Business activities, strategic or operational, first evolve from thinking, and then a decision that is translated into action. The action, in turn, produces an outcome that morphs into the proximate reasons for business failure.

The following discussion describes the more common and compelling proximate reasons for business failure, borne out of poor thinking and decision-making.

1. Poor Marketing Program: Creating weak sales and cash flow problems.

This usually happens when a company fails to appreciate the significance of the 4Ps of Marketing (i.e. product, price, promotions, and place). Errors or omissions in planning and implementing the four key success factors will create gaps in the company's capacity to generate desired levels of revenues, manage costs within prescribed limits, and realize streams of positive cash flows. These gaps can be in any of the following scenarios:

The product or service is ill-conceived: not aligned with what the market needs, with no distinct appreciable market, with features already overtaken by new technology or new trends, inferior to what competition offers, or of poor quality and workmanship.

The price is not right because: it is profit-centered and not customer-friendly, the customer perceives less value for their money, the positioning is non-competitive, it yields unattractive margins, or it lacks value-added benefits like enhanced warranty or long-term supply premiums.

The company's promotions muscle for the product is weak because:

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