A Few Reasons Why Large Businesses Can Fail

In researching this idea for sharing information on why and how large businesses fail, it dawned on me that it is not just large businesses that can fall prey to the factors that can cause a company to go bust. Smaller companies can experience the same things, however, as we will note, smaller companies may be able to stem the tide easier and quicker. They also may be more in tune with the things that need to be addressed and changed.

In researching this idea for sharing information on why and how large businesses fail, it dawned on me that it is not just large businesses that can fall prey to the factors that can cause a company to go bust. Smaller companies can experience the same things, however, as we will note, smaller companies may be able to stem the tide easier and quicker. They also may be more in tune with the things that need to be addressed and changed.

Starting Out

As we know, the business world is always changing, always. It has to change in order to stay profitable and in business.

What we are seeing currently in the business world is the larger companies, absorbing smaller companies, and also merging with competitors.

We are seeing the big four, Apple, Amazon, Facebook and Google, continue to grow and be profitable, while many other firms fall by the wayside.

A Few Reasons Why Large Businesses Can Fail

Many High Street retailers, and restaurants, that have been in business for years, are either closing down stores, or going completely bust.

It is shocking when you look at how many companies have gone bust in the past years, and with it the loss of jobs and revenue to suppliers and business partners.

Of course no business starts out to fail, in the beginning all good intentions and profits are what they begin with. However, many companies as they grow lose sight of what they began the company as, they fall “out of touch” with the consumer, and also market trends and changes.

This is one way a company can fail.

The Company Falls Out of Touch

As a company grows larger and larger, it may get more office space, bigger offices, and more of a management system.

What used to be a manager and those under the manager(s), can suddenly become this hierarchy of management.

As the company gets larger and larger, they lose touch with their customers, those that are buying their products and services, but not just their customers, they can also lose touch with the market place and their competitors.

A Few Reasons Why Large Businesses Can Fail

An example of this is Nokia, who at one point in time was a leader in mobile phones. No so any longer, they lost touch and didn’t see not just the changing mobile phone market, but they didn’t see Apple and the iPhone being a game changer.

If you look at the recent collapse of construction giant Carillion, it would have seemed nothing could have brought this huge company to its knees. However, as large as it was, it was almost too large, scattered contractors across the country, tight profit margins, and just too much debt.

Which leads us to another reason companies can fail, too much debt.

Debt Heavy

Just as individuals can find themselves overextended and in debt, so can a company.

A Few Reasons Why Large Businesses Can Fail

Carillion is a good example of this, they could no longer service the debts they had. For some companies they may be able to reorganise or restructure the debts, either with agreements directly with their creditors, or through a CVA/Company Voluntary Arrangement.

However, some companies are just too far in debt, and even a restructuring is not going to bail the sinking ship.

Even with a sound business plan, companies can still find themselves overextended, and one way this can occur is to grow too quickly.

Growing Too Fast

A company growing usually would not be considered a bad thing, but companies need controlled growth. If they grow too quickly, they can find themselves taking on a lot of debt trying to keep up with the growth, then if there is a downturn in sales or profits, the company can no longer service the extra accounts/debts.

You can see this in the airline industry. A new start-up airline comes along and wants to grow, and increase their flight markets, buys new planes, hires personal and pilots, only to run out of cash.

NetFlix is currently losing money to keep the quality of shows they are presenting, with the hopes as they get new subscribers, and with the large amounts they are borrowing, things will balance out.

Possibly not the best business model, but it is working for them.

Greed

Another reason why a business may fail is just plan old corporate greed.

Look at how much some corporate executives earn a year, and then many also receive bonuses.

A Few Reasons Why Large Businesses Can Fail

How many times have we see a bank need government help, only to find out the CEO was paid a huge bonus.

Companies lose touch with the market, customers, and even employees out of greed. They are concentrating so much on profits, and executive salaries and bonuses, they miss the bottom line.

A company like John Lewis which pays bonuses to all it employees is a good model or antithesis of corporate greed. Ford Motor cars had profit sharing in place many years ago. As the company did well, each year the employees received a profit sharing bonus.

Fads and Fashions

Just as the music industry has “one-hit” wonders, or the film industry has actors that make just one hit film, some companies and business are only going to stay in business a short time. They are a fad, or become fashionable for a period of time, and then fade away.

I’m sure Nokia had hoped Apple’s iPhones were going to just be a fad, but no so. Apple continued to make changes to their iPhones and drew more and more people to buy them.

As you can see there can be many reasons why a business may fail, and it may also be a combination of a few things to cause the failure.

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