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At the surface, most business failure can be attributed to a lack of market fit or simply running out of cash. But dig deeper and you will uncover the fault lines. In today’s business climate where 75 per cent of businesses fail, it is imperative that the underlying reasons for failure are understood and carefully avoided.

So what is it then? Why do businesses fail?

You have got the passion, the expertise, a bank full of cash, and friends in higher places. Moreover, you are at the right place at the right time. And yet, your business is far from immunity. In this article, we look past the financials and bring you the unspoken reasons why businesses fail.

#1 – Poor Culture

“If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.”

– Antoine de Saint-Exupéry

In simple terms, notable investor Brad Feld explains the above quote well, “You can’t motivate people; you can only create a context in which people are motivated.” The context that Brad is referring to is a company’s culture.

What is culture?

Culture is the shared beliefs, values and practices. A company’s culture governs how employees and management interact and function both within and outside the context of business transactions. Often, culture develops organically over time and is implied rather than expressly defined.

Every organisation has a culture. Why not let it be one which not only attracts talent, but also amplifies their abilities and lets them create their best work?

Also Read: Should we celebrate failure?

In today’s business world, wherein there’s a quick solution to everything, culture is probably the most underrated aspect of a business or any organisation. A strong company culture is the basis of a successful environment.

A culture of success does not just happen. Where do we start? What do we DO?

Start by collectively establishing a set of company values … or ‘culture code’. The earlier a culture of success is set, the better. A set of culture codes made up of shared values will serve as an organisation’s guide on what is expected of its people, and what they can expect from the company in return.

With fewer than 10 employees, culture is easily and organically adopted once established. Between 20 to 50 employees, a founder still has direct control and impact on the organisation. However, as businesses scale, it becomes more difficult for founders to have a direct influence on individuals in the organisation.

‘Family therapy’. Have a ‘family therapy’ session to collectively build your company culture code.

During ‘family therapy’, give employees 15 minutes of alone time. In these 15 minutes, they should envision and write down the values that would guide the company that they want to work in. Sharing these notes at the start allows everyone, from introverts to extroverts, to voice their opinion.

Stick to your values. Culture codes need not be unique or witty. However, they should be a guiding precedence as to how individuals and teams behave, communicate and grow. These range from age old business values such as trust, communication, positive and having an open mindset, to the newer startup values such as hustle and innovation or creativity.

It is important to keep in mind that culture is still inherently implied. It is in the following through of these expressed values that employees will be secure in their priorities and work environment. Even the most resilient person will wilt if the situation is unpredictable.

Also Read: Remember us for our failures, not our pseudo-successes

Enable your employees and encourage them to look beyond short-term tactical projects to the bigger picture. Show them how what they do each day affects the company and its clients.

Cultivating a strong and resilient culture from the start is key.

#2 – Legal Challenges

Legal issues are often one of the last things that comes across a founder’s mind … if it pops up at all. Some entrepreneurs seem to believe that the ill-fitted online templates are sufficient and they simply would not be as unlucky to encounter legal issues.

But what happens when they DO?

Sometimes even with the simplest of business ideas, there is a world of legal complexity in its execution that can contribute to a failure of businesses.

Do you have a portfolio? Take for instance displaying logos of your satisfied clients and products. Have you protected yourself from the risk of possible trademark infringement by posting your clients’ logos?

Starting a business with friends? Does your shareholder agreement clearly state the roles, responsibility and equity of each individual?

Resellers such as marketplaces or e-commerce websites are taking on considerable risk as they could unknowingly be infringing upon Intellectual Property (IP) rights. Without an indemnity from the owner of the designs they sell, owners of the design’s IP are in a position to sue marketplaces of counterfeits.

Most notably, Alibaba has been accused of promoting the sale of counterfeit products. The lawsuit has been issued from Gucci, Balenciaga, Yves Saint Laurent as well as other brands owned by Kering. Although Alibaba has no control over what vendors sell, that does not shield Alibaba from legal liability as marketplaces are responsible for its vendors.

Alibaba has since spent more than USD$160.7 million in year 2013 and 2014 alone battling IP infringement.

Also Read: 4 ways to prevent someone from stealing your startup idea

Contacts and agreements clearly state and map out every possible scenario, saving you the headache when things do go wrong. However, business practices vary even within the industry.

How can you then rely on a one-size-fits-all template to protect your business reliably? Save yourself and your business before you make more legal blunders. To make sure you have all your bases covered, a legal health check might be in order. After all, prevention is better than the cure.

The takeaway

Most companies fail. It’s an unsettling fact for bright-eyed entrepreneurs, but old news to startup veterans. The statistics are disheartening, no matter how you define failure. If failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90 to 95 per cent.

The learning mindset is crucial, however. Take steps to be on your way to becoming the other 5 per cent today.

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The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, submit your post here.

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