Yes, I said it, …Prayer is NOT a business strategy! For those business enterprises who are prospering and flourishing, that statement may seem obvious and absurd, but for a vast majority of For-profit and Non-profit businesses teetering on the edge of collapse, let this be your wake up call. In my strategic planning and engagement role for the world’s wealthiest non-profit foundation (Bill & Melinda Gates Foundation) I have seen a plethora of business plans and funding proposals. I can tell almost immediately which ones will succeed and which ones won’t.
According to Bloomberg about 8 out of 10 businesses fail within the first 18 months. That’s a whopping 80% who crash and burn before they’ve even gotten off the ground. The statistics are even higher for Non-profits which report fail rates as high as 96%! This particularly hits home for me, since I find that so many of the world’s most inspiring endeavors are being passionately birthed by charitable and/or faith-based organizations.
As acclaimed economist Milton Friedman stated, the primary purpose of business is to maximize profits for its owners. In fact, the terms “non-profit or not-for-profit” are simply IRS Tax designations, NOT business models! It is profit that pays the bills, profit that keeps the lights on, profit that pays the staff and profit that dictates how far and how fast you can grow. The main difference between a For-profit and a Non-profit is what you do with your profits and how you pay taxes. So, whether you are a For-profit or Non-Profit enterprise you MUST make a profit to stay in business. Period. Full stop. No question.
You may think that the reasons for business failure are as wide and varied as the business-types themselves, but in actual fact, the majority of failures – whether For-profit or Non-profit – can be easily predicted by looking at the following:
- Business Systems – Systems are the business building blocks and the workhorses that deliver consistent results. The best businesses run on the best systems rather than rely on an all-knowing business founder. It is the systems that enable the company to scale and grow, eliminate waste and inefficiencies and keep customers happy – even when the owner is not there. Michael Gerber summed it up best when he said, “Let systems run the business and people run the systems. People come and go but the systems remain constant.”
- Strategic Plan – Not to be confused with the business plan, a strategic plan is primarily used for implementing and managing the strategic direction of an existing organization. A business plan is used to initially start a business, obtain funding, or direct operations. A well-conceived strategic plan is often the foundation for how a business performs. Those businesses with a written strategic plan tend to hold their leadership accountable for performance. They are twice as likely to have a formal process for measuring leadership effectiveness across the organization in addition to having their CEOs undergo an annual performance review.
- Start-up/Operating Capital – Many new businesses have idealistic budgets that severely underestimate the true cost of operations. Poor accounting, over-borrowing, delegating financial oversight to an outside accounting firm instead of a chief financial officer, and failure to provide any type of safety cushion for unexpected emergencies or changes in the market, can all stress the finances of a company. In the case of Non-profits, a common – and disastrous – misstep, is failing to implement a profitable business model with a proven revenue stream. If you are going to be an entrepreneur, then you must be in control of your bottom line. With bad numbers or no numbers, your company is flying blind.
- Board Selection and Development – I can’t tell you how many times I’ve seen board members selected based on nothing more than friendship and/or family ties to the owner. The Board of Directors, is the governing body responsible for overseeing the organization’s activities and should be chosen based on fiduciary oversight experience and expertise. In the case of a non-profit the Board’s foremost responsibility is to secure adequate funds and resources for the organization to fulfill its mission. If you are a non-profit in need of money, the first place you should look, is to your Board.
- Business Coach/Mentor – When we want to get physically fit we hire a trainer, when we want to learn a musical instrument we hire an instructor. Every professional sports team has a coach skilled at developing athletes to achieve their fullest potential. It is surprising then, that most people will gamble on their careers, risk financial ruin, and embark blindly on a business venture without any professional coaching or advice whatsoever. Would you hire an electrician to fix your plumbing or ask a dentist to work on your car? In nearly every area of life, wisdom tells you that if you want top quality, seek out a professional. And yet, time and again, people foolishly and arrogantly assume that running a business is easy and anybody can do it. If that were the case, there would not be an 80% failure rate! If you want to avoid the pitfalls, maximize your potential and position yourself for the greatest success, invest in a business coach/mentor.
- Marketing Strategy – Today’s businesses are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars. Too many businesses have a misunderstanding of the market or a faulty model for how to attract and maintain their market share. A unique value proposition (market differentiation) determines a business’s ability to secure paying customers, donors and/or grant funding. Failure to communicate the value proposition in clear and concise terms is like cutting off your nose to spite your face.
IS YOUR NON-PROFIT POSITIONED FOR SUCCESS? Contact me for a FREE Discovery Session to see how we can partner together to strategize a path for your business’s transformation!
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