The names of those interviewed on business failure have been changed.
Failure is not an option; made famous in Ron Howard’s movie Apollo 13. Failure is a relative term. Perhaps you have spent the best part of your life growing up, being educated and working in an environment where the failure is not an option mantra is alive and well. But you know sometimes reward does not follow effort. Sometimes the simplest approach is calling the situation what it is – a failure. It takes courage, but quitting may be the smartest thing to do. It’s what you do next that counts.
At the age of 50 George left the defence forces and bought an established business. I wanted to secure my family’s financial independence, George reasons. It’s simple enough, the business provides gaming and lottery sales, dispenses tobacco, associated accessories and some small giftware. The small retail business employs George and his family.
The business trades profitably and the family draws a reasonable collective income. Then, overnight, changes in the gaming industry mean the business is not able to offer a full suite of gaming and lottery products. I lost access to one of main revenue lines over night, up to 30%. Worse still people started to go to other products and providers. My other product lines dropped as well as customers would normally come in buy this with that. Once people start new habits, it’s hard to get them back to their old ways, people like consistency and reliability. I didn’t know it at the time but I was losing customers and revenue forever from the day that change came in.
Despite this interruption George continues to operate the business. There was to be new gaming and lottery options and that would lift trading back to original levels when they came on line. In the meantime we introduced new products, gifts and prints, but we couldn’t get trade back up.
The business then started to lose money. How does George deal with this problem? Like many small business owners George looks to increases income, reduce costs and looks to find extra money to keep the mounting bills under control. George goes to the bank and gets approval to draw down on a line of credit. The family home is put up to cover the line of credit. Like many small business owners, George reckons so long as the business can meet the loan repayments it should be okay. Hopefully by then the impact of the new revenue and cost reduction will come good.
The two main cost drivers in retail are wages and rent. Family members start working for the base or at times below base hourly rates and sometimes they have to wait to be paid or do not get paid at all. George attempts to renegotiate his rent while he still holds out for the increase in revenue. George now accesses his superannuation retirement funds to pay for bills. George’s motivation to his secure his family’s financial future has failed.
There were two factors influencing George’s decision to stay in business. The first is the notion of failure. George considers a decision to close the business would be a signature of his failure as a businessman. His family would think he is a failure, after all the business employs his children. This logic doesn’t make sense. Who works for free? Truth be known, may be the family didn’t want to work in the business anyway.
Quoting from George, “‘the I’m not failing syndrome’ is all persuasive and blinding to the reality around you”. George knew the rules of the retail game. What George didn’t realize was the game changed. ‘The perception of whether any decision can be made against an existing structure is what’s confusing’.
George doesn’t take the decision to wind down the business until another 5 years. I could only imagine this would have been living nightmare for George and his family.
I was educated at Grammar and worked in the defence forces – rewards follow effort George recalls. In George’s mind results would follow from his hard work. Failure was not an option. As George says, ‘why wasn’t I warned at school or in the forces about failure as an outcome?’
The increases in revenue didn’t emerge and the landlord unsympathetic, so rent stayed the same, both not uncommon. Whilst the landlord agreed to postpone rent payments the amount was still to be paid, not really a problem solver.
The family then decided to change the rules. The family decided to stop paying for the business losses and also announced they wanted out. George decided to address the ‘perception of whether anything can be done against an existing structure’ and went out and got advice.
George took advice and wound up the business. George’s objective to secure a financial future was a failure. In absolute terms, without regard to George’s original objective, quitting was smart. The best outcome was to sell the business. The money from the sale would go to pay some of the bills. The losses would stop. Most importantly the stress caused by the failing finances would also stop; the family would now preserve their remaining wealth and move forward.
Unfortunately this is a common story. There’s a bit in this story. A lot of academic theory and commercial business reasons for what happened to George. Generally speaking we behave rationally; we make choices that make sense. Our choices are influenced by our habits developed through our personal experiences. However, there is also solid research to suggest that despite rational choice theory, in an unstable fiscal environment we actually act irrationally.
How can you better manage this? Get out, meet and talk to people outside your usual sphere of influence. George did.
At 60 something, George completed a degree in commerce, funded by his family. George is now an accountant providing small business advice.