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The Secret Behind why Businesses Fail

Jana Nevrlka
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There is undoubtedly a vast range of reasons why businesses fail, from a lack of funds to insufficient market research, however arguably the most striking reason comes from problems within the business, namely the people. Contributor Jana Nevrlka, author – Cofounding The Right Way.

If a business is cofounded, one of the most common reasons for failure stems from differences between the cofounders and this is an issue that goes often largely unaddressed until it’s too late. According to several studies – from statistical data mining[1] to empirical investors and experts’ observations[2] – between 60-70% of business ventures failures are being attributed to problems within the cofounding team. In my own experience, the cofounders’ issues are not only demonstrated by straight flat failure of the business – they can also impact the business performance or the ability to attract clients, talented employee or investors. Whilst not killing the business directly – cofounding teams that don’t work result in suboptimal business performance. Always.

And although there are some famous companies who survived their cofounding issues (and made great movie material such as the story of Facebook), there are many more of whom we never heard because they did not survive, or they only just survive. Many experienced venture capital and private equity investors evaluate the cofounding team as the first part of their due diligence. And some even go as far as suggesting that they invest in people, not ideas.

As Jim Collins made a great point in his book Good to Great – great leaders first ask the question who, then what. “In fact, leaders of companies that go from good to great start not with “where” but with “who.” They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.”[3] And I believe this is not only applicable for taking companies from good to great but also for taking ideas to build companies.

And there is a very strong and convincing rationale behind this. It is the speed of change – and potential disruption of all the new technologies – from AI to block chain. Ideas are modified, business models pivoted, business strategies redefined. And there is a much higher chance that a competent team that is in high performance mode will be able to accommodate any challenges that come its way. On the opposite end of the spectrum – teams that are not performing well often devote a significant part of their resources on internal issues and lack the focus and creativity to tackle external challenges. It is more complex though then just getting the best people. Google interviewed 200+ of their teams and evaluated over 250 attributes in their quest to find out what makes a stellar team.

What they find out was rather surprising: Who is on a team matters less than how the team members interact, structure their work, and view their contributions.[4]

 The 5 key dynamics of a high performing team based on their research are: Psychological safety: Can the team members take risks without feeling insecure or embarrassed? Dependability: Can the team members count on each other to do high quality work on time? Structure & clarity: Are goals, roles, and execution plans in the team clear? Meaning of work: is the team working on something that is personally important for each team member? Impact of work: Do the team members fundamentally believe that the work they are doing matters? So it is the combination – of who is on the bus and how the inside of the bus is arranged! Many entrepreneurs devote a lot of their resources to developing the right idea, the right product, the right service, the right business plan – the list goes on. And yes, all of that is needed. The right team is though the base with which you can build all of that.

Jana Nevrlka is the author of Cofounding The Right Way (£14.99 Panoma Press).

[1] Wasserman , N. (2012). The Founder’s Dilemmas. Princeton & Oxford, USA : Princeton University Press.

[2] Lehavi, D., PhD (2015). Business Partnership Essentials. Los Angeles, USA: Dorene Lehavi, PhD.

[3] Collins, J. (2001). Good to great: why some companies make the leap… and others don’t. London: Random House.

[4] ROZOVSKY, J. (n.d.). The five keys to a successful Google team. Retrieved January 28, 2018, from https://rework.withgoogle.com/blog/five-keys-to-a-successful-google-team/

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