How Can 5 Bad Business Decisions Kill Your Business?

Are you making bad business decisions that can sink your business faster than an iceberg sank the Titanic? In business, growth is always critical. Your ability to achieve growth goals determines everything from the money you make to the long-term success your business generates. But these five bad decisions can quickly kill your long-term growth potential. Even in the short-run, bad decisions can doom your business to failure. Today, we’ll explore both the short-term and long-term effects of bad decisions on your brand.

Bad business decisions

When starting a business, you face a myriad of decisions with long-term consequences for your ultimate success. Some are fundamental, including (brief answers in italics):

• What type of business should I start? You need one where you have some skill or existing relationships that will help you in the early stages. You also want one with the potential for growth, as you either offer a unique selling proposition or the market is growing rapidly.
• How much money will I need to find to invest in the business? That depends on numerous factors, such as whether you need to replace your existing salary, what you need to buy initially, or whether you can leverage your money, and industry averages for things like marketing (see below). A well-researched business plan will help you determine this amount.

  

• Who can I trust for advice and support in the early stages? Many stories from startups show that this is a big business decision that causes failure or other problems throughout the life of the venture. Sometimes, it’s because one partner’s ethics are bad (Theranos),sometimes it’s poor financial decisions (WeWork), or poor leadership (Crinkle). [Harvard Business Review]
• Where do I start? The Small Business Administration can help, as can many private consultants. One caution, however, related to the earlier question on who to trust. Some advisors are great, others not so much. I once heard the founder of Adobe touting the great advice he got from the advisor installed by the company funding the venture, which kept them from making early, bad business decisions that could easily have been fatal.
• Do I have the time and energy necessary to build a successful business? Here, you must consider other constraints, such as family, the need to earn money outside of the business, and how much trusted support you have.

Once you get past these fundamental startup questions, you have bad business decisions that create short-term problems that you might fix over time, and others that create problems that get bigger and harder to fix as time goes on. Let’s start with those that you can fix over time.

Bad business decisions you can fix over time

A questionable marketing campaign

Big marketing campaigns are essential for business success. This is especially true when you’re new on the market and attempting to make a name for yourself or when your competition invests heavily in advertising and marketing. But, these efforts may fall flat (or worse create a damaging brand image), if you fail to hit the mark with your marketing efforts. Poor attitudes fostered by bad business decisions made on a marketing campaign damage, or even destroy, your reputation and follow you far into the future, given that you’re only a click away from new consumers discovering your faux pas.

If you offend someone with your marketing efforts, you can bet consumers and, more damagingly, influencers, will grind your name into the dirt in no time. Consider and learn from the mistakes plenty of big brands have made with questionable marketing campaigns in the past.

Pepsi, for example, made light of U.S. protests by having Kendall Jenner pull out a can of Pepsi in the middle of the action. Nivea fell foul of similar issues with their clearly questionable ‘white is purity’ campaign. Of course, if you’re a big brand, you might weather the storm and live to fight another day, despite a sizable momentary hiccup in sales. A similar transgression by a lesser-known brand, one without a long-term relationship as a good corporate citizen, could prematurely end your efforts to grow your business.

Surviving these bad business decisions is possible with a sustained effort to counter bad publicity. Of course, you also need a post-mortem that analyzes why this decision was wrong and takes steps to avoid a recurrence.

A premature product release

Innovation is imperative in many industries and your efforts to grow your business might create pressure to constantly develop new products. In some fields, you need a new release every year or so to keep yourself competitive. This is especially the case if your competitors are churning out new products faster than you. Sadly, this pressure led to the downfall of many a company by pushing them to release before they were ready. Such bad business decisions are costly in terms of reputation. Never expect your customers to be part of your quality control process.

The fact is that product development takes time. And, even with lean/agile development, short-cutting product testing can spell disaster. But rushing the development process has led to the downfall of many a large corporation. Most famously of late was the Samsung Note 7, which started to catch fire due to problems with the battery. Adequate testing would have revealed the problem before it hit the market, leading to a lot of embarrassment and a costly recall.

And, unfortunately, Samsung isn’t the only company to have made bad business decisions regarding a product release, either. Sometimes it’s a lack of fit with customer needs, sometimes bad marketing, sometimes it’s a poor collaboration with complementary product makers, and sometimes it’s just a product ahead of its time. Of course, these hiccups soon fade for some of the most significant names on the market today. But, if you had to recall your latest new release in this way, it’s likely that customers will never come back, and they’ll spread their negative attitudes to anyone willing to listen.

Don’t let it happen. Always take the time you need for market testing, product testing, and market campaign planning before launching a new release. You can guarantee the wait will be more than worth your while.

An ill-planned merger

A merger is a great way to grow your business, especially if you’re a small enterprise. By merging with an established brand, you gain access to an existing audience and the potential of becoming an overnight success. But, as demonstrated by recent merger missteps, like Amazon and Whole Foods, a merger can be one of the bad business decisions you can make.

The main problem with the Amazon/Whole Foods merger was that there was a wide gap in the business priorities of the two companies. It shouldn’t come as a big surprise that Amazon’s money-focused attitude soon left Whole Foods staff and customers dissatisfied.

That’s not to say, of course, that a merger can’t provide a great boost in efforts to grow your business. By opting to go into business with a decent rebranding strategy and a company that shares your culture, strategic goals, and supports your efforts, you could soon go far. But if you jump into bed with the first big name that makes you an offer, you’re never going to keep existing customers happy. And that alone could be your downfall. Always make sure that a merger company has the same business vision as you before signing on that dotted line.

Bad business decisions with a long-term impact

1. Adopting a short-term focus

These bad business decisions result from a desire for short-term profits. I once worked with a firm that insisted on recording orders (and sending invoices) when they were received to allow higher quarterly profits on the books. Unfortunately, to keep customers happy, that meant increasing overtime and higher shipping costs to deliver products within the expected time from invoicing. Continuing this practice reduced the overall revenue of the business, which limited opportunities they might have enjoyed with that extra income, such as spending it on new product development, hiring new employees, or even investing it to earn income.

Apple Computers faced a similar problem when it decided to invest in a better version of its existing products rather than make a leap forward, as recommended by founder Steve Jobs. After ousting Jobs and pursuing this decision, the company brought back Jobs, and the Mac was introduced, saving the company from possible doom.

Here are additional bad outcomes resulting from bad business decisions that focus on the short-run to “cut off your nose to spite your face”.

• Insufficient R&D spending or focusing on “safe” areas for product development
• Skipping maintenance results in higher repair or replacement costs as components wear out more quickly. Failing to maintain core systems, such as your computer, can result in threats to data integrity that cause legal and customer trust problems that extend into the future.
• Not investing in your employees. Employees are likely your most valuable asset. The world around you changes, which requires ongoing employee training to ensure your business functions effectively. I once visited an operation where employees were taking orders manually, then entrusting them to a single worker trained to enter them into the company’s EDI system that integrated with order processing, manufacturing, and inventory control. The other employees had their computers pushed to the back of their desks.

These bad business decisions not only add additional costs, but also embed your bad decisions into the operating systems of your organization. This makes them very hard to change without a serious and sustained effort.

2. Cash flow versus profits

As you can see, cash flow problems are the biggest reason why small businesses fail. What are the bad business decisions that lead to these failures? Here are a few:

• Poor inventory management. Unsold merchandise and finished products are a huge problem because they can be damaged or stolen, become obsolete, tie up your cash, require higher storage costs, higher product handling costs, and reduce your ability to buy new inventory. Reduce these outcomes by ensuring state-of-the-art inventory control systems. For instance, a furniture warehouse installed a cross-docking procedure where products entered at one end were sent by a conveyor system to the other end, then loaded on trucks based on which products were to be offloaded first. Of course, the process was controlled by integrated computers with store orders and suppliers.

  

• Bad handling of accounts payable and receivable. As to accounts payable, most suppliers offer 2/10 net 30, which means you get a 2% discount if you pay the bill within 10 days, while you must pay within 30 days. By taking advantage of the discount, you reduce the cost of all your eligible accounts. Similarly, you need policies to ensure you get paid by customers in a timely manner. Good systems are essential to ensure accuracy, timely billing, and timely payments.
• Poor planning results in needing short-term debt (which often involves a higher interest rate and faster payback) to help you over any shortfalls. By planning your cash flow accurately, you can predict when a shortfall might occur, then borrow money to cover yearly shortfalls on more favorable terms. Factoring, which involves selling your accounts receivable for ready cash, means you lose a percentage of each sale involved in the deal.
• Over time, these bad business decisions may cost you suppliers or customers, as you struggle with your funding needs or you might run out of options for needed cash. The strain caused by financial problems might also permeate your company, making it less efficient and effective.

3. Complexity creep

I’ve seen this go both ways. As the business grows, you have more employees, more products, and more systems to manage. Some business owners find it hard to let go, preferring to make every decision and approve every change. This stifles the organization, so it hobbles forward, leading to inflexibility, poor employee morale, and

In other cases, I’ve seen management delegate to a constantly expanding level of managers, creating a bureaucracy that has the same result.

In a world where companies must respond to changing conditions, often quickly, these bad business decisions mean the business faces a monumental task if it wants to improve performance. Johnsonville Sausage managed such a change effectively, but it took a serious commitment to move beyond the status quo to let workers lead.

4. Building a toxic culture

A toxic business culture is very damaging. The bad business decisions that cause this culture result in:

• Poor employee morale
• Losing your best employees to other firms, often competitors, which takes their knowledge, skills, and experience away from your business
• Makes it harder to hire the best candidates as your reputation spreads online or they detect the bad culture during the interview
• Poor employee performance
• Theft and vandalism by employees
• Bad customer service

Fixing a bad corporate culture is hard, if not impossible, so avoid bad business decisions that cause this from the beginning.

5. Not being authentic

Whether it’s greenwashing (making claims about sustainability or organic without backing it up), not vetting partners to ensure they also employ these tactics, or making grandiose product claims that you can’t back up, lacking authenticity is easily discovered and spread on social media. The damage can be permanent.

Conclusion

The results of bad business decisions can quickly kill your business. Recovering from these decisions takes a sustained effort, so you should carefully consider the short and long-term implications of the decisions you face before making them. That’s especially true for those that get worse over time, such as the ones shown in the image at the top of this post.

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