Causes of Business Failure

Business failure is a condition that every manager would wish to avoid by all means
possible. Some common reasons that lead to bankruptcy are beyond the control of the
management. However, most of them are orchestrated by poor strategy creation and
implementation. Proper planning and execution are crucial in mitigating risks that lead to the
collapse of businesses. Attractive opportunities can turn out to be threats that incur huge losses if
not well analyzed. Harvard Business Review has critically analyzed businesses that have failed
in the last two decades with an aim to help companies avoid similar mistakes in the future.
Their view about synergy mirage is very relevant since companies join forces with others
to complement their strengths. Mergers can enable a firm to grow and increase its market
coverage but if the two merging entities fail to have common goals and objectives conflicts of
interests will undoubtedly arise leading to bankruptcy. It’s true that Amalgamation of companies
can result in unnecessary costs which increases prices, this will hurt the entity. Over-reliance on
synergy mislead the management such that they end up making mistakes in decision making. I
agree with the authors' view that faulty financial engineering can result in unrealistic
prepayments and returns, but in reality, the company may be preparing for future financial
constraints due to defaults and high customer risks (Carroll & Mui, 2008). The absence of the
appropriate finance strategies can even lead to fraud thus attracting lawsuits from both the
customers and legal authorities.
Actions taken to respond to market changes should take into considerations the long-term
goals of the firm. Any deviation leads to interference with the ordinary course of business, and
this could have adverse effects if the market signals fail to be profitable. Ignorance by the
management about future risks and threats is unacceptable, failure to foresee the future
challenges and create measures to deal with them puts the company at the risk of failure. As
much as pseudo-adjacencies improve a company’s core competencies and competitive
advantage, there is a need to review them before their adoption. Oglebay failed to research
thoroughly on the transportation of Lime thus leading to bankruptcy, therefore despite the
strengths that a company enjoys venturing into other forms of business should involve a
fundamental understanding of the situation around it.
Technology is changing rapidly. Thus organizations need to adopt the latest innovation
that will appeal to the customers now and in the future. Before creating a product, firms need to
analyze the customer tastes and preferences and also the devices offered by competitors (Harris,
2008). However, I feel that technology should be improved on a regular basis to meet the
customer expectation and changes in innovation. Rushing to consolidate is a critical issue that
has killed many industries. Consolidation may result in diseconomies of scale from the other
firm, and this can lead to a loss when the right mechanisms are not adopted in the consolidation
process. Finally, Roll-ups form a considerable risk, and the intended purpose of creating a large
company may not be achieved since smaller companies do not produce any value for the
investor. Some cannot even settle the costs they incur thus resulting into borrowing to sustain
their presence in the market. My opinion is that Roll-Ups should only involve businesses that
have been able to maintain themselves for over five years with reasonable profits and costs.



Carroll, P., & Mui, C. (2008). Seven Ways to Fail Big. Retrieved from

Harris, M. (2008). 7 ways to fail big (in IT?) – 20 – October – 2008 – Posts – Blog. Retrieved