How to Avoid Business Failure

(page 2 of 2)

It seems like that full-time devil's advocate wouldn't be a very beloved person around the office.

No, but what you might do is rotate the role, so one person isn't always the bad guy. The key to making this work is that the instruction has to come from the senior person saying, "Challenge me." And that person can't then give out signals that say they really don't want to be challenged.

What are some of the other key failure lessons?

Technology. It turns out that most people don't understand it all that well. We saw instances where companies bought into a business model based on today's technology and didn't realize it would become obsolete very quickly. So FedEx (FDX), for instance, got into the business of sending faxes for clients, and the company got hammered a year later when everyone got fax machines in their offices.

Jumping in without thorough research can be disastrous, but what about the opposite? How dangerous is inaction?

Often in business, there's a tendency to stay the course and underestimate a competitive threat. This is particularly bad for the small retailer who maybe hears about a Starbucks (SBUX) locating nearby and decides there won't be any negative impact on his business.

In 1981, Kodak (EK) did a huge study on digital photography and decided it would be a serious threat in about 10 years. They never came back to that study, and eventually they completely missed getting in on that market, while their competitors handled the transition to new technology much better.

So the trick is to go ahead and make predictions about how much this competitive threat might hurt you and then keep track. But you have to be honest and don't fudge the numbers. If you're honest, you can keep on top of the situation, and you'll have a trail of evidence to evaluate how much your company is being hurt and what you can do about it.

Are there any places right now where small business owners might take advantage of large corporate failures?

Assets are cheap, and there are some deals out there right now—but again, it's important to be cautious. On the macro level, a lot of mall developers messed up and overbuilt, so this might be a good time to get a deal and get a better space in a mall.

What advice would you give to an entrepreneur today?

People talk themselves into doing things they later realize were stupid. Listen to those nagging doubts, if you have them. Sometimes CEOs live kind of lonely lives. They feel like they can't talk too much, and they feel they have to commit, or else they'll look indecisive. It never hurts to look at history. Try to find analogies locally or in your industry of companies that thrived in previous hard times and those that failed, so you get both sides.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.