Risk taking is part of business. Proper decision making is a basic requisite at every simple and complex activity of business. These two aspects of business, when done in a lop-sided way without adequate basic inputs, thoughtfulness and well-nurtured business instincts, will pave the way for making big blunders in business.
Some blunders are made when a business is at start up stage and there is pressure to be up and running. Some blunders are made when the business is in dire-straits or there is desperation to make profits.
Here are some such common mistakes:
1) Partnership with incompatible persons
Unless a business partnership is made between persons bonded by strong friendship, having compatible business ethics and a long term vision, business can end up in problem sooner or later. A businessman once said: “Partnership fails either when there are major losses or when there are filthy profits”. It requires lots of guts and understanding between partners to weather the strorm when business faces a loss. Family menbers of partners can potentially play havoc in the relationship between partners during bad times.
When the business is going great with profits pouring in unabated, that’s another time when the true face of a partner (greed, pettiness, overshartness etc) is exposed. One partner may want to stash money while another may be interested in ploughing back the earnings into the organization for growth. It is under such situations that conflicts and incompatiblities can surface. If left unchecked, the business may fall on account of friction between partners.
Stinginess, desire to cut corners in the salary bill and tendency to treat the staff as slaves — these are the blunders that lead to under-staffing and the business suffers for want of adequate experienced hands to carry it through.
3) Putting too many eggs in one basket
Relying heavily on a single customer, insufficient product mix, investing heavily in one business segment at the detriment of another etc may prove to be business blunders in the long run.
4) Jumping into “latest” or “hot” business line
One example: During 2007-2008, In Chennai, India, due to sudden spurt in IT, IT enabled services and Business Process Out-sourcing, there were plenty of businessmen jumping into these, as they are sensed to be “hot and the most profitable”. Consequently, there was a huge demand in office space for accommodating these business houses.
Real estate developers jumped into the fray to build massive infrastructure needed for the same. But due to recession triggered by the slowing down of US economy, there came an unprecedented glut in the market, . As supply of office space had out-stripped the demand, there were hundred-thousands of square-feet of built-up area remaining un-occupied and real-estate developers who wanted to make a kill were in in trouble.
5) Business in incorrect geography
To develop industrial infrastructure and employment potential in under-developed areas, some Governments may offer tax incentives and heavily subsidized land at certain locations. Some businessmen get lured by them and after investing in such places, suffer for want of proper transport facilities, infrastructural support and also qualified personnel who refuse to migrate there.
Businessmen make some blunders when profits are in plenty and the coffers are full too!
Here are some cases:
1) Making excessive hype
Over-spending on market promotions, arousing excessive expectations on a product under development and finally falling short of the hype created (Example: Some versions of Operating systems of MS Windows; Some products of Apple Mac).
2) Treadeing in un-chartered territor/ incompatible take-overs
When money is available aplenty, thoughtless diversification and investing on new ventures totally unconnected with the past and familiar lines of businesses and then failing in them are common.
When things are going good and pending orders list is long, over-staffing becomes natural. When the tide subsides, “obesity of staff-strength” becomes a thread to business health.
4) Lethargy/ obsolescence / getting out of sync with technology
This happens when a business remains a virtual monopoly for long. People at the helm fail to notice the change of tide and they are caught unawares one day. (Example: Past history of Ford Motors during the last years of Henry Ford).
Getting out-dated with technology is quite common in IT Industry.
While it is quite true that there is no gain with no risk,where to draw the fine line between taking calculated risks and making big business blunders comes only through maturity and wisdom by doing business with levelheadedness.