Is an entrepreneur born or can they be taught? Are good businesspeople the product of countless hours of trial and error or can they be shaped, for the better, by formal education? These are questions that have been asked time and time again, and yet – far from being worn-out or long-resolved – they seem to be as pertinent as ever.
A 2015 report by the Reserve Bank of Australia suggests that since the global financial crisis, SMEs have a three-year survival rate that drops as low as 45 per cent (in the case of the smallest businesses). It’s a startling number, and even if you look at much less dramatic figures – for example, those that show failure rates after three years for businesses in the 20- to 199-employee bracket of close to 67 per cent – there are still important questions to be asked.
Why do SMEs fail?
A few years ago, business research firm CCH conducted a comprehensive study into how and why small and medium enterprises fail in Australia. They surveyed SME owners, principal decision makers and accountants*, asking (among other things) about the reasons why businesses fail.
- 50 per cent of owners and 55 per cent of accountants put it down to inexperienced management
- 50 per cent of owners and 55 per cent of accountants said that a poorly designed business model (for example, no business plan) was to blame
- 61 per cent of owners said that failure to manage costs or anticipate rising costs led to the lack of success, while nearly a third of accountants said that failure to plan for volatile costs (32 per cent) and failure to adapt to a changing market (27 per cent) were important factors
- A quarter of accountants put business failures down to inadequate bookkeeping (25 per cent) or not enough time spent on managing the books (24 per cent).
Every year, the Australian Securities and Investment Commission releases a report on corporate insolvencies. In the latest report, covering 2016-2017, the Commission found that seven per cent of insolvencies concerned companies with fewer than 20 employees. Of those, 46 per cent had as a nominated cause of failure “poor strategic management”.
What these figures demonstrate is that business owners themselves understand that their own strategic decisions, lack of management knowledge or lack of financial nous (or at the very least that of their co-owners) are holding them back.
How do leaders guard against these ‘blind spots’?
It goes without saying that experience is something you can only acquire on the job. That could be through osmosis (picking up facts and proficiencies as you go about your daily work, without realising it), or perhaps with the support of a generous friend who knows numbers or has found their own success in business.
This type of learning also has its downsides: it becomes simple. Your absorption of new ideas and abilities becomes a part of your routine; it becomes intuitive. As your confidence builds with experience, it’s easy to begin to act on instinct, rather than to stop, think rationally and ask yourself ‘is this the best way of proceeding?’
This is not to say instinct isn’t important in business. But it can be healthy – even revitalising – to intellectualise something that you’ve left to intuition for so long, and this is where formal education comes in.
Studying an MBA can bring exciting challenges into focus, while providing completely new perspectives. You will be exposed to a number of skills to improve business models, better managing costs, become more proficient at adapting to change, develop bookkeeping skills, and progress as a business strategist – all while you work.
This article by an American MBA graduate nicely explains how highly experienced fellow students benefited from the course he undertook purely because it exposed them to concepts, frameworks and people they would otherwise never have come in contact with. It talks about “eye-opening” moments for people running even very successful businesses, highlighting the trap of complacency.
If you’re a small or medium enterprise owner seeking a new perspective, learn more about our online MBA course.
* As part of the study, the company (CCH) asked questions of more than 1000 business owners or decision makers with fewer than 200 employees, as well as more than 200 accountants and principals of accounting firms that serviced SMEs