Exit: Failure and Success C18TP Enterprise Concepts and Issues © Goodfellow Publishers 2016

Famous Failed Companies Enterprise Concepts and Issues © Goodfellow Publishers 2016

Some Terms Business failure: The discontinuance of the business due to a lack of adequate financial resources. The termination of an initiative that has fallen short of its goals (McGrath, 1999). “A business that has fallen short of its goals or become insolvent, thus requiring involuntary termination or discontinuation of the business” (Politis and Gabrielsson, 2009). Business closure: A situation in which a business entity discontinues in its existing form (Stokes and Blackburn, 2002). The inability of the business to survive and thus represents a discontinuance of the business (Hall, 1995). Owner’s exit: The act of departing from a business ownership by the business owner (Stokes and Blackburn, 2001). Exit: From trading in a specific market or producing a particular product. 3 Enterprise Concepts and Issues © Goodfellow Publishers 2016

Voluntary 4 Liquidation: The means by which the business activities of a company are brought to an end. Business exit: ability to gasp the attention of their competitors or specific interest groups. Enterprise Concepts and Issues © Goodfellow Publishers 2016

Involuntary 5 Insolvency: the inability of an individual or company to pay debts when they become due. Also used to describe the various formal proceedings that may apply to an individual or company. Bankruptcy: A legal proceeding where an insolvent person can be relieved of financial obligations, but looses control over bank accounts, and future financial options. Administration: This occurs when a company, which is in financial difficulty, is put into the hands of an administrator. Enterprise Concepts and Issues © Goodfellow Publishers 2016

Out of the businesses that do close… Source: (Levie et al., 2011: 198). Enterprise Concepts and Issues © Goodfellow Publishers 2016

Why is Business Closure Important? Reason 1: The closure of a business is often associated with dire social and economic consequences. Reason 2: It is not jut the individual or their family and friends that are likely to be impacted by a business closure. A business closure may mean the loss of employment to a significant number of people. Reason 3: Business closure may have social and economic consequences for those that invested in the business or are owed money by the business. This may be no ‘fault’ of the business owners. However, some individuals set up a business to deliberately defraud investors and creditors. Reason 4: Business closure may not always be a negative event. Some businesses may close for positive reasons. These are termed ‘success closures’. This maybe because they wish to retire or because they sell the assets of the business for a profit. Reason 5: Business closure is also seen as a valuable learning experience for business owners. Reason 6: The closure of a ‘failed’ business has positive economic benefits. It signals to others that the customers do not want what the business offers. Enterprise Concepts and Issues © Goodfellow Publishers 2016

Why Do Firms Fail? Age of business Size of business Past-growth Sector Management Economic conditions Type of firm Location Ownership Business in receipt of state subsidises Source: Storey (1998 ) Enterprise Concepts and Issues © Goodfellow Publishers 2016

Are Managers/Owners to Blame? Accounting Marketing Finance Other internal factors Behaviour of owner-manager External factors Enterprise Concepts and Issues © Goodfellow Publishers 2016

Detailed Internal and External Factors Contributing to Failure Internal failure factorsExternal failure factors Poor managementEconomy Deficits in accountingChange of buying patterns Poor cash flow managementDecreased purchasing power of consumers Inappropriate sources of financeShortages of raw material Depending on customers or suppliersCustomers' strikes Impending bad debtLow-price competition OvertradingCatastrophic unpredictable events Poor marketing and research Environmental protection and other regulatory requirements Fraud or collusionBankruptcy of main customer or supplier Bankruptcy Governmental measures and international developments Enterprise Concepts and Issues © Goodfellow Publishers 2016

Prevention of Business Failure 1.Business plan and adequate capital 2.Start your business in a boom economy 3.Close relationships with creditors 4.Good account receivable 5.Good record keeping 6.Diverse customer base 7.Developing management skills before starting 8.Consider use of partners 9.Grow slowly 10.Financial control ) Enterprise Concepts and Issues © Goodfellow Publishers 2016

10 Famous Entrepreneurs Who Failed in Business Before Becoming Successful Enterprise Concepts and Issues © Goodfellow Publishers 2016

Further Reading Byrne, O. and Shepherd, D. (2013). Different Strokes for Different Folks: Entrepreneurial Narratives of Emotion, Cognition, and Making Sense of Business Failure. Entrepreneurship Theory and Practice. DOI: /etap McGrath, R. G. (1999). Falling Forward: Real options reasoning and entrepreneurial failure. Academy of Management Review, 24(1): Politis, D. and J. Gabrielsson (2009). Entrepreneurs’ Attitudes Towards Failure: An experiential learning approach. International Journal of Entrepreneurial Behaviour & Research, 15(4): GEM 2008 Enterprise Concepts and Issues © Goodfellow Publishers 2016