Why do businesses fail? Most of them run out of cash, but cash is usually the last domino to fall, not the first. The deeper cause is building for speed instead of structure: a business model that isn’t stable, no reliable way to generate cash, and a strategy the culture can’t carry out. Fix the structure and the money problems get a lot smaller.
Sandeep Chennakeshu has spent his career inside companies most of us use every day. He was CTO of Ericsson Mobile Phones and Sony Ericsson, president of Ericsson Mobile Platforms and president of BlackBerry Technology Solutions, and he served as COO of Uhnder, a digital imaging radar company, according to his official bio. He also wrote a book called Your Company Is Your Castle: Proven Methods for Building a Resilient Business. I love that title.
I know a lot of people want to leave the 9-to-5 to build their own businesses, or create more employment for others in their city or local area. So I kept it real with him. The business world is not a walk in the park. It can be pretty brutal out there if you don’t know what you’re doing.
Why do businesses fail? The reasons on paper
The numbers back that up. The SBA’s Office of Advocacy, using Bureau of Labor Statistics data, puts the average 10-year survival rate for new employer businesses at 33.9%. So when I asked Sandeep why two-thirds of businesses don’t make it to year 10, he started with the well-researched list.
- They run out of money and can’t raise more, because they have nothing to show for what they spent.
- They don’t research the market, so they price products at a level the market can’t bear.
- They don’t know enough about their competitors.
- They don’t hire the right people to start the functions a business needs.
Running out of money is the one everyone quotes. CB Insights went through the shutdown stories of 431 venture-backed startups, and among the 385 where a reason could be identified, 70% ran out of capital. But its analysts make the same point Sandeep does. Running out of cash is “almost always the final cause of death, not the root problem.” Poor product-market fit (43%), bad timing (29%) and unit economics that don’t work (19%) are why the money dried up in the first place.
The real root cause: speed over structure
Sandeep has seen the highs and lows across a lot of industries, and his diagnosis is blunt.
“I think it’s because people opt for speed over structure,” he said. “I don’t think you need to be bureaucratic and process-oriented to do that, but you need a certain structure to build a business and grow it methodically. And if you don’t do that, you’re invariably going to run into trouble.”
Structure doesn’t mean red tape. It means you know what holds your business up before you pour more money on top. I like that he’s broken it up into an easy-to-follow structure and system, step by step, so the everyday person can learn from decades of experience.
The 8 elements of a resilient business
I asked Sandeep to walk me through the eight elements of a medieval castle and how he applies them to a business. Castles that lasted, he said, were built in strategic locations on solid bedrock, and everything else sits on top. Towers along the wall guard it, and he splits those duties into products (creating and delivering them), sales channels and execution.
Castle part
Business element
The question to ask
Bedrock
Business model
Is it stable and sticky, or will it give way?
Foundation
Cash generation
Can we fund growth, either from investors or from what we earn?
Perimeter wall
Strategy
Does it encompass the whole business?
The keep
Culture
Will our people actually carry out the strategy?
Towers
Products
Are we creating winning products and delivering them at the right time, quality and cost?
Towers
Sales channels
Are our “pipes of sustenance” productive?
Towers
Execution
What do we do every day to keep every part of the business thriving?
Roof
Stakeholder confidence
Do investors, customers and employees trust us?
The foundation is where most young companies crack. “Without cash you cannot grow your business,” Sandeep said. If you can’t say how many months of runway you have left, you don’t know how solid your foundation is.
The roof is trust. “Investors give you money to do good things, customers pay you to continue to go do good things, and without employees you cannot do good things,” he said. Build all eight and, in his view, your business can ride out recessions, pandemics and competitors.
Why culture is the keep
The keep sat in the middle of the castle, home to the nobility, the granary and the armory. “When the keep fell, the castle fell,” Sandeep said. “It didn’t matter if the wall was standing.”
His line on this is worth writing down: “Strategy tells you what you want to get done. Culture determines what you get done.” If the two aren’t aligned, you’ll never implement your strategy.
A lot of entrepreneurs I speak to are really getting into this whole culture conversation. They want a company that’s vision-driven and on the same page. Sandeep said someone once told him it takes seven years to change a culture. By his account, his team fixed theirs in a year. Here’s what he did.
1. Build engagement both ways
He ran informal “ask me anything” sessions where anyone with a birthday that month could sit down for breakfast with him and ask literally anything. He filmed short customer interviews, never more than about 10 minutes, and played them at town halls. One customer told his team: “You’re the smartest bunch of people I’ve met, but I trusted you and I lost my bonus last year.” Sandeep said they never had a delay after that. He and his leaders also wrote newsletters to the team: “Just like we expect them to report to us, we need to report to the team too.”
2. Make your metrics thermostats, not thermometers
He breaks the annual operating plan into a handful of diagnostic metrics that, if you hit them, mean you hit the plan. “A thermometer tells you what the temperature is. A thermostat reacts to it.” Then every person gets goals from those metrics. He calls it “know your numbers.”
3. Give every deliverable one owner
You can have plenty of contributors, but only one owner. “You can’t have two quarterbacks in a team playing at the same time,” he said. “The team will get confused.”
4. Grow your capability cube
He asks his managers to grow three dimensions every year, even a little: competence (solving harder problems with the same people), capacity (doing more with the same people) and clarity of communication. The point is urgency: fix a problem before it gets big.
5. Prune the yellow leaves
A Columbia University professor told Sandeep about two potted plants getting the same sun and water. His wife’s was lush; his kept growing yellow leaves, until he noticed she pruned hers every morning and started doing the same. “Very often in companies we spend an inordinate amount of time with difficult people,” Sandeep said. “If you refuse to row in the same direction, well, you probably get on to another boat.”
I had Gary Vaynerchuk on the podcast, and he said it’s more important to know who to fire than who to hire. I actually know somebody who comes in and trains employees to live by their values, and some of them end up leaving the company on their own accord. It’s a bit of a passive approach, but it means people can walk away and do what they really love, and the company ends up with people who want to be there.
6. Reinforce and reward on time
Show the team regularly whether they’re on track, correct course when they aren’t, and reward people for doing the right thing at the right time. “Warm porridge is always better than cold porridge,” he said. I love his analogies. They make the principles easy to remember.
What a turnaround looks like when the structure gets fixed
When I asked for a real example, Sandeep went back to the joint venture between Ericsson and Sony. He said revenue fell almost 40% in about 18 months because the company was copying Nokia, which had more scale, brand and distribution. Copying the biggest player is not a strategy.
The new plan was multimedia phones that could play music, show video, run games and pay bills, and he was sent from North Carolina to Sweden to help the company building the technology deliver it. The business, full of brilliant people, lost a dollar for every dollar it made. By his account, applying the principles in his book turned it profitable within a year and took it to 30% world market share in under three years. At the next company, he says, gross margin was about 18 points below the industry standard, and they closed that gap in 18 months. At a third, he says, revenue compounded at roughly 27% a year.
Those are his reported results, not a promise or a forecast for your business. And the method is plain. “It’s a lot of common sense,” he said. “I don’t know why it’s not done more often.”
I think it’s that allure within our own human psyche to want to try the trendy thing, the sexy thing, the cool thing. But ultimately it’s principles over trends. Principles last throughout the ages, and trends come and go.
Will AI change why businesses fail?
Technology is literally like a hockey stick right now, and a lot of people are scared AI is going to replace their jobs. Sandeep doesn’t see it that way. People still do the science behind AI and build the chips, servers and networks it runs on.
He sits on the board of a company that uses AI to help patent attorneys answer examiners faster by searching prior art. “Think of AI as a tool, and nothing more,” he said. In his view it will enhance productivity, not replace people. We always need human connection, and our creativity goes beyond the computer.
7 beliefs for new founders who don’t want to become a statistic
I asked Sandeep what he’d tell an entrepreneur who’s a little star-eyed and maybe a little naive about business. He tells his children and mentees to adapt these beliefs in their own style, “because everyone’s journey is personal.”
- Dream with conviction. In 1984 he fell in love with mobile phones while they were still big and bulky, and people told him the industry was going nowhere. His conviction gave him his career.
- Get out of your comfort zone. He left a respected research job for a product job where he was “the runt in the litter,” adapted, and rotated through every part of the business until he was the one person who knew all of it.
- Reflect on success and failure. “Success is exhilarating, but I learned more from my mistakes.”
- Learn to deal with adversity. A professor friend once told him that if someone took the only sandwich off your plate, you’d have a right to be upset. But his plate was full of sandwiches. Don’t dwell on the past, dwell on what you can do with what you have. That’s what mental toughness looks like in practice.
- Get battle-tested. Net practice only goes so far when a fast bowler is steaming in. It takes talent, technique and temperament, so volunteer for the hard assignments.
- Stay true. No one will believe in you as much as you believe in yourself. Walk the talk, and don’t say things just to be popular.
- Be curious. A Jesuit priest who taught him at school said it’s your choice whether to be ignorant. Ever since, Sandeep has jotted down things he doesn’t know and gone to learn them. “Knowledge and attitude breaks down every barrier.”
Why do businesses fail? A quick self-check
Run your business through Sandeep’s eight elements. Any “no” is a crack worth fixing before you push for more speed.
- Is my business model stable and sticky?
- Do I know how I’ll fund the next stage, from investors or from my own cash?
- Can I state my strategy in a sentence my team would repeat?
- Does my culture match that strategy?
- Are my products winning, and delivered at the right time, quality and cost?
- Are my sales channels actually productive?
- Do investors, customers and employees trust what I say?
Even if you’re not at the stage of building your business yet, you can start getting into the mindset of what it takes to create something and put it out there. When I asked for his last 30-second speech to the world, Sandeep gave me the last line of his book: “Believe in yourself, do the things you like, work with the people you like, and always believe in the great hope that the future brings.”
FAQ
Why do businesses fail?
Most businesses fail because they run out of cash, but that’s usually the final symptom. The root causes are weaker structure: no market fit, poor pricing, bad timing, the wrong hires and a strategy the culture can’t execute.
What is the number one reason small businesses fail?
Running out of money is the most common reason given. In CB Insights’ review of startup shutdowns, 70% ran out of capital, though poor product-market fit, bad timing and weak unit economics usually caused the cash to dry up.
What percentage of businesses fail within 10 years?
About two-thirds. SBA Office of Advocacy figures based on Bureau of Labor Statistics data put the average 10-year survival rate for new employer businesses at 33.9%, and roughly half close within five years.
What are the 8 elements of a resilient business?
In Sandeep Chennakeshu’s castle model they are business model, cash generation, strategy, culture, products, sales channels, execution and stakeholder confidence, with stakeholder confidence acting as the roof over the rest.
How do you build a strong company culture?
Engage your team both ways, give everyone clear numbers, assign one owner per deliverable, grow competence, capacity and clarity every year, deal with people who won’t row in the same direction, and reward good work quickly.
Disclaimer: Addicted2Success content is for general informational purposes only and is not a substitute for personalized advice from a qualified, licensed professional. Always seek professional counsel for your specific situation before making decisions.
