Why do so many businesses fail?

A few years ago, Harvard Business School invited me to attend a lecture by Professor J. Bruce Harreld. Dr. Harreld had studied companies all around the world, in all sectors and all sizes.

And, remarkably enough, he found that over 98% of companies die before the age of 40. Imagine that: Only about 2% of companies live past age 40. That’s only half a human lifespan.

How long should companies be able to live? Well, if you think about it, while we humans have to die eventually, a business should be able to go on forever.

So why do so many companies die so young? And what do they need to live longer? Those are important questions. Dr. Harreld found that companies die because the opportunities that they pursue have a lifecycle.

Sometimes the lifecycle is short, and sometimes it is long. For example, Coca Cola has lasted for over 100 years. But sometimes the lifecycle of a very durable opportunity can expire very quickly.

For example, Kodak dominated the camera and film industry for almost a hundred years, but once digital photography came in, it was quickly wiped out.

The business graveyard is littered with the memories of once great companies that failed to overcome the forces of irrelevance. Remember Nokia? Remember Blackberry?

Of course, companies are aware that their opportunities have a lifecycle, so they’re always looking for and choosing new opportunities. So why do they fail?

Professor Harreld found that while all companies are constantly choosing new opportunities, most fail because they choose bad opportunities.

Why do they choose bad opportunities? Companies choose poor opportunities because they choose opportunities poorly. It’s a question of process. The vast majority of companies choose their opportunities without a systematic process. As a result, they choose nopportunities instead of opportunities, and get wiped out.

What’s the solution? In order to harness the power of opportunity properly, you need to use a proven systematic process.