5 Lessons from Business Failure

Phones4U

Single product

Plug pulled

Crash bang gone!

I describe the recent news report of the collapse of the UK’s 2nd largest independent phone retailer in those four simple phrases.  It succinctly summarises why the Phones4U business failed.

From an external observer’s point of view, questions are being asked as to whether or not the company could have predicted the situation they were in and if the business failure could have been avoided.

It is always difficult to write with  authority and accuracy without the necessary insider information. This is especially so if the company is a private company, it’s dealings are not in the public domain.  The only information we have as observers is what company’s board discloses.

However, some facts have emerged which paint a picture of the company’s business model.  They sold mobile phone handsets and airtime contracts  for mobile phone service providers. Whatever business model they had, when it was conceived of, suited their goals and worked well for them.  By all accounts, they were doing very well.  With this collapse, questions have emerged about the viability of their business model.

On the face of it, it appears that the collapse of the business was attributed to the  mobile phone companies (whose airtime contracts they were selling) not renewing their airtime contracts.  Having experienced business failure on every imaginable scale, I can speak from experience. I would say that when the chips are down and you carry out a post-mortem, invariably the owners, directors or management are to blame.  I say this because whatever business failure or collapse that occurs, there are usually warning signs.  Your success depends on how you respond to these signs.

When warning signs flash, you have to act very quickly to take remedial action.  I do not know what steps the management team at Phones4u took.  Whatever  happened, the end result has not stopped the business failing.

An important piece of advice I give to my clients is that they should avoid relying heavily on a single strand of revenue and to be creative in diversifying their product range.  By contrast, Phone4U’s  biggest competitor – Carphone Warehouse has broadened it’s revenue base to include a host of other offerings.  They now include, selling landline contracts, broadband access and expanding to other european countries. In my last post I gave the example of Apple and how they have diversified their revenue sources by expanding their product range.  They do not rely on one source of income.  The company continually innovates and this helps secure their long term future.

Takeaways to avoiding business failure

• Take a long term view of your business model
• Broaden your revenue base
• Do not be over reliant on one supplier or group of suppliers
• Always innovate, implement new ideas to broaden your customer base, your supply chain and revenue stream
• Take remedial action fast at the first sign of trouble

Is your business at risk of failing because you rely on one income source? Are you ignoring the early warnings that something fundamental may be wrong with your business? What  remedial steps could you take today  to forestall trouble ahead?

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