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View Full Version : Why do companies fail?


billc
02-25-2004, 07:30 PM
I am starting up a lawn maintenance company, focusing on residential mowing. I want to do it right, and so learn from others. Primarily, I want to find out why this kind of company fails.

Elsewhere on the forum someone said X% of new companies fail after one year, 80% by five years.

From what you've seen, what are the reasons a company fails early on? How 'bout after a few years?

Thanks!!

capescaper
02-25-2004, 07:36 PM
most people who work for a period of time for a company decide this is a great way to make money they might know how to do the work which is the easy part actually running the business is ten times harder

Randy J
02-25-2004, 07:51 PM
One of the biggest mistakes I see is companies pricing their services according to the competition, without having a clue what their costs are. It doesn't do you any good to win the contract if you lose money on every mowing. You need to figure out what it costs you per hour/acre/whatever you want to use, and then add a profit to it and work from there. Costs that need to be factored in are fixed costs such as equipment costs, depreciation, business phone, advertising, etc.; as well as variable costs such as labor, fuel, oil, maintenance, miles on your vehicle, etc. The way I did it was to figure out about how many weeks I expected to mow per year (remember you probably won't mow every lawn every week during the heat of summer), how many hours per week I expected to mow and then divided my costs by that. That gives you a cost/hour. Now you can add profit and you know what to bid on each job to make sure you make money.
Good luck
Randy

specialtylc
02-25-2004, 07:55 PM
Those percentages are not just lawncare co. Thats all companies of all kinds nation wde.

bobbygedd
02-25-2004, 08:31 PM
my opinion.....putting "the cart before the horse". buying expensive equipment, before you can justify, or afford the purchase.

J Hisch
02-25-2004, 08:32 PM
Most companies fail becasue everyone runs out buys the best they can get, and thinks they need to have everything the competition has..... And the debt kills them.. then they get out. They blow all the money they make.. keep it simple at first untill you can grow as you have the capital..

kootoomootoo
02-25-2004, 08:33 PM
Two companies around here went bust in the last week or so.
One is a single operator. .............. He went bust because he's a piece of crap lying sob. No cred = No future. He owes me money too! Another is a bigger co with a few trucks, skid steers and
no profit margin! Bigger is only better if you are making more.
0% net profit on 50,000 is the same as 0% on 500,000.

dlomb72
02-25-2004, 09:43 PM
I couldn't agree with Bobbygedd more on this. If you are careful, you can get fantastic equipment for a portion of the price if you were to buy brand new. However, brand new is the no BS way to do it if you can afford it. My experience as far as businesses going under are the simple case of "too big, too fast".

packerbacker
02-25-2004, 09:53 PM
I worked for a guy for 5 years before going into business for myself, he did so many crazy things that i told myself i would never do but then i looked at him making over 500,000 a year and figured he had to be doing something right. Most people think this is an easy way to make money until they are out in 110 degrees for 14 hours 3 weeks straight, then they get lazy and start to cut corners. Then they start losing customers. My motto is "mow until you cant mow no mow". After you get home after a 15 hour day sit down and work more, always think and come up with new ideas. There is always someone out there that will underbid you so take the time to do the extra thing for the customer. Never and i repeat never turn down business. 99% of the time it will lead to something bigger.

grass_cuttin_fool
02-25-2004, 10:58 PM
I couldnt agree more on spending way more than you can afford. I see threads on here with people asking about a truck to pull a small trailer and one mower and the replys that are given to them are get a diesel 3/4 ton truck and............. price tag in the 35k range. If you can afford it then its nice but i see alot of companies that are way over there head in debt and working for a truck payment when a smaller or a used truck would be a better choice. Just my 2 cents worth

mtdman
02-26-2004, 01:32 AM
Anyone who is starting a business, no matter what kind, should read "The E-Myth." What he has to say in there applies to every small business owner, no matter the business. He'll show you why many people fail in business, the major reasons.

Now, as far as lawn care goes. I think people get into this without truly understanding what the business entails. Lots of folks think it's an easy business, all you do is push a lawnmower. To be successful, it's much more than that. I started small and slow, worked my way up. Didn't have a lot of debt, could afford to make mistakes and learn. When you're depending on this as a major source of income, making costly mistakes can cost you the business.

That and people don't charge enough, don't know their actual expenses, don't make enough, don't work enough. You name it. To be successful in any business you have to be smart, and you have to be willing to work hard.

billc
02-26-2004, 02:02 AM
Originally posted by capescaper
most people who work for a period of time for a company decide this is a great way to make money they might know how to do the work which is the easy part actually running the business is ten times harder

What has helped you most in learning how to run a business?

dkeisala
02-26-2004, 02:06 AM
If I truly knew what I was getting myself into I probably would have never gone into this business. There is SO much to know and sometimes amazes me that I have survived this long.

I agree 100% with those talking about people spending all kinds of money before they even have customer base. I pushed around 21's for 5 years before I even CONSIDERED a 36".

If mowing lawns is all this is about, we would all be happier and more carefree! You've got to be a horticulturists, botanist, accountant and small engine mechanic. A leader, mentor, manager and baby sitter. You need to be an expert in human relations, customer service and collections. You have to be half crazy, half genius or half of both to get into this business, make it work and make it successful. It's not for the faint of heart.

Spend your money wisely, be nice to people and do what you say you are going to do. Work very hard but take some time for yourself. Spend as much time in your office as you do in the field and know where you are at financially every single day.

That said, not having a true grasp of the numbers is probably the number one reason lco's fail.

Fantasy Lawns
02-26-2004, 02:07 AM
To big ......TOO FAST

bastalker
02-26-2004, 04:18 AM
I agree with what everyone else said. "Putting the cart before horse" was a good analogy. "dont count your chickens before there hatched" is another one. In other words, dont go spending alot of money on alot of equipment with money you think your goin to make.

Growing to big to fast will hurt ya bad also, as Fantasy said. This actually happened to me...I saturated my area with advertising, taking everything on. Before I knew it I was needing help bad. Hired a few workers, got a second truck an trailer. Set the schedules up for a second crew. All of a sudden guys dont show up, quit, move etc...I am scrambling now, trying to get caught up. Was basically bitin off more than I could chew, an countin more grey hairs everyday.

I geared back down, an got a handle on things. But it was pretty stressful. I would get home at 8:00 at night to tired to maintain the equipment, do paperwork. It was a major domino effect for awhile, an things were going down hill quick. I was headed for a quick burn out. I have around 80 accounts now, an can manage them pretty well with a full timer, an 1 part timer.

Another thing I learned before I took a couple of steps back, an took a long hard look at the big picture is noone is going to do as good a job as you. I was making pretty good money just kickin back, doin estimates, sendin the crews out etc... I found out in short order, that the people I was sending out to cut my accounts would be tearin up yards, missing all kinds of things weed whackin. I built my reputation on the way we left the yards lookin sharp. When I wasn't there, the quality really started slipping. I immediately let a crew leader go, got off my but, and started running my buisness again. If I hadn't done this, my rep would have been ruined, an the biz would have been destined to fail. Once you have a bad reputation, your pretty much sunk in this town. Word travels fast!!

Some guys get into the buisness, an after a year or to, figure it is just to much work an responsibility, an just want to go back to punching a clock, an leave all the responsibility to someone else.

Other guys just simply burn themselves out. This kind of buisness will burn you out fast if you dont handle it correctly. Dont bite off more than you can chew! Havin to work 10-12 hour days 7 days a week to stay on top of things isn't alot of fun. Especially if you keep doing this for any length of time. Sure the money is good, but you dont want to be the richest man in the grave either.

Some owners have a great buisness going, an all of a sudden for some reason or another find themselves layed up in the hospital for awhile. That will make a buisness go under fast, if you dont have some way to maintain it if something like that was to happen.

I would start out small. Get a buisness plan. Put down everything you want to achieve in a year, five years. Get a feel for the buisness. Buy only the equipment that you absolutely have to have. Get enough customers that you can pay the bills, an the government with. Do as much work yourself as you can. See how much you actually enjoy doin it. If after the first year, if you find yourself lovin it, get more customers, a couple of other pieces of equipment.

Good luck to you this year! Look forward to hearin how the year is going...

Katwalk
02-26-2004, 09:05 AM
Bastalker...great post. I am in the same exact position this year as I plan to "re-enter" the field to solidify our position. I've had some great kids come and go during the summers and have no complaints. The bottom line though....they are not as good as I am because my name is on the job. As tough as it may be, YOU MUST TAKE THE TIME TO TRAIN . Time tracking during training will make you cringe because production is down. If you can get through the training period where your profit is lower than you want it to be you will at least be able to make your desiired profit after the training period. If you fail to train....you may lose the customer and have no hope of any profit at that point. Bite the bottom line a little during training.....reap the rewards of a good employee later.

Mtdman.......E-myth is great. The first 5 years I operated as the technician who got rid of the manager and entrepenuer. The last three years have seen many changes for the better related entirely to that book. I actually have it on an audio version for my truck. Highly recommended reading material.

upsondown
02-26-2004, 09:13 AM
Lack of a business plan !

billc
02-26-2004, 10:06 AM
Thanks for all the great wisdom!

RandyJ - I've heard about that method of pricing - figuring out expenses and then dividing that by the # of hours you have available to see how much you need to charge/hour. I'm going to attempt that.

As for equipment and debt.... I have a little money so should be able to start up debt-free with a little nest egg, but I'll need to buy used stuff to start with.

My wife will be working with me. One of the motvations of starting this is to spemd the time together (even if we can only talk driving between jobs).

MTDman - I've heard of The E-Myth, but never read it. I will now.

bastalker - thanks for the good counsel!

More thoughts are greatly appreciated!!!

Randy J
02-26-2004, 11:59 AM
billc, I have the Excel form I used. If you have Excel and would like it, I'd be happy to email it to you. Just email me at rdj_1@charter.net.

Randy

Let it Grow
02-26-2004, 12:05 PM
The statistics say that cash flow problems (too big too fast!) cause the majority of small business failure. I think that is true.

GTLC
02-26-2004, 12:17 PM
I am thinking of undercharging when they start out, and I think many will fall b/c of high debt they rack up from buying new expensive equipment they can't afford.

ManleyLawn
02-29-2004, 11:32 PM
Many people when they start out think that owning a business is easy and don't really know what it entails. They first go and get employees and then the equipment and than worry about getting work. imo

DUSTYCEDAR
02-29-2004, 11:44 PM
don't buy stuff u don't need
don't buy stuff u don't need
don't buy stuff u don't need
OK now don't buy stuff u think u need but have no longterm use for "IE" toys
get a business plan and a budget and stick with it
try to charge as much as the market will bear and save as much as u can
many fail because the ea-go gets in the way of reality
a small 1 man show taking home 50k is better that a circus taking home little or no profit