Publication: Arizona Business Gazette
Dr. Richard Gooding, founder of Strategic Advantage, Inc. and former professor at Arizona State University in Tempe, Arizona, says 80 percent of new products and businesses fail, despite the best intentions of entrepreneurs and managers. Some may blame undercapitalization. Others, inexperienced managers.
Gooding believes the biggest reason for failure is the way managers naturally think. In making growth decisions, he says, they use shortcuts that "create decision traps that cause managers to ignore, overlook, and rationalize critical information."
"Growth strategies don't fail because of the unknown, they fail because managers are unwilling to face the known," Gooding says.
Before they invest in elaborate corporate identity programs, fancy offices and other trappings of success, business owners and managers should clarify their thinking, Gooding says. He believes a healthy dose of skepticism can help.
Gooding regularly presents risk analysis workshops to professional groups. Attendees--corporate executives, marketing directors, planners and consultants--sample Gooding's methodology, trademarked Strategic Risk Analysis.
The four-step process starts with structured brainstorming and group facilitation to identify all possible reasons why the selected growth opportunity might fail. Then, members of the management team complete surveys identifying the most critical issues the company must address for the project to be successful.
After survey results are presented and discussed, a go/no go decision is made. If the team decides to pursue the growth opportunity, it creates action plans that attempt to identify the most likely causes of failure, reduce risks, and increase the odds of success.
Though workshop participants consider a generic new-product introduction in their exercise, many companies have found real-world applications.
Go-Video Inc., a video technology company, is no stranger to the pains of new-product introduction. The company recently used Strategic Risk Analysis to help evaluate a new joint venture.
"I don't think any project of consequence should be undertaken without this type of risk assessment," says Ed Brachocki, vice president of corporate development at Go-Video.
Brachocki likens the session to a corporate encounter session. "It's an opportunity to discover deeper company issues, including how employees view your company's strengths and weaknesses."
Wally Raisanen, chairman of Arizona Instrument, agrees. "It focused our attention and helped reorient our research and development efforts," he says. The company produces environmental instrumentation products.
Looking critically at potential ventures demands discipline. "It takes a degree of commitment to honest dialogue, and a lot of hard work," says Raisanen, adding "The process forces you to deal with critical issues... rather than trying to fix them after you've developed the product."
Better to quash a bad idea early than to waste money and energy bringing something to market that can not sustain itself or produce legitimate profits.
Willard Zangwill, a professor at the University of Chicago business school, says most companies making acquisitions make them incorrectly and suffer a loss. How to avoid loss? In the Wall Street Journal recently, he noted, "The excellent acquirers carefully consider the possibilities that might occur after the purchase, and they do this before the acquisition--from the very start."
Threats to a project's success can include external forces such as competition. But internal issues can be equally important. Failure can add a measure of humility and caution, if it doesn't come too late.
"Start-ups always think they know everything, says Raisanen. "It takes a year or two to screw up seriously. People who have an entrepreneurial bent typically have an excess of confidence."
Norm Brodsky, a veteran entrepreneur writing for Inc. magazine, agrees that part of the problem is overoptimism.
"When people go into business for the first time, they have wonderful, wonderful dreams," he says. "They think they're going to be successful in the first year and make a ton of money. They're wildly optimistic, and at the same time they're scared to death."
How to counter fear and make optimism well-placed? Throw in a little pessimism, or at least, some critical evaluation--before development, marketing and distribution costs overwhelm you.
Gooding says Strategic Risk Analysis is efficient, taking less than six hours of company time to complete the key steps. For further information, contact Gooding at 602-759-7562.
Janet and Debra Traylor are based in Phoenix, Arizona. This column originally was published in the Arizona Business Gazette.
Used with author's permission.