New Study Reveals Why Australian SMEs Fail

November 20, 2018

The Australian Centre for Business Growth today revealed new research which identifies the reasons Australian SMEs are failing.

In the first-of-its-kind research, data was collected from CEOs who had been part of a company failure or whose small or medium companies had failed.  The top five reasons were lack of leadership and management skills including poor planning, insufficient market research and sales skills, mismanagement of financials, underestimating the impact of externalities, and poor governance structures.

As part of its longitudinal study[1], the Centre asked 650 CEOs of medium and small companies who participated in its one-day Growth Clinic whether they had ever experienced a business failure. The 134 CEOs (22%) who said ‘yes’ gave a total of 253 reasons for the failure.

  • 25% were due to lack of leadership, poor management, and/or no planning.
  • 17% did not know how or did not do enough market research, marketing, or sales.
  • 14% did not understand finance, relied on someone else to assess the company’s financial health, did not have the necessary financial skills to manage the company, and did not know how to fund company growth.
  • 13% did not anticipate the impact of externalities, were blindsided by issues such as fire, drought, changes in interest rates, regulations, or global trends, and had no risk mitigation plans.
  • 11% said poor governance structures, problems with partners or family members led to failure.

ANZ Chair in Business Growth and Director of the Australian Centre for Business Growth, Dr Jana Matthews, said that the study showed there are many reasons why companies fail, but the common theme was CEOs not understanding their roles and responsibilities as company leaders.

“Leaders need to plan and set the company’s direction, communicate, build an executive team, create a high performance culture of execution, manage and optimise corporate resources – which includes employees and financial resources, customers, suppliers, vendors, advisors, and financiers.  They need to ensure good governance and alignment, and create a learning organisation,” Matthews said. “When leaders do not understand or fulfill these responsibilities, companies fail to grow, and sometimes fail completely.”

“Small and medium companies are incredibly important to the health and well-being of this nation. Too many of Australia’s companies are failing because CEOs or founders simply do not understand their job and don’t know what to do, when, or why.”

“This is a problem that we can and must address. People are not born knowing how to drive a car, yet millions of people have learned.  People are not born knowing how to drive company growth, but hundreds of CEOs who have gone through our business growth programs have learned – and many more can learn, if they are given that opportunity.” said Matthews.

The remaining reasons for failure cited in the survey included:

  • Poor management of people (6%)
  • Problems with the product or service (7%)
  • Inexperienced CEOs (4%)
  • Wrong strategy or not implementing the strategy (4%).
Top reasons for SME Failure  
Percent
Insufficient leadership and management (13%), including planning and execution (12%) 25%
Inadequate market research, marketing, sales 17%
Poor financial management 14%
Underestimating the impact of externalities 13%
Poor governance structures re partners, family 11%
Product or service problems 7%
Poor management of people 6%
Inexperienced CEO 4%
Wrong strategy or poor implementation 3%
TOTAL

100%

Source: Data collected by the Australian Centre for Business Growth at the University of South Australia’s Business School (2014 – 2018)

[1] Since its inception, the Australian Centre for Business Growth has been collecting data and doing a longitudinal tracking study of every company that participates in any of its programs.

ENDS

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Kicker Communications
Lisa Banks
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