Company Killer: “Single Points of Failure”

I worked with a private equity group a few years ago that had purchased a founder-led company that was churning along nicely. However, a short while after the investment closed, they discovered that the one marketing database they relied upon to generate revenue was being used without the required approval. Their sole revenue generation technique was lost overnight. Emergency surgery required!

One might speculate about how they missed this in due diligence or why they were not scrambling to introduce some additional marketing techniques into the business model, even if they thought the database was being used correctly.

Small businesses often have single points of failure. It could be technology, reliance upon one customer, an aberration in a supply chain, or soon-to-change government regulation. Often, it is the founder or key employee without whom the business would fail. Sometimes, it is several of these factors combined. One of the goals of a founder should be to eliminate that risk as soon as practicable. Single points of failure should be a tremendous source of anxiety!

This is understandable in a small firm, but I’ve seen single points of failure in larger firms where there was no good reason. Shame on them!

I’ve written previously about the need for at least a basic risk assessment. While it may be understandable that leaders overlook a threat that comes out of left field, it is inexcusable not to have the risk conversation.

There is also a flip side to this single point of failure conversation. Over the years, I’ve had many conversations with CEOs about a problem child on their team and heard something to the effect of, “I can’t afford to fire/lose that person.” This also applies to customers, usually non-profitable, large customers. In many cases, the person or customer is eventually fired, and lo and behold, the company ends up in a stronger position.

What are your single points of failure? What is your plan? Who on your team is behaving badly without your intervention because you believe that they are irreplaceable? Which customers are you spending inordinate amounts of time and energy trying to please to no avail (and no profit!)?

How long are you going to avoid this?

The antidote to these problems, and many others, is a rational conversation, often with your board or a coach or with your senior team if they are willing to call out issues when they see them. In other words, asking the right questions with the right people in the room and listening intently!

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