Why do businesses fail?

Courtesy: Jay Karekar – Unsplash

Every business is different and operate in different markets, and the reasons are different. But there aree general principles that apply. One such idea is the notion of friction.

In The Necessity of Friction (1993) Keith Griffin, writes about the traditional view of Economics and it can be summarised as follows:

The core of late twentieth century economics consists of a set of assumptions which, taken together and seen as a whole, constitutes an image or vision of a self-regulating system in which friction and inertia are largely absent. Friction in both senses of the word is generally ignored: there is neither dissention and conflict nor is there resistance to relative motion. The economic system adjusts smoothly to disturbances; markets clear instantaneously; competition ensures that resources are used efficiently.

But, as any practitioner would know, and Griffins acknowledges, friction is real and it is every consumer’s bugbear.

Customers want zero friction. Remove friction, and customers are happy.

What causes friction in the transaction/interaction?

Price/cost is a friction point, and customers always want the best price (i.e. least friction). That is an easy one. Identifying a comprehensive list of friction points, specifically to your business, and developing specific strategies for them is harder.

We should practically evaluate every customer touch point and assess the level of friction at that touch point.

  • Duration
  • Availability/timing
  • Effort/Physical
  • Choice/Competition
  • Epistemic Friction (e.g. product knowledge)
  • Psychological
  • Fit for Purpose/Quality

Like any relationship, it is better when the friction is removed.

Businesses fail when they don’t recognise the friction.

The growth in ecommerce and social marketing is directly proportionate to online sales as it effective removes the friction of poor face-to-face serves, removes the friction of sales staff that lack product knowledge. And it is also directly proportionate to the friction caused by over-priced offers.

The growth in mobile phone usage (to shop or supplement shopping activities) directly reduces the friction related to the effort/ duration of shopping activities. And so too is the trend of customers who increasingly argue about RRP.

If we become proficient at identifying friction, we will be better able to anticipate trends and proactively respond to trends in good time.

If we reduce friction efficiently, we will be less impacted by the trends, whatever they may be.

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