While we often hear about dynamic CEOs, like Mark Zuckerberg and Elon Musk, catapulting their businesses to success, it’s much more common for a CEO to cause failure. Half of all small businesses fail within five years of launching. And since the CEO is the person steering the ship, (s)he is directly to blame.
Fortunately, we can attribute the majority of business failures to a small set of CEO mistakes. The following are five common ways a CEO can ruin a business. Take notes and make sure to avoid them to keep your business on the track to success.
1. Putting Team Development on the Back Burner
Your team is one of the most influential determinants of the success of your business. Ensuring that you devote ample time to developing current employees as well as bringing on suitable hires is a must. You can’t expect that these things will happen on their own.
Make sure your recruiting department understands the type of employee that is best for the company and doesn’t settle for anyone who fails to meet those criteria. A less-than-ideal hire can quickly roadblock previously productive teams. So while the business may feel some pain when holding out on hiring a critical position, doing so is better than rushing to hire someone who isn’t a perfect fit.
With the hiring process costing over $4,000 per hire on average, you want to spend your time and resources on bringing in only the best recruits.
Your job doesn’t stop at the hiring process, though. Your team development efforts should be present in every aspect of employment from your business’s recruiting efforts to the day an employee leaves.
A 2016 Gallup study revealed that 87 percent of millennials (and 69 percent of non-millennials) view “professional or career growth and development opportunities” as an essential aspect of their job. So employee development is not something you can afford to ignore.
How to Build the Best Teams
Building spectacular teams is a never-ending process. It starts with a potentially slow but deliberate hiring strategy. After hiring the best people, you also need to provide them with comprehensive onboarding. Doing so enables new employees to become valuable contributors quickly while also improving the likelihood that they’ll stay with the company. Nearly 70 percent of employees are more likely to stay with their company for at least three years if they experienced stellar onboarding.
To foster employee growth after onboarding: match up novice employees with more experienced mentors, provide ample learning opportunities, and guide employees along their desired career paths. All these activities will not only improve the productivity of your employees, but they’ll also continue to keep your turnover low.
Additionally, set aside time each quarter for team building activities. Improving your individual employees’ skills is worthless if they don’t work together well as a team.
2. Delaying the Removal of Bad Apples
There’s no way to sugarcoat it; you need to fire toxic employees as soon as you discover them. Slackers, know-it-alls, gossipers, lone wolves, bullies – keeping any of these types of toxic employees will eventually harm your business in a major way. Almost half of all employees that interact with someone toxic spend less time at work as well as decrease their effort while they’re there.
Those decreases in work attendance and effort add up. A Harvard Business School study found that firing, or avoiding hiring, a toxic person can save your business around $12,500. So refusing to fire those with a problematic streak does nothing but cause money to bleed from your company.
Destructive employees also lead to increased rates of employee turnover. According to a study by Cornerstone OnDemand, “good employees are 54% more likely to quit when they work with a toxic employee.”
How to Avoid Bad Apples
The most straightforward strategy to keep toxic employees out of your company is never to hire them in the first place. As we mentioned earlier, it’s critical that you don’t rush the hiring process. While a recruit’s skills and experience are important aspects to consider, you also want to prioritize how their personality fits in with your company culture.
Even with an immaculate hiring process, however, it’s possible that some bad apples still slip through the cracks. When they do, though, you need to terminate them as soon as you discover their toxicity.
When you decide to terminate an employee, there are a few precautions you should take to reduce the risk of residual damage. Most importantly, document any inappropriate incidents regarding the employee as soon as they happen. You should have a company-wide standard of procedure for this process that’s available to all employees. Doing so ensures that you have the proper documentation to warrant firing the employee and (s)he can’t turn around and sue you for wrongful termination.
3. Refusing to Adapt (Or Doing It Poorly)
We’ve seen it time and again. Whether it’s Sears failing to update stores, Blockbuster ignoring the streaming era, or Polaroid avoiding the move to digital, CEOs that refuse to adapt will inevitably run their businesses into the ground.
Attempting to stick with “tried-and-true” business strategies are likely to cause you to lose ground to young and disruptive newcomers.
But adapting to external changes shouldn’t be your only priority; you need to evolve with the internal changes to your business as well. As your company grows from a small, scrappy startup to a worldwide enterprise, your management style cannot stay the same.
Without a proper change management strategy in place, you could be setting yourself up for failure. Companies with well-thought-out change management practices are 3.5 times as likely to outperform similar companies without them.
How to Adapt Quickly and Effectively
Keeping a pulse on the industry should be a company-wide effort from the CEO down to the lowest rung on the ladder. Your salespeople, marketing team, engineers, recruiters, etc. all bring a unique perspective on what changes are happening in the business landscape. If you create an environment of open communication, you’ll become better informed of the changes that you may not have known about otherwise.
Depending on the size of your company, you may find it worthwhile to establish a strategy team with a dedicated mission to discover potential industry shifts and create adaptation strategies.
Unfortunately, there’s a fine line between adapting effectively and unnecessarily changing course every time the wind blows. It’s tempting to chase every new product, market, etc. that comes across your table; however, doing so almost always spreads your business too thin and leads to detrimental results. Make sure the opportunities that you choose to pursue align with your company’s mission. Which brings us to our next common CEO mistake…
4. Not Setting (or Following) a Clear Company Mission
A CEO’s indecision can bring down any company, no matter the size.
Whether you’re just forming your company or are running a long-standing business, you need to set, and follow, a clear company mission. CEOs that refuse to do so become indecisive, scattered, and overall ineffective – attributes that can quickly ruin a business.
Without a steadfast mission, you and your employees will continuously run into problems during the decision-making process. It’s incredibly challenging to choose between different business opportunities without a set of guiding principles from which you can form an opinion. A mission gives your business those guiding principles.
A strong company mission also motivates employees and gives them a solid reason to stay onboard. Over three-fourths of employees who “strongly agree that they know what their company stands for and what makes it different from competitors” plan to stick with their company for at least a year.
If your company doesn’t have a clear path to success, don’t be surprised if your best employees leave for another company that does
How to Set and Follow a Company Mission
Your company mission should be an overarching guideline you and your employees refer to when making business decisions. Some notable ones you can use for inspiration include:
Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis. (Patagonia)
To put people at the center of enterprise software. (Workday)
To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses. (Warby Parker)
You can bet that everyone involved with those companies has those missions on the back of their minds as they go about their workday.
Once you have your mission in place, publicize it to the entire company. There shouldn’t be a single employee who doesn’t have it memorized.
As a CEO, you also need to create concrete strategies, goals, and tactics that align with your mission. A well-intentioned mission is useless if you’re not actively implementing plans to accomplish it.
5. Building a Culture of Non-Transparent Communication
Poor communication is a $37 billion problem that plagues every business at one point in time or another. Your goal as a CEO is to reduce the instances of it and the magnitude of damage it causes when it rears its ugly head.
More often than not, malicious intent isn’t the cause of non-transparent communication. Typically, it comes in the form of groupthink, in which individual team members are hesitant to speak out against group ideas or decisions. They would rather reach a group consensus than fight for a plan in which they believe. Facilitating this type of behavior hinders innovation and prevents your business from successfully evolving.
You’re not doing yourself, or your business, any favors by surrounding yourself with a bunch of “yes” men (and women).
Non-transparent communication also leads to confusion regarding roles and responsibilities. Without a transparent delegation process, it’s likely that two employees end up working on the same task while others go unattended.
How to Foster Transparent Communication
As CEO, the most effective strategy to foster transparent communication is to lead by example. Send out regularly scheduled memos to employees that outline the health of the business as well as the overall strategies the company is pursuing. And always provide the reasoning, or the why, behind your decisions.
The benefits of transparent CEO communication aren’t just subjective. The Holmes Report found that companies with “highly effective communicators” as leaders brought 47 percent higher returns to shareholders over the previous five years than businesses with the least effective communicators at the helm.
Additionally, you should encourage employees to challenge ideas, ask questions, and give constructive criticism when necessary. You want them to be comfortable having those difficult conversations to avoid groupthink.
Work with your team to implement communication tools that fit in well with your operations as well. Many of those tools enable you to publicly show the company mission, task delegations, strategies, milestones, etc.
Other Ways a CEO Can Ruin a Business
As you can imagine, there are plenty of additional ways a CEO can ruin a business that we haven’t covered in the list above. Focusing on non-profitable markets, not understanding the needs of the customer, refusing advice – any of these activities can lead a business to ruin.
However, if you apply the lessons from this article to the additional aspects of your business, you should have no problem protecting yourself. And if you avoid the five common CEO mistakes from above, you’ll be in great shape.