15 Signs A Company Will Fail In The Long Term

Whether you’re looking for the next place in your job hunt or trying to figure out whether a company is really as sound an investment as it seems, it’s important to take a look at the company’s long-term prospects. A company that’s about to fail is not a place that you should want to work, nor is it a business you want to own stock in.

A company that won’t be around for the long term isn’t a company you want to do business with. That’s why investors like Warren Buffett insist on having long-term relationships with companies. If you work with ailing businesses, any investment (or time) you put into it probably won’t help you realize a return.

To avoid making a terrible mistake, you need to keep an eye out for red flags. The following signs suggest that a company will not last for the long term:

1. The company is in a dying industry.

It’s important to realize that industry matters. As humanity progresses, entire industries end up collapsing because there no longer is a need for them. It’s the way it’s always been.

Coal, for example, is a dying industry. Most companies that work with coal are going to end up folding, simply because they the demand for coal will continue to decrease. If your company is in a dying industry, it will likely not be around for the next 10 or 20 years.

Photo by Setu Anand / Unsplash

2. The top-level management is known for ineptitude.

A bad boss is never a good sign and often is one of the key indicators that a company won’t be doing too well in the future. The leadership of a company will determine the company’s culture. Inept, corrupt, or otherwise bad executives, are likely to have similarly minded employees.

3. The company in question has a toxic work culture.

Toxic work cultures have a way of turning even the most passionate and dedicated employees into apathetic, listless, and lethargic individuals. Warren Buffett and other successful investors will tell you that culture counts for a lot, which is the subject of the book "From Good to Great," by James C. Collins.

If your company has a toxic work culture, it will not last long. If a company you’re investing in has a bad work culture, you might want to think twice before you decide to help fund them for the long term.

4. The company is subject to a high volume of lawsuits.

Though rare, it is possible to have a company literally sued into oblivion. Companies that are heavily embroiled in extremely unethical situations, such as what happened with asbestos companies in the 1960s, are more likely to see this fate than others.

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Should court cases involve the death of employees, it could also lead to a shortage of workers willing to power the company. After all, not many people want to risk their lives for a paycheck.

5. Company management doesn’t care about customer experience.

When companies stop caring about customer experience, they develop an unsavory reputation. People can and will switch to better offerings if they aren’t seeing their needs met with a business.

A good example of this can be seen with Kmart. Kmart was one of those stores that really dominated the 1990s and was, for a time, killing it. Unfortunately, management failed to reinvest in improving customer experience. They began to carry lower quality goods. Finally, the customer experience got so bad that Kmart could only attract customers that had no other options.

Walmart picked up the pace and started selling popular items at far lower prices. Kmart is going out of business, while Walmart reigns supreme. Shocker? Not really.

6. The company regularly needs the US government to support it.

Sure, this might be a good indicator that the company in question will stick around for some time, but that’s still not a good sign on a holistic level. Generally speaking, this means that it will only take a single innovation to knock them out of business.

7. Cost-cutting measures are affecting day to day operations.

While all companies will want to be a bit thrifty when it comes to their business model, there’s only so far you can cut corners before everyone notices. Excessive cost-cutting is a sign that the books really aren’t looking rosy, and often is one of the first indicators of business failure—or at the very least, mismanagement.

The storefront of an old dry cleaner's business with a faded sign
Photo by Michael Prewett / Unsplash

8. The company decided to switch target demographics.

It’s extremely rare, if not downright impossible, for a company to switch demographics successfully. When companies try to make these dramatic changes, they often end up alienating their original client base and get ignored by the people they decided would be a better target.

9. Top managers have started to retire or quit.

People at the top are the ones who will be the first to hear that the company is folding—and also will be the first to react. As a result, many will start leaving for greener pastures before the company is in obvious trouble.
An elegantly dressed man with a suitcase in the wilderness
Photo by Fredrick Kearney Jr / Unsplash

10. A "restructuring period" has been announced.

If there was ever a sign that a company was about to go under, it’s hearing the announcement that they will be "restructuring." This is typically used as a euphemism for massive layoffs, a sell-off, or even declaring bankruptcy.

11. There are rumors that the company will be acquired by another company.

Though there are situations where this isn’t always a bad sign, this could potentially be a hostile takeover. During a hostile takeover, the company will be bought then immediately shut down.

Companies that are at particularly high risk of a hostile takeover are the ones that have a superior product and are regularly getting into heated competition with a specific conglomerate. If their competition offers to purchase them, and there are talks between the two, it’s almost certain that the company’s days are numbered.

12. Problems in the company remain the "elephant in the room."

The worst thing that a company can do is ignore problems or chastise workers who try to point out issues that need to be fixed. Companies that make a point of ignoring problems never last long, primarily because the problems tend to multiply.

13. The company stopped listening to its clients—or doesn’t really know who their customers are.

Without customers, there is no business. A company that stops listening to the complaints of its clients is a company that will eventually lose all the customers it has. This is something that has proven to be true time and time again.

Generally speaking, a company that becomes hated by its own customers is one that will typically end up dying out without outside (government) intervention.

14. New ideas or strategies are dismissed because "This is how we’ve always done it."

Like with any other aspect of life, change is the only way to survive. In business, not keeping up on the cutting edge or evolving with the times is a surefire way for a company to go extinct, just like the dinosaurs did.
Photo by rawpixel.com / Unsplash

15. Everything is ruled by committee.

There’s a ridiculously large amount of committees in the company, and none of them seem to do anything productive. There’s something to be said about companies that feel like they need a committee for everything. If you notice that a company has committees on top of committees, none of which really do anything, it’s a sign that the company is bloated.

Bloated companies are pricey companies—and more often than not, ineffectual companies that don’t fare well in the long term.

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