Confronting the truth is first step to fixing problems

AS Julia Gillard repelled criticism over the government's publication of national test scores, my thoughts turned to why most small businesses fail.

AS Deputy Prime Minister Julia Gillard repelled waves of criticism from her own Labor-supporting constituency -- teachers -- over the federal government's publication of national test scores, my thoughts turned to why most small businesses fail.

There are many reasons for business failure and, statistically, cashflow problems always top the list. However, the problem with these explanations is that the people who conduct these surveys know little about business.

They think businesses fail because of a cashflow crisis, financial mismanagement, new competition, failure to market properly or being run by poor people managers who hire the wrong staff.

These all can kill a business, but the biggest cause of business failure is the business owner or manager not confronting the brutal truth.

When Jim Collins looked at the best US businesses between 1975 and 2000 in his best-seller Good to Great, he underlined the importance of confronting the brutal truth.

Any business owner who ends up with a cash crisis or a financial black hole can blame only one person -- themselves.

That's why I loved Gillard having the guts to tell parents and teachers of Australia: here is the truth. Showing a business owner the truth increases the chances that some action will be taken.

Sure, the top schools in this list of best and worst schools are biased by anomalies selective schools -- both public and private -- which push other schools down the list.

But it is no good protecting the weak by ignoring the fact that they have a problem.

Lists can be unfair in that there might not be much difference between the 300th and 400th school, but statistically someone has to run last.

What's great about Labor's confrontation of the brutal truth is that it pressures state governments to do something about righting the wrongs.

The education system in Australia suffers from the fact that teachers are not afforded enough support, respect and money, but in turn they should be forced to be more accountable.

When business owners are made to confront the brutal truth by a business coach, a good accountant or a business mentor, they conduct a SWOT analysis, which identifies the strengths, weaknesses, opportunities and threats to the business.

Once this is done an action plan is established to tap into the business's strengths, plan around the opportunities, eliminate threats and to make weaknesses irrelevant.

In the past, if bookkeeping was a problem, the do-everything-for-themselves business owner would do a course and start using MYOB or QuickBooks. Most business advisers nowadays would question the wisdom of doing that.

Marcus Buckingham in his book Go Put Your Strengths To Work advises that you get your strengths together and make your weaknesses irrelevant.

That means the small business owner who is great at plumbing and earns $150 an hour is better off paying an expert bookkeeper $40 an hour to do the books.

Our struggling schools, just like businesses under the threat of failure, need some money spent wisely, and some outside-the-square thinking, Edward de Bono-style.

State governments should allocate a consultant to each school, whose job is to make the school confront the brutal truth and create a plan for improvement. Forget the whingers, the finger-pointers and perennial losers that prop up failure, and think about helping the schools and the kids lift their games. Struggling businesses need to do the same.

Peter Switzer appears on Sky News Business

www.switzer.com.au/small-business