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Single Point of Failure Can Mean Big Trouble

What is a Single Point of Failure?

It is when your business can tumble drastically, or even collapse if one major dependency fails.

Look carefully at your business. Can it operate without that one person, machine, system, or even one huge client?

In various ways almost all businesses have some weak point of failure, and it is critical to know what those are.

Are You Dependent on One Person?

You may not even know it, yet your business could fail without a particular person. It could be you as business owner, or it could even be someone you could not even guess would be a Single Point of Failure.

A very public example of a single point of failure in a public company is, in my opinion, Steve Jobs of Apple. A lot of people experienced a drop in quality and innovation after Steve Jobs sadly passed away at age 58. His charismatic personality, focus on innovation and demanding personality was so embedded in Apple’s way of doing business, yet, it was not fully embedded in the Apple Culture, and as a result not easily replaced.

At one point in our own business, when we operated as a traditional public accounting firm, I was the single point of failure.

We had purchased a firm in a small town in the Cariboo Region of BC from a Chartered Accountant who was retiring.

We leased a lovely new office space, furnished it in a style fitting a large city, upgraded the systems, including adding cutting edge computers and software.

My office was at the front, right behind the reception. Clients would walk in, by-pass the reception, sit down (often without an appointment) and ask me questions.

Sometimes I just couldn’t get any work done at all!

Also, my name was on the door and on all the signs, so clients felt if they didn’t get me, they didn’t get the best.

So, I switched my office to a smaller one at the back, down the hall, and put a key person, my right-hand woman, an accounting technician in my former office.

What happened? Clients walked in as before and entered Bonnie’s office instead of mine, and this caused her to develop and grow, and surprisingly most of the questions could be answered by her, as they were not complex tax questions for the most part.

Hidden Single Failure Points

Sometimes it is not so obvious who the Single Point of Failure is.

We once saw a large client experience a massive loss of productivity in their accounting department when an administrative person, who was secretly, (thinking that she was helping), by-passing the organizational systems in place and doing work for many, many department heads.

This person got sick and was off work indefinitely and it was then that everyone quickly saw what she had been doing.

She thought she was helping, yet this ended up being a massive impact from a Single Point of Failure.

The entire systems needed revising with extensive training as well.

The solution was to spread the work out over many people by-passing this dependency on one person.

Single Point of Failure – Machinery

A machine can be a Single Point of Failure as well.

Ask yourself, what machine are we so dependent on that if it fails, we have a total collapse in our ability to perform as a company?

It could be a productive machine that is old. Or perhaps it is almost obsolete or maybe it was purchased overseas and not easily maintained nor easily replaced.

For our firm, once we transformed our traditional accounting firm into a virtual, outsourced, online accounting firm it was our servers.

If they failed, we were hooped!

So, we had more than one server, and they were installed in an air-conditioned vault with a tumbler lock.

Even then, though, we had points of failure. The air conditioning could have failed on the weekends when we were not there to monitor, the servers could have over-heated and failed.

Once cloud-based computing took off we quickly switched to being fully in the cloud and recently finally shut the servers down.

The redundancies built into the cloud is such that very little could happen to us that would stop us from continued operations. (Larger cloud-based accounting software programs use Amazon or Microsoft servers with backups at separate physical locations).

Single Point of Failure – A Supplier

You may have a supplier that is a Single Point of Failure.

We have seen a client in the food industry having to source ingredients from remote locations around the globe.

The way to counteract this kind of failure point is to look for redundant suppliers and, as well, purchase in larger quantities.

Single Point of Failure – A Customer

The rule of thumb in accounting is that a client or customer that provides more than 20% of your sales revenue can create an economic dependency. This can be a Single Point of Failure if that customer were to go out of business or stop doing business with you.

I recommend you go over your client/customer list and do a quick calculation to see if you have any client making up 20% or more of your sales.

Another twist on this Single Point of Failure is to look at a particular industry you may be dependent on that if that industry fails or declines it could severely impact your business.

An example could be if all your clients are in the real estate industry and the market is in a steep decline for a few years and that impacts your business.

What is the Solution?

One solution – especially when it comes to people as a Single Point of Failure – is to create systems that are documented with enough detail for people to follow easily.

Then use those systems to really train more than just that one person for each major function in your business.

You must document those systems. Just assuming you have systems without writing them down will not work.

Too many people have what they call systems “in their head”, that is just another way of saying, you have a Single Point of Failure! The person with the systems in their head gets hit by a bus, and there go your systems.

A system is not a system without documentation and training.

It is also not enough to just document either – you must train everyone in the system, and then when you have a failure, blame the system, not the person!

How to Test?

To discover how many (not if, by the way) Single Points of Failure you have in your business, do an “audit” and ask these questions:

  1. Do we have a completed organizational chart? Is there a person in each role?
  2. Do we have a job description, performance standards and systems in place for each key role/function?
  3. What will happen if that person is not in that slot tomorrow? Do you have a backup plan?
  4. Do you have people cross trained in your business?
  5. What happens if you, as the business owner/key executive cannot work?
  6. What equipment are you dependent on? What will you do if that equipment fails? Is it insured? Is it easily replaceable?

There Will Always be Some Dependencies

There will always some dependencies in your business. Highly skilled people are not easy to replace. One antidote is to create such a compelling, attractive culture that you can replace key people in a crisis because people will want to work in your business.

You cannot plan for every single thing going wrong, just make sure the most vulnerable points of potential failure are covered.

Thanks for reading…