The sale of mortgage bond underwriter, Bear Stearns at a fire sale price leads the financial news this past week. Some small business entrepreneurs wrongly believe the near collapse of Bear Stearns isn’t relevant to them and their business plans and goals. While Bear Stearns’ customer markets, financial status and business plan fall way outside of the small entrepreneur, its business lessons deserve careful attention.

Yes, the failures of big businesses remain germane to small businesses. Smart small business owners and those planning to start a new business glean valuable information from the failures of others, whether big or small.

So what went wrong with Bear Stearns? Of course a small blog article can’t cover in-depth analysis but we can see some important overall principles.

• Bear Stearns ventured into a very risky behavior and got burnt. While new markets tempt the best of us wanting growth and rewards, research, an understanding and evaluation of the risk should rule every decision.
• Bear Stearns got too deep into risky behavior, to the point there was no way out. If a business finds they can risk capital, the amount of risk should equal the business’ ability to lose and survive.
• Rumors surfaced and Bear Stearns reacted slowly, keeping its customers in the dark as the market speculated.
• In the face of trouble, Bear Stearns continued its risky behavior, believing in its invincibility by believing its past performance of escaping disastrous consequences would continue.
• And, finally, Bear Stearns appeared to ignore its financial peril, even while Bear Stearns customers lost faith and fled in droves.

Customers’ perceptions (true or not) dictate a business’ survival. To ignore the customer is to kill the business. When a business becomes so confident that it stops listening, the business guarantees eventual failure. A certain amount of risk leads to growth; too much risk puts the entire business in peril.