Why do some businesses succeed while others falter?
One reason is that the successful business owner is able to make adjustments if things don't work out exactly as planned. In effect, the successful business owner is able to save a sinking ship, while the unsuccessful owner just goes down with the ship. Let's take a look at how you can fix common problems that may occur in your business.
01 Determining If You're Succeeding
A look at how you figure out whether you're meeting your goals and whether your business is where it should be.
Success is measured differently depending on which stage of maturation your business is in. The three basic stages on the road to success are:
- nominal success
The First Step to Success: Infancy
A startup business, in its infancy, concentrates on:
- how to get customers
- how to deliver the product/service to the customers
- how to broaden the sales base to get more customers
- how to get enough cash to cover the startup phase
At this stage of its existence, the owner is spending all of his or her time in the business. In fact, the owner IS the business. Systems are minimal. The strategy is simply "stayin' alive!"
Causes of failure. The causes of business failure in infancy are almost always found in three areas:
- capital runs out
- the market niche was misjudged and no one will buy the product/service
- the owner can't take it anymore, so he or she sells out or folds up
- Are you succeeding? If you're in the startup stage and you're managing to stay alive, the customers seem to like your product, and you're not burning out, you're probably succeeding.
The Second Step: Survival
The first stage in a business's life was infancy. The next stage is a state of survival, and it could take anywhere from a month or five years to reach this plateau. The keys to this phase are:
- income is sufficient to cover expenses, to break even, and to renew assets as necessary
- income is growing so that a small profit might be realized
- employees may be necessary, but systems are still minimal
- cash forecasting is possible as well as necessary
Causes of failure. The causes for business failure at this stage will likely involve:
- owner burnout
- inability to grow and expand due to a variety of factors, including insufficient cash flow, limited owner ability, and marketing shortcomings.
Many, many businesses reach the survival level and remain there indefinitely, earning just enough to get by. This is the case for most "ma and pa" stores, for example, and is acceptable if the owners don't rely on ultimately selling their business for a gain after it has marginally supported them over the years. Most survival-type businesses are sold at a slight loss or simply closed when their owners choose (or are forced) to retire.
The Third Step: Nominal Success
Okay, you're past the "ma and pa" stage (the first two stages in a business's life are infancy and survival). This third success stage, nominal success, will require a fundamental decision. Are you going to hire a skilled manager and let him or her run the business in its static form while you sit on the beach or are you going to start up another kind of business? Or, are you going to try to grow this business by utilizing the borrowing power of the firm to finance an expansion?
If you elect the former, your business will likely remain stable. But if you choose the latter, investing all the company's resources in more and better facilities, equipment, products, and managers, your firm might achieve solid growth or it might falter in its new direction. If you still closely monitor your business, you should be able to recognize that your business is no longer thriving, and you can manage your way back to stability, or at least back to the survival mode.
A look at mistakes many small businesses commonly make and how you can avoid them.
Wherever you are on the road to success, you can dodge the unhappy consequences of some of the more common mistakes that cause the early demise of new ventures by continually watching out for some common pitfalls. The fundamentals, the blocking and tackling of business, must be observed in order to prevent certain disaster. They won't prevent all disasters but, still, an ounce of prevention of the basic pitfalls is surely worth well more than a pound of cures.
So now that you're up and running, if you're not ready to deal with the many all-too-possible misadventures that can befall the under-prepared entrepreneur, make sure that you've covered the fundamentals:
The 10 Deadly Small Business Mistakes
These traps/mistakes are common to many entrepreneurs and small business owners:
- 01. Getting Wedded To an Idea And Sticking With It Too Long.
- Don't marry a single idea. Remember, ideas are the currency of entrepreneurs. Play with many ideas and see which ones bring money and success.
- 02. No Marketing Plan.
- A marketing plan creates the kind of attention you need to get in front of the right types of people, companies, etc. It is what attracts people to you! There may be as many as 25 ways to market your business at no or low cost. A good marketing plan implemented effectively, efficiently, elegantly and consistently, will eliminate the need for "cold calls!" (See below for how to create a result driven marketing plan).
- 03. Not Knowing Your Customers.
- Changes in your customers' preferences and your competitors' products and services can leave you in the dust unless you get to know your customers well, what they want now and will likely want in the future, what their buying patterns are, and how you can be a resource for them even if you don't have the right products or services for them now! (See below for low cost techniques to gather facts about your customers and the people you'd like to have for customers).
- 04. Ignoring Your Cash Position.
- The world (a.k.a customers) doesn't respond to even superior products in the timeframe that you think they should. You'll need plenty of cash to sustain yourself in the meantime. (See below for how to forecast your cash needs and protect yourself from cash crisis situations).
- 05. Ignoring Employees.
- Motivating, coaching and managing your staff is probably one of your toughest challenges as an entrepreneur/business owner today! Without your patience, persistence and "people skills," your problems can multiply quickly. Morale, productivity AND PROFITS can easily be destroyed! (See below for how to get your employees' full commitment to job performance).
- 06. Confusing Likelihood With Reality.
- The successful entrepreneur lives in a world of likelihood but spends money in the world of reality.
- 07. No Sales Plan.
- Without a sales plan, there's no serious way to gage the financial growth and progress of your business. You need a realistic map for where the sales will come from, how they'll come and from whom.
- 08. Being a Lone Ranger.
- You might be the key to everything BUT you cannot DO everything and grow at the same time. Even modest success can overwhelm you unless you hire the right staff and delegate responsibility. (See below for effective delegation techniques)
- 09. No Mastermind.
- Get an advisory board or a mentor! Sounds crazy for a small operation? It's not! The board can be family members that you trust, or friends. Ask them to be your board of directors and review your business plans and results with them. Having someone to bounce ideas off and get an objective opinion is critical.
- 10. Giving Up.
A look at what to do if you're beset by any one of a number of common problems, such as with your paperwork, with your employees, or with your facilities.
Some of the most successful entrepreneurs failed several times before doing extremely well. So, if you're failing, fail. And fail fast. And learn. And try again, with this new wisdom. Do NOT give up. Yet, do not suffer, either.
Recognizing and Resolving Problems
To achieve success is one thing, to sustain it is another. Like housekeeping, identifying potential problems in your business is a daily chore. And often, once identified, some problems defy resolution and must be managed as conditions to be endured rather than situations to be solved. At whatever level or stage your business is in (infancy, survival, nominal success), vigilance in the following areas will improve your chance of continued success.
Cash flow clogs. What to do if the cash isn't flowing in fast enough.
A lack of sufficient capital is the most common dilemma for a new business. Working capital is the source from which all cash blessings flow; it's the blood of your business. Cash flow is king. Even if profitability has eluded you, survival can be attained if cash flow is maintained. Planning around cash flow is essential. When cash starts getting tight, sit down and determine what sources of cash are available and to what uses cash has been put. Prepare a cash flow budget worksheet to identify sources and uses, help you diagnose where the problem is, and guide you to its remedy.
What to do if you feel you're wasting too much time or just can't seem to get the business off the ground.
You had a great idea and developed a nice prototype of your product.... but it's just not quite ready, you say? Tweak and dabble all you like, but over-engineering has killed more than one small business in its infancy.
Be very careful not to rely on one supplier, one customer, or even one bank for your business survival.
Any one of these could sink the ship. Don't give anyone this kind of control over your future.
Learn to distinguish necessary expenses from "perks".
Self-discipline is not just a virtue, it's mandated by the IRS. And the temptation to start out with "first class" facilities and equipment should be overcome by better judgment. There will be time for that when you're farther down the road to true success.
Don't ignore the details.
One of the most vulnerable aspects of a small business is the tendency for its owner to concentrate all energies in sales, promotion, and production while neglecting the back-of-the-house detail work. The more rapidly the company grows, the more severe this problem becomes.
Entrepreneurs generally dislike detail work (who doesn't?), but that doesn't relieve them from the necessity to deal with all the "stuff" that's piling up in the office. Keep track of your paperwork _ every small business owner should have a file cabinet of some sort. What it looks like doesn't matter _ it can be an electronic file cabinet if you're fortunate enough not to deal in printed pages. What is important is how it's organized.
If you want to organize your files by customer or client name, that's fine, but you should also have a series of general files that will allow you to file away every piece of paper that comes across your desk that's worth keeping. Get in the habit, early on, of doing the detail chores every day. A little effort daily will go a long way to reducing the problems later on. When things become so hectic that your sales or production work starts to suffer, retain some competent help to "do the details" for you.
Give some thought to an exit strategy, if you haven't done so already. This is not planning for failure; it's planning to succeed at a later date in a different way.