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8 Problems Which Can Cause Small Business Failure & Possible Solutions To Help Your Succeed

8 Problems Which Can Cause

Small Business Failure

&

 Possible Solutions to Help Yours Succeed

By Gary J Kiecker
12/16/2017

2017-12-17_1324

There are many reasons entrepreneurs start or buy a business, and just as many reasons why that business could fail and still many more reasons why many do.  We are not going to focus on the statistics stacked against your probable success but focus on how you can succeed.  Any Entrepreneur needs to understand what causes failures in small businesses, how they can be prevented and what can be done to properly manage their own business. Please keep in mind, that for our discussion here, a small business is defined as one that ranges from a sole individual to an organization of less than 50 or so employees.  This size business usually has many of the challenges we address below and less available resources to draw from than those of larger companies.  Which means that the owner really needs to manage those resources effectively if they are to beat the reported failure statistics and improve their odds for success.  However, many of the things we discuss below can be used to run larger companies as well.

I enjoy helping businesses be successful and have been responsible for many key areas of a business including owning and operating several of my own companies and running other owners companies as President. I have also held positions from VP of Finance & Operations to Controller at other companies both as an employee and as a contractor over my career.  My finance degree and many years working with people, strategic planning, financial statements, analyzing and interpreting data, developing business processes and accounting reporting systems have shown me many ways to start, manage and grow a business.  I believe I am very qualified to put together a list of areas a business owner or manager should watch as well as suggest some things that can be done to help manage to a higher level of probable success. 

I say “probable” because even when a business is successful, many things can change making a proven business model out of date very quickly and send a business on a path towards failure if certain steps are not taken to make the necessary corrections or improvements.  Many businesses may even have to re-invent themselves to keep alive.  They may have to break away from the comfortable norm the owners believe is correct because they think, “this is the way we have always done things’ and it worked” or better still, “it’s what got us here, so why change things.”

To stay on a path of continued or improved success, a business must set up ways using dashboards and reports to show you your numbers (KPI-Key performance indicators or metrics) on all pertinent areas of your business and then learn to interpret and understand what they are telling you.  To often, throughout my career, I have seen business owners get fixated on one part of their business and forget to manage other parts to their own detriment. The business owner does not have to be the one to set up the dashboard or reporting system, however, they should be involved and do need to view the results and discuss what the numbers are saying with the leadership team at the company, or use an outside consultant for advice and a sounding board.  But the numbers need to be gathered, reviewed and interpreted to understand why something is working or not working; then develop a plan of future action to correct what is not working and do more of what is.  This can be referred to as a business model and be incorporated as part of a long-term strategic plan.

One further note, as I put this list of why business fail and what can be done to help them succeed together, I researched many other very reputable online magazines and other sources like, Inc, Forbes, Entrepreneur, Success and Small Business Trends to see what they say about why businesses fail as well and what can be done to help them be more successful.  Links to their sites can be found at the end of this article.

Below are key business areas where failure can occur and as the owner, leader or manager of a business, you should watch, track, manage and improve these areas when necessary, to help ensure your businesses future success.

1) Cash Flow Problems

a) Problem:  Insufficient working capital to begin a business

Solution to consider:  Forecasting how much cash you really need to begin and maintain a new business is essential to its success and this can be done by developing a cash flow forecast.  Expenses always come before sales and profits and it takes cash to pay for them.  A new business needs to see a monthly cash flow forecast of what months you will have a cash deficit and which months you will have a surplus. From this forecast, you should be able to get a good idea of how much cash your business will consume and how much it needs to begin or grow.  Once you begin, track your actuals against your forecast and make any necessary changes adjusting your forecast to be closer in line to what really is taking place; then manage your expenses and control your cash outlay.  An accountant or consultant should be able to help you set up a pretty accurate forecast.  If you are ok with going it on your own, you can download one from SCORE (Service Corps of Retired Executives) at https://www.score.org/resource/12-month-cash-flow-statement

Solution to consider:  When starting out, your business needs to have cash to grow, but how much is the right amount?  The solution to that, is it depends on your small business.  There are many different types of small businesses.  If your company is a product driven business, you many need to purchase inventory or have product manufactured or developed in order to make a sale which brings in more cash from profits.  Some of the cash from these sales, if efficiently managed, can be used to fuel more growth, but you will need an upfront amount of working capital to buy your first inventory and cover costs until sales are made. If your company is a service business, you may not need as much startup working capital to begin because you have no product to invest in first.  Much of your growth can be financed from the sales of your services.  Labor will be one of your largest line item expense, and labor will only be an expense when you provide your service or make a sale, if your operations are managed efficiently.   

Where you get your working capital to fund your startup or acquisition, is up to your creativity and negotiation skills.  But be assured, there is enough money in the world to start your business, you just need to find your source.  Many businesses have begun with less than a $1,000 and have become very successful and many businesses have been purchased by buyers putting very little of their own money in on a deal.  A lender will want sufficient collateral for a loan (debt financing) with a plan on how it will be repaid and may come with some very rigid requirements or conditions (covenants) on your business that may be difficult to operate with.  A private individual loan may be a better source.  Bringing in a partner may also be a way to go to generate needed working capital.  They will want equity in your company (equity financing) and some level of control over it depending on if they are a working partner in the business, a silent partner and how much ownership they receive for their investment.  The bottom line is, be creative in your financing (know how much money you need, negotiate the rate of interest you pay and terms for repayment, be careful on where you get your working capital from and what you give up to get it, etc.).

b) Problem:  Not generating positive cash flow from your operating activities

Solution to consider:  Continuing to have enough cash today in your business to pay upcoming and ongoing expenses of tomorrow is necessary to operate your business, right?  However, many business owners do not watch or fully understand what this means. To calculate this, you begin with EBIT (Earnings Before Interest & Taxes) + (add back in) depreciation & amortization – (deduct) taxes +/- (add or deduct) change in working capital (Current Assets – Current Liabilities) = cash flow from operating activities. This needs to be positive.  If it is not, look at your inventory and accounts receivable, they may be too high and using too much of your cash.

c) Problem:  Inadequate levels of inventory

Solution to consider:  If your balance sheet’s assets carry a large value of inventory, your cash may be tied up in inventory from time-to-time.  An owner should have a line of credit established with a lender sufficient to help through these seasonal times.  Be careful not to carry to much old inventory (last season’s product or slow-moving product that is not selling).  Having too much of the wrong inventory can tie up cash needed for other expenses and many times is overvalued on your balance sheet.  Usually only some sort of sale will convert that inventory back into cash, so you can replenish with faster turning items that generate more cash.  Make sure to track your inventory turns against your industry averages and work to do better than that average.  Learn more on this at: https://en.wikipedia.org/wiki/Inventory_turnover.

Solution to consider:  Work with your vendors to see if they will keep some inventory in stock on your behalf.  Some will want to charge you, so it may cost you more per unit in landed costs, but it might be worth it from a cash flow perspective overall.  Keep in mind also, that your vendor may be selling your product to your competitors if you have not made some agreement for them not to do so.  Consider how long it takes your inventory to arrive at you warehouse; what can be done to get it there faster; maybe developing a closer vendor might be an answer.

d) Problem:  Managing your accounts receivable

Solution to consider:  Be careful on what terms you give to your customers.  Make sure they are not out of line with the terms you are receiving from your vendors or you might be developing some large cash flow problems.  If you give your customers NET 60-day terms, but your vendors want their payment in NET 30 days, you will have a cash flow problem.  A line of credit or infusion of cash can help bridge this type of issue. 

Solution to consider:  When things get tough, your customers may want to use you as a line of credit.  You may see certain customers paying you much more slowly during certain times of the year; make sure to plan for this, if you want to keep their business. When you are in a service business and labor is part of what you are selling, large contracts with slow payments could cause you cash flow problems as well.  You may have to add staff to complete a contract and they will need to be paid often, usually before your customer or client pays you. Make sure to work out your payment terms with your customer in advance to more closely match when your employees need to be paid, this will help with your cash flows.

 Solution to consider:  Stay on top of collecting old receivables; if they get past 60-90 days old, it will be very hard if not impossible to collect them.  If your customer is still in business, try to keep them as a customer, but place them on COD or credit card terms, and get them to pay a fixed amount towards their outstanding balance plus their current purchase.  You may be able to increase sales, save a customer from going to a competitor, strengthen a business relationship and get your old past due balance collected.

2) Bad Business Model and/or Business Plan

a) Problem:  Your business model is not working

Solution to consider:  A business model is there to help you understand how your business is supposed to make money and helps explain how this happens to others; like lenders or investors.  Your model shows how you believe your business will operate.  In the earlier years of your business, for the most part, your model is somewhat theoretical and unproven.  Once your business is running, you can compare your actual operations and financial numbers to your model refining it to be used to forecast your future operations more accurately and complete a business plan. 

b) Problem:  Stagnant sales growth and/or lack of new customers and/or limited customers

Solution to consider:  When you first start out chances are good, that you will have very few, if any customers, but after you have been in business for a while, you should have developed a good customer base.  In either case, make sure you are looking at who your customers are, what they are buying from you, how often and how many customers you add and lose.  Communicate with them often to see if your business is providing what they need; maybe there is more your company can offer them.  A danger many businesses have is that they believe they have a great product and see their sales as proof of this, but in truth, it could be much better if they only listened to what their customers where saying and developed or improved their product to add more value to their customer and to their customers customer.  The fact is, provide what your customers want to buy, and sales will improve.

c) Problem:  Growing too fast

Solution to consider:  When a business is experiencing fast or rapid growth, recruiting employees with the necessary skills can be a challenge.  Not only that, the training of your new employees takes time as well. Understanding your growth and forecasting the areas of that growth, plus looking at your staff requirement needs is something fast growing companies need to do.  If they do not have the internal recruiting talent, the time or a process that works efficiently to add staff, they will need to find an outside agency or subcontract out the recruitment of employees; make sure to add those recruitment costs to your budget, they can get costly.  Also, consider subcontracting some percentage of needed talent as temp-help, just in case the increase of sales is short lived.  Its less costly, and somewhat easier to not have temporary help come in tomorrow verses laying off employees you just hired.

When many new employees are being added, the business must also plan for space and equipment necessary for the employee to do their job.  To many times I have seen companies simply hire new employees where the new hires show up for work, they complete very little paperwork, have no real training program on their position or overall orientation on how the company functions and sometimes, do not even have a place to sit or computer to work with.  They are thrown into production, because their skills are needed to get work done today.  This obviously is not a good process to continually follow long-term.  Make sure to think through your on-boarding of new employees, set up a process and then follow the process when the new hires start.

Solution to consider:  Fast growing companies can also experience cash flow problems.  The need to add additional staff, more space, larger inventories or more equipment will increase your expenses very quickly and will also increase the need for additional cash in the business.  Cash is very much King and most available cash resources come from the cash being generating from operations (employees should be added as available cash from operations can support the additional expense) or from additional contributions of cash via a line of credit with a bank (this usually takes some time and planning to set up) or by having more cash put into the business by the owners.  One quick note here; be careful not to over spend or borrow.  When you are growing fast, throwing available money at problems may be a fast solution, but long-term, over extending and adding debt can choke your company, if not managed accurately.

Solution to consider:  The growth that comes from a fast growing company can also put a strain on customer service and day-to-day operational efficiency.  Because of the increase load of new business, things can begin to get missed or as I’m sure you have heard before, “balls start to get dropped.”  Having good metrics in place and taking the time for you and your managers to discuss and improve them is important to maintain good levels of customer service and continue to operate efficiently through growth spurts.

d) Problem:  Have not adapted to new market trends and changes in your industry

Solution to consider:  Almost all businesses face the competition that comes from our new ever-changing global economy.  If a business does not adapt to the changes that happen within their industry, they can literally see their businesses die within a very short amount of time.  Just look at Blockbuster Video and how it got replaced by Netflix; look at BestBuy, CompUSA and Radio Shack, and what the online business competitors like Amazon has done to them.  Sometimes a company must totally reinvent themselves, which may mean providing a totally different type of product to even a different customer base.  In today’s global and everchanging economy, a small business should not assume it will be able to sell its product or service next year at the same level it did in prior years without adapting that product or service to provide its customers with a better value.  It’s far to easy for a customer to spend their discretionary budget with your many competitors or to buy a new product or service in the market that replaces yours. Your business must be looking each year at what you are offering your customer and asking if that product or service still is a good value to your customer.  Frankly, you should be developing and implementing plans each year on how to offer something far better and of more value, if you plan to grow your revenue and be competitive.

3) Lack of Proper Customer Communication and Dialogue

a) Problem:  Not knowing who your customers really are

Solution to consider:  Do you know who your customer really is?  Many business owners have an answer for this right away.  They name off several of their largest customers, so they believe they can market to other customers just like the ones they named.  But to really know your customer, you really should be asking a set of questions and this is important, (Red flag here…) find out and analyze the answers to those questions. 

  • Here are some key questions that will help determine who your customer is:
  • What problem is your product or service solving?
  • Who has this problem?
  • Why is this a problem for them?
  • How are these prospects or potential customers measuring success with your product or service; What metric are they using?
  • Is this a problem worth solving for your prospects or potential customers?
  • How many have this problem; how big is this audience?
  • How do you know they will buy from you and how can you prove this audience truly does exists?
  • How much is this prospect or potential customer willing to pay to solve their problem
  • One last thing to look at is what or who else is offering up a solution on solving this problem?  Differentiating your product or service may help your solution be more unique and attractive to your customer.  Explain how your solution is better.

b) Problem:  Infrequent communication with your customers

Solution to consider:  Building up trust with your customer base is one of the largest reasons for frequent communication with your customer.  If they rarely or never hear from you, why would you expect them to believe in what you are telling them about your product or service.  Frequently communicating with them offering up information, products or services that will help them and add value to their business or lives is part of that trust building equation.  Make sure to develop a plan to frequently communicate with your customer base.

c) Problem:  Not listening to what the customers are telling you

Solution to consider:  If you are communicating with your customers, please make sure to listen to what they are telling you.  Communication is a two-way street, one talks, the other listens and vice versa; exchanging thoughts, opinions and ideas, that is communication.  When you first start out chances are good, that you will have few customers, if any, but after you have been in business for a while, you should have developed a good customer base.  Make sure to look at who your customers are, what they are buying from you, how often and how many customers you add and lose.  Communicate with them often to see if your business is providing what they need; maybe there is more your company can provide them.  A danger many businesses have is that they believe they have a great product or service and see their sales as proof of this, but in truth, it could be much better if they only asked their customers how to improve and then listened to what their customers where saying in reply.  Your customer base can be a source of new ideas for your business.  Now look at what your customers are telling you and how you can develop or improve your offering to add more value for them.  Provide what your customers want to buy, give them real value and sales will improve. 

4) Not Clearly Defining How Your Product or Service Adds Value or is Unique to Your Customer

a) Problem:  No real market for the product or service you are offering

Solution to consider:  First make sure you really know there is a market for what you are selling.  Look at your industry and learn how big it is and how it really works; do some research on it. Maybe do some testing or perform a survey to get some good feedback on sculpting what you are offering to exactly meet a customers need.  If you are selling your product and service, ask your customers why they did or did not buy what your selling.  Next look at your competitors, learn about their product and service, learn what your customers think of your competing products and why they like them.  All this research can help you determine if you have a real market for a product or service. 

b) Problem:  No product differentiation from other similar products or services on the market

Solution to consider:  Why would a customer buy your product over a competing product or service?  That is what product differentiation is all about.  Businesses that successfully tell a prospect why they are different from competitors will grow their customer base, if their product is something the prospect wants.  Your marketing should be telling your story of how your product or service benefits your customer and that story should include how it is different and unique from other competing products and services, in a creative way as possible.  If your customer sees no difference, they are more likely to believe it makes no real difference which product they purchase.  They may just shop on price or availability.  Tell them why to buy yours.

A prospect must see and understand the value and/or benefits your product or service offers them to become a customer.  That value offer can come from a fairly-priced good quality product or stylish or unique design.  It can be your customer service department, your sales team, your available inventory or your time or maybe it’s simply how easy it is to order from you.  These all can be reasons why a prospect becomes your customer; however, they must see in your marketing, the value your product or service has for them.

5) Out Competed by Your Competition

a) Problem:  Not knowing your competition and what they are doing

Solution to consider:  It is very easy to do a basic search on Google these days and learn a lot about your industry, the main players in it and about your competition. You can also learn a lot by going to an industry trade show or conference.  If you are not doing at least some type of research looking into and learning what they are doing, you are putting yourself at a huge disadvantage.  Many probable prospects and even your current customers are looking online and researching products and services that will help and grow their businesses.  If your competitors are online and you are not, who do you think your customers will see?   Gaining valuable research on what your competitors are offering and learning how they are marketing their offerings is important for you to know.  But just as important, is for you to have your product and service offering out there to be found by your customer.  Yes, your competition will see your marketing as well, but prospects and your customers need to be able to see it and you need to stay on top of who / what / how your competition is interacting with your customer.   If you can’t do this research yourself, put someone else in charge or pay a third party to gather the data every-so-often.  It will help your business in the long run.

b) Problem:  Not having a clear picture of competing products or services being offered in your markets, their pricing, timing of offers and discretionary spending and budgets

Solution to consider:  It is very easy for a small business to fall into a lull when things are going pretty well.  However, in the global economy we compete in today, you need to be thinking of much more than just offering a good product or service.  Understand how your customer wants to purchase and how they really do use your product and when.  You should realize that most of your customers do have a budget, a limited amount they can or will spend with your company.  They will either use your service or product internally or inventory it and market it for sale to their own customers.  The dollar amount they can spend does have some logic as to how much it is and when they will be making a purchase.  The time of when they do this is also important.  Some industries are tied to seasonal or holiday trends, so there is an established time of making a good presentation of your product by marketing it and there is also a bad time to do this.  Knowing how your more successful competitors are working this process can be good for your own business.  If your customer spends most of their budget with your competitor, where does that leave you?  Understanding how your customer buys and how your competitor offers their products and services for sale is important to keep your business prospering.

6) Poor Leadership and/or Not Having the Overall Right Team in Place

a) Problem:  You have poor leadership skills in general

Solution to consider:  Not everyone is a natural born leader and just because you are an entrepreneur who started a small business or purchased one and now find yourself in charge of leading that small business, makes you a leader.  You more than likely should brush up on your leadership skills, starting right away. For your company to truly function at its best, you need to provide the leadership it needs, whether that comes from you or from someone else you hire.  Good leadership is about painting a vision of a strategy of what you want your company to become, it’s about people skills and managing your employees so they can see that vision and want to be a part of it.  It’s also about understanding where your employees are coming from, listening to them and helping them actually be part of your vision and showing them the way.  Leadership is not about your position on an org chart, your seniority or any entitlement you may feel because of your ownership.  It’s about making good decisions fairly quickly, owning up to your mistakes, and communicating to your team about what you plan to do.  It’s about gathering information and discussing the pros and cons of that plan with your team, then making a decision.  If your team is not part of the decision-making process, how can they really support your decision?  A good leader encourages a spirit of collaboration in their culture, one where team members are not afraid of speaking up.  Leadership is about vision, strategy, planning, organization and then executing as a team.  A leader will have the team help break all this up into steps and then support those in charge of accomplishing each step and help them all succeed as a group. 

There is much that can be said about being a good leader and there are many books written on the topic, so it’s fairly easy for you to learn more about leadership.  Here are some areas of concentration a leader may want to focus on first to improve their skills and become a much better leader:

  • Improve communication effectiveness
  • Make sure expectations are clear
  • No micromanagement
  • No threatening behavior
  • Have discipline
  • Have motivation
  • Encourage others
  • Have a clear vision
  • Execute on their plans

b) Problem:  You as the business owner, are not effectively leading your team with your vision to accomplish your stated goals and hold them accountable

Solution to consider:  I have already stated the importance in having a vision, but it is also very important to have team members aligned with the goals, strategies and priorities supporting operations that will accomplish that vision.  To lead your team effectively, your team should have faith, trust and respect in you as a leader.  The culture created by you, your actions and your values towards your team, as the leader of it, should be real and those that support your company goals.  If your words and communication in general are the opposite of your actions, your team will lose faith and respect in what you say.  You are held to a high standard as a leader and need to make sure to hold yourself accountable to that standard.  If you don’t prepare for upcoming meetings, or try to use sales skills to manipulate your team; if you communicate only half truths about certain matters or weakly support your teams efforts and don’t ask for their input before decisions are made, you probably need to work on your leadership skills a lot.  How can you expect to hold your team accountable to you and accomplishing goals, if you do not hold yourself accountable to leading the team correctly? 

Besides reading or talking some courses on leadership, one other solution you might try to improve your leadership skills is to hire a leadership coach.  A good coach can help you immensely right away, and let your team know that you are trying to be a better leader.  That in itself, will go a long way to showing leadership to your team.

c) Problem:  You do not have key individuals in place with the right skills, talents, motivation and authority to handle their area of responsibility

Solution to consider:  Whether you hire a new employee or are working with your current staff, their job duties and your expectations must be made clear to what they are responsible to complete.  If they are not, as the leader, how can you hold them accountable?   Furthermore, if they do not know and understand what part they play in your vision, how can they perform at their best?  These key employees need to have your attention, direction and support.  If you hired correctly, and that employee has the skills or the talent to learn what is needed, they are the rose bud that can bloom into that beautiful rose in your business vase.  Most of us have seen a full vase of rose buds which did not open to reveal their full splendor.  It is still beautiful, but how disappointing that they did not reach their full potential.  There is a process to get a bud to open, and there is a process, as the leader, you should follow to develop your team.  They need your attention, direction and support as often as needed for them to see the vision, play their part of a successful solution and feel appreciated for their work which will motivate them.

d) Problem:  Not delegating and supporting those employees with key roles and responsibilities within your organization or you are micromanaging

Solution to consider:  Many times in a new business, an entrepreneur or manager may have to manage all the details of that business or at some point they did many of the roles themselves as they worked over the years in the business.  They may be very hands-on and have become very used to making sure everything happens a certain way and on time.  As the business grows, they hire employees to help complete the daily tasks, and tend to micromanage that work being done to an unhealthy level for their business.  Micromanaging is frustrating, demoralizing and certainly demotivating to those who are being controlled this way by their manager.  As a manager and leader, you need to train your employees to do their jobs correctly, add the proper level of checks, balances and controls in place to make sure that happens, then step back and support and manage the system.  There is only so much time during a day to get things done, and as the leader, you cannot possible be involved in all things happening, so you must learn to delegate duties and responsibilities out to others; and then train and support those employees you have entrusted this new work flow to.  

7) Poor Management of the Business

a) Problem:  Not tracking and knowing your numbers and what they are telling you about your business

Solution to consider:  To properly manage your business, you simply must know certain numbers or metrics of how your business is operating.  There are some numbers all businesses should track and there are probably some numbers specific to your business or industry that you should be tracking as well.  If you do not know what these should be or how to set them up to be tracked, contact an accountant and have them help you.  You really want this to be setup correctly.  A good business library could help you find some industry metrics or KPI’s (key performance indicators) that you can benchmark your business against as well. 

Your main focus right away should be to set up a snapshot of your company, which is a brief one-page overview of your key metrics in a format that makes sense to you and explains the key areas of how your business is performing.  This can be done daily or weekly, depending on your comfort level of the numbers and what is involved to pull them together.  This is not in place of, or the same thing as your financial statements (which should be completed monthly and analyzed).  But the snapshot should include your cash balances, your cash forecasts of what needs to be paid out soon (outflows), what payments are expected in soon (inflows), your loan balances, including what your available lines of credit are.  I think it’s also a good idea for a small business, to track the remaining credit available on credit cards as well.  This snapshot can also be developed in such a way for you to monitor orders, shipments, accounts receivable, accounts payable, payroll and loan payments expected as well.  Developing this kind of forecasting snapshot overview will help you get your procedures, systems and employees working efficiently and accurately providing you with the most important data on how your business is doing and will be doing in the near future. 

You want to create a snapshot or reporting system that answers questions like:

  • Is there enough cash to pay the upcoming bills?
  • Are your customers paying on time, or more importantly, which are not and how will that non-payment affect your cash in the upcoming weeks?
  • Do you have enough inventory of what is selling; also, what is not selling and how can you sell it or turn it back into cash?
  • Is the replenishment inventory you have on order going to over extend you in any way?  Should you cancel purchase orders or put some items on sale, before they arrive?
  • Is the business on track for hitting your sales forecast and projections?  If not, what can be done to get it back on track.
  • Do you have the right number of qualified employees? 
  • Are you adequately utilizing your space?  Do you have to much or how can you do with less?  What about growth, do you need to relocate soon?

Next make sure to break down your service or product and get a clear picture on what costs go into providing it to your customers.  Gross margin is a great place to begin, but you need to understand what the margins are by product / service and subcategory and even by individual item or service type you provide. You need to make sure on how those margins are being calculated as well.  Some will be providing a nice profit or contribution to overhead, while others may be costing you money each time you make a sale.  The products and services you sell should be analyzed often to help determine how they can be improved on, how they can be provided to the customer for less and how your business can maintain an adequate margin when a sale is made.  This also will help you determine new areas for growth in your business.

I mentioned the financial statements earlier, that you need them monthly and they need to be analyzed by someone qualified to do so.  You need to understand what they are telling you.  Horizontal analysis (looking at each month individually compared to other months of whatever date range you want to view and compared to a budget or forecast) will tell you many things, if you know what to look for.  Some key areas to analyze are on the Profit & Loss statement and they are Gross Margin, EBITDA (earnings before interest, taxes, depreciation & amortization) and Net Income.  If there are big changes from month-to-month, look into the line item detail and understand what made the changes.  If they are good, try to do more of what gave you those results in your business.  Also, compare these key areas to the industry norms.  It’s one more way to see if you are doing ok; a good source of validation.

b) Problem:  Not building a strong culture for employees (do they enjoy being there?)

Solution to consider:  There are many reasons to have a “positive” culture at your company.  A better mood simply translates into better performance overall.  When the work environment is hostile and there is frequent employee turnover, employees become warry of their surroundings, and begin to think about leaving.  Your employees, most assuredly, have discussed many of the things that created the negative culture they are experiencing.  You as the leader or manager, need to talk to them and find out how they feel about working for your company.  What is causing the negative culture and also the positive culture. People are social and need to interact to form relationships.  Good relationships, also translate into good performance.  If you spend some time working to improve your organizations culture, it will help you recruit new employees and you may even enjoy being at work more yourself.

8) Bad Location

a) Problem:  Your physical location is poor

Solution to consider:  Where you locate your business can play a very key part in its overall success.  In real estate, realtors have an old saying that the three main considerations for buying a property are location, location, location.  This applies to a business location as well.  Whether your business is retail, service, distribution or manufacturing, where you locate it can eventually make or break you.  Retail and service businesses need to be convenient to their customers and have a certain amount of foot traffic (either on foot or driving by) to help make their business successful.  While a distributor or manufacturer is more concerned about managing their overall costs of a location, having adequate skilled labor available within the area and being accessible for customer deliveries or pickups. Many times, where a vendor is located also can play a large role.  If all your vendors are located in China for instance, what happens in China can affect the delivery of your product, and largely be out of your control.  Having a vendor located that far away also can make it difficult to develop new products, control quality, timely deliveries and even language becomes a barrier. 

When deciding on a location or understanding if your current location is hurting your business, create a list of things that might affect your specific business by being located where you are or believe you want to be. There may be specific demographics available from the city or county to help, but certainly on the US Census Bureau and the Bureau of Labor Statistics websites.  Also, try contacting a local commercial real estate agent, they may be a good source of information.  Rent costs, zoning, accessibility, signage and utilities should all figure into your analysis, but don’t forget to include cost of delivery or pickup of merchandise, the availability and current cost of local skilled labor, the amount of the right type of traffic for your business and where your vendors are located.  Many of these factors can add or remove profit from your bottom line.

b) Problem:  Your internet locations are poor or non-existent

Solution to consider:  If you have a physical (brick & mortar) location in a community, its reasonable to think, that your customers will find you, right?  Assuming of course, you have chosen your location wisely and do some marketing.  But what about the online community?  Your location online can be just as important to the success of your business.  New prospects and customers should be able to find you there as well and in fact, that may be where most of them look first, before they ever arrive at your physical location.  In the past, if you wanted to find a business, you would use the yellow pages.  Now most everyone turns to their almost-always-connected link to the internet and will ask Google, Bing or Yahoo their questions, and be supplied with a listing of answers created by unseen algorithms mixed with a billboard of paid advertisements specifically generated to respond to whatever question you asked.  This is the new form of yellow pages and your business needs to be a part of it.  At the very least, your business should be appearing within the first page or two of an organic relevant search as part of the answer to a question.  Much better if your paid ad appears at the top of page one and your business appears lower down in the organic search area.  These combined spots make a great online location for your business.

But that prime location is ever changing and can be very expensive to secure, depending on your business.  The algorithms and advertisements are shifting daily, as are your competitor’s offerings and your customers needs.  Take a minute and think about what you want to happen online.  When someone enters your online world as a prospect and asks the unseen algorithm to provide an answer to a question they have.  This can be very difficult to figure out. 

Compare this with standing in the back of a moving pickup truck with nothing holding you in place, moving 60 miles per hour, in the middle of a grass field filled with prairie dog mounds and holes.  You are out of balance, barely able to stand upright and continually being jostled around, and then using a paint ball gun, try to hit a small moving prairie dog with a paint ball.  It can appear at times to simply be luck to hit anything at all.  But countless businesses are having great success with their online communities and growing their businesses because they were able to figure out how to be in the right online location at the right time.  Websites, landing pages, email campaigns, search engine optimization (SEO), many social media sites, blogging, images, videos all come into play.  There are many businesses who may be able to help you secure an online location and be in front of a prospect, when the right question is asked and turning them into a customer of yours.  But it’s up to you to decide who that might be, what it takes to make that happen and how much to spend on it. 

Two key points to keep in mind when working to occupy your online location: one) set a budget; two) track the results of anything you are spending your budget on.  There must be results, or why do it?

Great Resources to Help You Start & Grow Your Business:

Gary J. Kiecker is an entrepreneur with over 25 years of business experience owning, managing and consulting on small businesses.  He believes everyone should own a small business at some time during their lives and wants to help those that want to move down that path be successful.  He works to provide fulfillment systems for life and business through his company, LifeLongU™ at  http://www.LifeLongU.com.

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Opportunity?

Opportunity?

Opportunity?

Identifying a real business opportunity can be tricky…you have to dig deep and ask many questions.  Ask yourself if your product or service fulfills the needs of a growing market better than the current competition and better than any substitution technologies within the overall external market (e.g. cultural, economic, political, legislative, society, etc).

Is there a real need for your product or service?  Does your product or service truly fulfill those needs?  Do you or your product or service possess unique elements that will position your business in a very niche market in which you can become one of the market leaders?  When will your window of opportunity open or close?

What actually frustrates the current customers in your industry?  What problems have they had with poor product quality or not having enough options or limited selection.  Maybe the delivery is not fast enough.  Many times an opportunity lies in observing what can be done to better serve a customer’s needs.

What will your customers need in the near future that they are unable to get today?  Think about the problems you have had with the products you have been ordering.  Is there an opportunity to develop something better; a better product, service or process?

In an October, 2012 Harvard Business Review blog, Scott Anthony lists “The Five Cs of Opportunity Identification”, which can be summarized as:

  • Circumstances – The specific problems a customer cares about and the way they assess solutions is very circumstance contingent.
  • Context – Ask a customer to report what they did in the past or will do in the future and you will get something that bears only a loose resemblance to reality.  You must find a way to be with the customer when they encounter a problem and watch how they solve it.
  • Constraints – Understanding why a customer does not consume is critical. Are existing solutions too expensive, do they require specialized skills or are the just inconvenient?
  • Compensating Behaviors – Are customers using a product or service in an unintended way to try to solve a problem?
  • Criteria – Quality is a relative term; you can only determine if a solution is good by first understanding the criteria that matter to a particular customer.  Do they want something simple, reliable, cost effective, etc?

 

Consider those questions and then summarize your thoughts to create a concept statement which should include the following:

  • Description of product or service being offered
  • Intended target market
  • Benefits of product or service
  • Description of how product will be positioned relative to similar ones in the market
  • Description of how product or service will be sold & distributed

 

Feasibility Analysis Process

Feasibility Analysis Process

When complete with your concept statement, think about doing a feasibility analysis, similar to the one shown here.  It will provide additional insight into your product launch before you over spend on time and money.

Opportunities are all around us, but not all of them can be made into profitable businesses.

Good luck with determining your next true opportunity!

 

Gary J Kiecker

LifeLongU™

www.LifeLongU.com