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Business Survival

How to Survive – and Grow – in Tough Times

This case study scenario shows how to survive events beyond your control that could destroy your revenues.

Pavlo Phitidis

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February is the month of collective romance, usually dominated by love letters to your valentine and hopefully good, solid results at the financial year-end generating more loving shareholders! This February was just the opposite for John.

Around the 14th, as it would happen, John received a notice in response to his January invoice that all operations on the mine in which he worked were ceasing until further notice. The mine cited Force Majour or an Act of God as the reason in that the stand-off with AMCU, the dominant union, had reached a stale-mate.

With neither party willing to budge further, the mine had decided to cease operations temporarily. Shocked at the news, John immediately thought of his outstanding invoice against which he had paid Vat and was relying on its payment to settle his other expenses for January, such as salaries which he had funded through his overdraft. Fortunately he had not yet paid rent.

There are many events that will affect your business. Preparation is therefore key to survival and eventual growth.

Mining-in-South-Africa_growing-a-business

Tough decisions

John started his business six years ago as the mines in the Rustenburg area had increasingly created and offered more opportunities to local communities and entrepreneurs within these communities.

The mining business makes for interesting suppliers. You start and if you deliver on the first contract, you generally get access to further contracts in fairly quick succession. The nature of the business of mining is that of big industry. Digging shafts and setting up the plant to safely and efficiently undertake the mining of platinum or any other mineral, utilises big tools, machines, infrastructure and services.

A supplier gets a big turnover fast and while margins remain fairly tight, the nature of the business means that you need people to support your business processes. It’s not unusual to find a mining supplier start-up that services core operations move from a handful of staff to 50 to 60 staff within a 12 month period.

In addition, the mining environment is obsessed with safety and for good reason. Training staff to the safety specifications required before you can pass the compliance regimes of the procurement department takes a big investment in your staff.

John was running a number of contracts with this mining client. Over six years he had grown his facilities management business to a point where his ability to outperform the service level agreements both above and below ground were consistently superseded. He had built a staff compliment of 196 people to deliver his services and this mine made up 72% of his turnover.

John stared at the notice he received from the mine and could feel the panic welling up inside him. Each staff member fed a small community of between ten to 20 additional mouths both in Rustenburg and the Transkei where many mining staff originate.

No pay meant that close on 2 000 people would be affected by John’s business alone. Like many of the entrepreneurs I work with, John felt a massive obligation to care for his staff. The weight of his responsibility weighed heavily upon him.

We met that evening to consider the options. Some very tough decisions would need to be taken. By the end of the week, we had devised a strategy.

We took a bet that the strikes would pass. How long it would take was uncertain. But we knew that when they did end, the last man standing would have fewer competitors, more business and the prospect of greater profit.

Survival guide

As an entrepreneur, you need to have your eyes firmly on both the present and the future. It’s a fundamental part of risk management. All risks emerge from either an activity today or an event in the future.

We agreed that the most important outcome was survival. The mining strikes would not last forever and once lifted, the opportunity to continue providing the services would present itself again and John was really good at what he did.

For John’s business, survival meant managing cash flow and together he and I developed a three-pronged strategy. These are some of the actions we took to secure his future.

Mining-strikes-in-South-Africa_Growing-a-business

Money in…

GET PAID FOR SERVICES RENDERED

1. Keep good accounts.

  • Without a good set of books and more importantly, timeous books that are easily and readily accessible, you will find out too late that current invoices are moving into 30 days or even 60 days.
  • Time and risk have a direct relationship. As time goes by and no concerted efforts to collect monies outstanding are made, you might expect a lackadaisical payment effort from your customers too. Get the money in your account fast.

2. Maintain good relationships with your biggest customers.

  • John immediately went to his contacts on the mine to secure settlement on his current invoices. He had provided the services and was due payment.
  • Fortunately, he had developed good relationships and was well regarded. Irrespective of legal contracts, good relationships matter and can be the difference between getting paid, or delayed, or not paid.

3. Insist on contracts and purchase orders.

  • Unless you are offering a COD service, get a contract in place. It’s called a service level agreement and it should specify the terms and conditions upon which a service is rendered and paid for. It should also specify payment terms.
  • Often it’s hard for a SME to negotiate favourable contracts with a corporate customer so read the contracts that they offer you with care.
  • If the terms are unfavourable, investigate the reputation of the big customer.
  • Do they pay or don’t they. The trust-based belief that if you deliver a good service you will be paid carries a good dose of risk.
  • Going further and thinking that you have a friend or relative within the organisation that is your client is also fallacious. Big businesses work through boards and committees and by sticking their necks out for you, your friend or relative could have their heads lopped off. Just get a contract!

GENERATE NEW CASH FLOW

1. Dilute customer concentration in the good times.

  • When you have a large client that has collapsed and this impacts you, the practice of foresight says never let any one client make up more than 20% of your total revenue.
  • While I recognise this is not always possible in the beginning of a relationship when you have secured a big client, it’s no excuse later on in the relationship.
  • Chasing and landing a big client carries massive risk. If it means that servicing this client will consume all your attention and leave no time to build your business, think carefully if you want that client or are ready to take them on.
  • If however, you have sufficient momentum (systems and people) in your business to take care of delivery and grow your revenues away from that client, then it’s a match made in heaven.

2. Diversify your customer profiles to spread your risk.

  • As in an investment portfolio, don’t generate all revenues from clients that look exactly the same. If this completely homogenous client grouping goes bang, so too do you. John is already active in marketing his services to other customers in government, private business in the retail environment and property developers and management companies.
  • Beyond that, John concentrated his marketing efforts beyond Rustenburg reaching into Mpumalanga and Gauteng.
  • His credentials on the mines and relationships were important.
  • References flow freely for him and the standards required by the mines are often more onerous than those required by private industry, meaning that his service standards represent a competitive advantage.

Money out…

1. Stop the cash flow bleed as a fast as possible.

  • The next day we met with his staff. They were familiar with the growing tensions in the environment and had seen friends and family in other parts of the industry lose their jobs.
  • There was a surprising level of acceptance that a three-day week was the only option that John could offer.
  • Why not a complete retrenchment? Firstly John could not afford it but importantly, he had invested training and skills development in many of his staff. He knew that he would need them when the strikes ended and work resumed on the mines.

2. Negotiate with creditors, don’t hide from them.

  • Over the weeks that followed, John met with each creditor.
  • The level of empathy was remarkable and John’s proactive action was respected.
  • Don’t hide from people you owe money to. It makes them angry and breaks down trust.
  • Business is about relationships. They too want you to remain in business because they also need to hold onto the relationships that serve them well.

Pavlo Phitidis is the CEO of Aurik Business Incubator, an organisation that works with entrepreneurs to build their businesses into valuable assets. Pavlo is a regular commentator on entrepreneurship on 702 Talk Radio and 567 Cape Talk Radio. He can be contacted at www.aurik.co.za

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Business Survival

How To Embrace An Exponential Mindset For Your Business

In the age of exponential technologies, it’s a risk not to take a risk.

Mic Mann

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Think global and exponential

If you’re an entrepreneur trying to establish a successful business, it’ll be dead before it even takes off, if you don’t build it for the future. You have to think three to five years ahead, so when it launches, it’s still relevant.

Think like former Canadian pro ice hockey player Wayne Gretzky, who said: “I skate to where the puck is going to be, not where it has been.” And these days it’s easier for entrepreneurs to predict the future thanks to technology and data insights.

Consider what Singularity University co-founder Ray Kurzweil calls The Law of Accelerating Returns. He says the only thing that’s constant is change and that change itself is accelerating exponentially. As per Moore’s Law, information-enabled industries are doubling their performance and halving their price every 18 months, according to the price-performance ratio. The field of biotechnology has managed to surpass that.

Related: 5 Mindset Changes You Must Make When Going From Employee To Entrepreneur

There’s no time to slow down, your business has to constantly evolve, and you have to keep asking “what’s next”. Encourage experimentation and innovation in your company. Innovation focuses on incrementally improving your already existing products and services, while experimentation allows for fresh outlooks and breakthrough strategies that leapfrog old ways.

We should reprogramme our linear mindset into an exponential one. Don’t aim to grow your business by 10 per cent year-on-year, but rather 10 times. The first thing I learned at Singularity University is the potential of exponential growth. If you take 30 linear steps, you only move 30 places, but if you move 30 exponential steps your place doubles with each step and by the 30th step, you’ve moved over a billion places.

We’ve seen this happen with unicorns – not the magical creatures, but start-up companies that are valued at over $1 billion within their first year – like Slack (cloud-based team collaboration tools and services) and Square Inc. (a mobile payment company). It once took around 20 years for American companies to reach the billion-dollar valuation mark, now it may take less than a year.

In the early stages – until your third step – your progress may seem linear. Many exponentially-geared companies give up at this point – just as their growth rate is about to explode. Persevere!

A few decades ago it was unthinkable for an individual or start-up to disrupt entire industries. Start thinking globally, not locally. Use staff-on-demand and crowd souring to propel your business ahead of the competition. It’s unlikely that you have the world’s smartest minds working for you, however with the power of the crowd, you just might.

If you’re struggling to find a solution, turn the challenge into a game and offer prize money. You’ll have thousands of people attempting to solve your problem, but will only pay for the best solution. Kaggle is a platform for predictive modelling and analytics competitions. It lets statisticians and data miners compete to produce the best models for predicting and describing data. Mining company Gold Corp placed its geological data online and offered money to anyone who could locate gold at their Canadian mine. Four of the five winning entries struck gold. And in 2011 it took a team of gamers 10 days to solve an enzyme riddle that could hold the key to curing AIDS.

The six Ds of tech

As companies become information-enabled they should internalise what Singularity University co-founder Peter Diamandis calls the six-step growth cycle of digital technologies. These Six Ds of Tech Disruption are digitisation, deception, disruption, demonetisation, dematerialisation, and democratisation.

The first step is digitisation. Once something enters the digital realm it gains the potential for exponential growth. Think of the radio and CDs. You no longer need either, instead you can stream online, listen via YouTube or download music. After digitisation, growth appears slow, even deceptive. Sadly that’s when many companies opt out. Be patient!

Related: How To Build The Right Mindset For Start-up Success

No one imagined Kodak would disappear after a century. Kodak thought they were in the business of printing photographs, while they were in the business of memories. Think about the need your business solves. Kodak invented the digital camera, but was too scared to disrupt its own industry. It didn’t realise that people were no longer taking photographs in the same way, so their competitors disrupted the industry instead.

Today, the camera has become part of the smartphone and photographs are predominantly shared via social media. Instagram epitomises the next step in the equation: demonetisation. With time technology becomes cheaper and even free. Instead of printing photographs, many people instantly share them on a free smartphone app like Instagram.

Next comes dematerialisation. The radio, camera, video recorder, GPS, calculator and calendar are disappearing from the physical world as they’re being built into the smartphone. The wallet will dematerialise next with the advent of online transactions and cryptocurrencies.

Finally, democratisation happens when government, corporates and the wealthy no longer hold control and masses of people have access. Just think, the average South African with a smartphone has access to much more information than the president of the United States of America had 20 years ago.

In the age of exponential technologies, it’s a risk not to take a risk.

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Business Survival

Why, When You Fail, You Should ‘Fail Forward’

So, you’ve fallen on your face? Consider that you’re walking in the footsteps of some ‘famous failures,’ like Steve Jobs, Oprah Winfrey and Stephen King.

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Arianna Huffington

5 Inspiring stories to keep in mind

1000 times he failed

Teachers described him as “too stupid to learn anything.” He got fired from two jobs because he was “non-productive.”

Then he tried inventing something completely new. What’s even crazier is that he tried 1 000 times, unsuccessfully. When a reporter asked him how it felt to fail 1 000 times, the story goes, he replied, “I didn’t fail 1 000 times. “[The invention] was an invention with 1 000 steps.”

Through pure determination, Thomas Edison – initially a failure – made the world a brighter place to live in. If such good things come from success, then why do we choose to always look at the brighter days and completely disown the tough times?

Here are five more inspiring stories to keep in mind, should you ever feel that you’re the biggest failure.

The woman whose book got rejected 36 times

Arianna Huffington

Arianna Huffington

You’d think that once one book you’ve written becomes a bestseller, publishing another one would be a walk in the park. But it’s not that easy. At least not for Arianna Huffington.

Having produced that first bestseller, The Female Woman, when she was only 23,, Huffington tried to pitch her second book, but none of the 36 publishers she approached said yes. Still, she didn’t give up.

And that’s just one of a couple of failures from The Huffington Post’s co-founder. She has been dropped from hosting a BBC show, garnered 0.55 percent of the vote (when she ran for governor of California) and been unsuccessful when she called for then-President Bill Clinton’s resignation through her website.

But now The Huffington Post gets millions of visitors every month; she’s had a successful book career; and, if it helps, she’s very rich. Clearly, “failure is a stepping stone to success.”

Related: How Failing Fast was Nomanini’s Ticket to Creative Innovation

The woman who was “unfit for television”

Oprah Winfrey

Oprah Winfrey

Oprah Winfrey is worth more than $3 billion. But it hasn’t always been like that. And, considering that a Baltimore TV producer called her “unfit for television” right before he fired her, it’s telling that the main source of Oprah’s success was a TV show that ran for more than 20 seasons.

Oprah also tried to get into the movie business with the movie Beloved. It lost to Bride of Chucky in terms of revenue and consequently lost the $80 million invested in it. Oprah has said this failure sent her into a state of depression.

But then, in 2013, she got back onto the horse (speaking cinematically) with The Butler.

See? Even when you make it, you’re still at risk of failure. Henry Ford, William Crapo Durant and Walt Disney (among so many others) all went bankrupt after they’d already made it big. But each one sprang back in his own way.

The man who was fired from the company he’d founded

Steve Jobs

Steve Jobs

Not all of Apple’s products have received mass acclaim. More specifically, not all of the Apple products launched by Steve Jobs have been successful.

One such failuret was the Lisa computer. This was supposed to be a desktop computer targeted at personal business users. For a purchase price of $10,000 (about $24,000 today) consumers could buy the first desktop that would allow them to use a mouse to work with a 5MHz processor and up to 1MB RAM. The Lisa sounded like a magnificent idea, at least at the time.

However, the pricey computer sold poorly, and then-CEO John Scully, someone Jobs had chosen for that position a few years earlier (there are so many lessons in this story), helped remove Jobs from the Macintosh division in 1985.

So Jobs left Apple. Then he founded NeXT, and failed again, but sold the software division of NeXT to Apple in 1997. Then he returned and became CEO in 2000, and this time he was determined to make Apple something special. He succeeded.

Related: Why Balls to the Walls Could Mean Failing Fast

The man who almost gave up after 30 rejections

Stephen King

Stephen King

Stephen King was just selling short stories and teaching English when he had the idea to write Carrie. However, despite the $2,500 advance he received for the novel, he decided to give up on the book after 30 rejections.

But his wife wasn’t going to let him do that. She urged him on, and he finally agreed to submit the manuscript again.

Carrie is one of King’s bestsellers and went on to become two film adaptations, one of which won the lead actress Sissy Spacek an Oscar.

The man who quit – just before striking gold

gold-mine-panning

Talk about hitting a gold mine

One last story comes from Napoleon Hill’s book, Think and Grow Rich. In it, the author writes of an interview with a millionaire named R.U. Darby who in turn described an uncle of his who, having heard of the riches that came from finding gold, set out to do just that. After weeks of commitment, this miner finally spotted a vein of shining ore. He raised the money for the necessary machinery and went ahead and he started shipping the gold. However, before long, he’d lost the vein of the gold ore.

Related: How Tebogo Ditshego Transformed a Failing Business and Tripled his Revenue

He tried to find it again and was unsuccessful. Then his workers quit and sold the machinery to a junk man. The junk man called in an engineer to inspect why the project had failed, and it was determined that the vein was just 3 feet (three) away from where the Darbys had left off.

The lesson? Before you stop trying, try again. If not for yourself, then for other people. What would the world be like without Thomas Edison’s invention? How about Alexander Graham Bell? Use failure as a step to elevate you because it’s by learning to accept failure that we can see great success.

This article was originally posted here on Entrepreneur.com.

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Business Survival

How To Recession-Proof Your Business

South Africa is in a technical recession. Here’s how to navigate the turbulent times ahead.

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For the lay-man like myself, it’s important to understand that a technical recession is an economic term that describes two consecutive quarters of negative growth in an economy. For South Africa, gross domestic product (GDP) declined 0,7% during the first quarter of 2017 after contracting by 0,3% in the fourth quarter of 2016.

Why is this a big deal? Because the economic outlook, even without the technical recession, was bleak. Ratings agencies are losing confidence in South Africa. S&P downgraded the country to junk status earlier this year, followed by Moodys, which revised South Africa down a notch.

Related: Can Your Business Survive A Recession?

How organisations respond to recessions

There are a number of knee-jerk reactions to a recession as a direct result of decreasing revenues and profits. The most relevant to SMEs are:

  • Cutting R&D spending. This means no new product lines, and no incremental innovation expenditure unless it returns direct value to the business.
  • People get fired. In a time where underperformance has a double impact on the business, people that aren’t performing are performance-managed out the door.
  • Market shares shrink. This is often due to reduced R&D spends.
  • Processes are evaluated. Companies start looking for efficiencies that should have already been in place.

Outlook and opportunities for SMEs

For SMEs, sales and product planning in a recession is key and must align to the way big business is responding to the recession.

Fundraising for capital expenditure is more expensive, but not impossible. It may be valuable to invest ahead of the curve to capture the emergent big businesses during this period and therefore external investment may make sense.

In an increasingly collaborative economy, SMEs should look to each other for partnerships and complementary projects that cost little to assemble, but amount to great value for a big business.

Survival of the nimblest

Cut down

SMEs have the ability to be nimble and move quickly to change organisational structures and deliver on just-in-time value. This can be hamstrung by unpredictable fluctuating expenses like cell phone contracts that may vary in cost in an unpredictable way from month to month. The fewer of these costs on your books, the better.

Related: How Renay & Russell Tandy Have Survived 2 Recessions And Built A Successful Agency

Sell harder

The term ‘always be closing’ is a famous sales mantra, it’s also applicable in a recessionary context. First, because you don’t know what they don’t know and unless you tell them — who will? Second, the feedback loop of understanding the concerns and actions from your customer or client can only be understood through interaction.

Position smarter

Is it clear that you are the best provider for the job that needs to be done? If not, it is important to build a stakeholder strategy that puts your business in front of the key procurement and strategy custodians. This may be a great opportunity to exhibit demos, case studies and showcase the efficiency that you offer.

Focus on value

I can’t over-state this. Value, value, value. It goes without saying that one of the key reasons anyone would consider an alternative supplier is because of the specific problem they solve, so this should be your approach in reinforcing the value you bring to the table. Repetition builds memory structure.

One recession doesn’t fit all

It’s important to understand that for SMEs a recession can have an expansionary effect in the same way the lipstick effect applies to luxury goods and services.

The lipstick effect is the theory that when facing an economic crisis, consumers will be more willing to buy less costly luxury goods. Instead of buying expensive fur coats, for example, people will buy expensive lipstick.

A series of psychology experiments have confirmed for the first time that while tougher economic times decrease desire for most items, they also reliably increase women’s yearning for products that boost their attractiveness.

Parting shot

So, for SMEs, the formula is simple — don’t panic, analyse your customer value chain and position your solution accordingly and then sell, sell, sell.

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