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Business Survival

Silent Killers of Great Businesses and How to Avoid Them

Are your profits falling, overheads increasing and turnover a fraction of what it used to be? You might have fallen prey to these four silent killers of entrepreneurs and their businesses.

Pavlo Phitidis

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What a dramatic heading. Silent killers! Yet, I see them at work every day with many of the entrepreneurs that I work with. These killers are seldom obvious and yet destroy the lives of solid entrepreneurs, eroding the value of some of the country’s best businesses and brands.

These killers are so insidious that they are most likely operating in you and me today. In fact, I know they are!

Recently I received a phone call from an entrepreneur that I’d done some really interesting work with a few years back. His business was mature when I met him.

It had been in operation for over 28 years and he had bought it from the original founder 17 years back. He got it for a song. It was a general wholesaler importing general hardware equipment and consumables as well as homeware.

When we met seven years back, George had done a lot to clean the business up. At the time of purchase, debtor’s days were averaging at 102, stock turn ratios were a mess and customer satisfaction was poor.

They bought from the business simply because of the ridiculously extended terms that were tolerated! We designed a turnaround plan and George immediately went to work. Stock that was older than six months was cleared for cash and that alone covered his purchase price plus some within the first year.

It took six months to get right but his debtors book came back to an acceptable 45 days and he shrunk his customer base to a healthier 1 200-odd from the 1 600-odd that had patronised the business before.

George had also refreshed his staff complement. The average age of staff was now 37 as he brought in fresh blood and reinvigorated the business’s energy. None of this happened without sleepless nights.

There were many moments when George believed that the present week of trading would be his last. The reason he got the business for a song was that he also took on the legacy bank debt that the founder had managed to accumulate to an impressive R3,8 million!

Related: Thriving in a Downturn

Build a competitive model

With the turnaround complete, we were now to take the business to its next level. As a general wholesaler, George was vulnerable.

The independent retailers organised buying groups, the chains organised procurement divisions and the Chinese direct trading capabilities with South Africa were making it easy for retailers to import direct.

What George wanted was the ability to build the business into an asset of value. This is a business that can be sold for a premium price or alternatively can relatively easily raise growth funding if required.

We needed to build a moat around George’s business. Something that would make it difficult for his customers and competitors to compete with him. His castle needed a defensive line around it that would safeguard its value.

After some consideration, the strategy of the business changed. George would migrate the business model from a general wholesaler to a branded distributor.

This was going to take some doing and the starting point was to work with what he had – good staff, good operating systems and reliable back office bookkeeping and accounting capability, extensive customers in the hardware and home-ware retail market.

The change in the business model took some time. Moving from a general wholesaler to a branded agent distributor creates a different emphasis on the business.

For example, it required a completely different marketing system to be built. Branded agent distributors have to influence the man on the street as well as their retail distribution channels. The man on the street needs to ask for the product and the channels need to promote the product.

Before, the man on the street was largely irrelevant to George since his retail chain took care of moving his no-name products off their shelves. The premium associated with branded products needed this new drive and marketing effort.

Within five years George had 11 big name brands that he represented. His marketing efforts were well organised and paying off. Business began to boom again. During this time, George negotiated exclusive supply into a retailer for a branded product that he represented in sub-Saharan Africa.

The retailer had 283 stores around South Africa. George’s business boomed. Cash was being generated in the business at a rate unseen before but getting the deal done, securing the supply from his principles abroad and bedding down the logistics and distribution to meet the service level agreements with this retailer had taken their toll on George.  Exhausted, George began for the first time to take the odd holiday.

Keep working on your business

In my recent meeting with George, I was saddened to see a dramatically different man. He looked faded and exhausted.

His former enthusiasm had been replaced by a cynicism and resentfulness towards arbitrary foes – the exchange rate, the schooling system, toll roads!  He was meeting with me in order to get some assistance to prepare the business for sale. It was clear that he was sick of it, sick of his customers, staff, suppliers and everything else.

We looked through his last three years of financial statements. The business had hit a turnover level of R79 million in its peak and today was trading at 24% below that high.

This is not necessarily a problem if the ratios remain the same since changes in turnover can be driven by many things. I looked on and saw that his gross profit had fallen by 6% and overheads increased by 16%. This was not good. What was especially disturbing was that George did not seem to care.

After an extensive consultation, it was clear to me that George had fallen prey to the four silent killers of entrepreneurs and the businesses that they build.

Women-screaming_Silent-killers

Complacency

When securing a great long-term contract that spits cash into the business every month many entrepreneurs feel that they can take a breather. The everyday worrying slog of the business lifts.

The paranoia of remaining afloat fades. The tolerance for conflict and the fight to get the business to where you want it softens. It was exactly these conditions that led to the sellers offloading what was originally a good business to George for a song.

It was within a year of his big deal that George fell prey to the same condition.

Comfort

We all suffer from entrepreneurial exhaustion. It’s vital that as an entrepreneur you find ways and means to constantly build your entrepreneurial psychic energy.

Often this is found through people, getting help from specific people who inspire you, thinking big and taking small steps to get to the big idea.

The cost of comfort is a fading interest that will result in you not dealing with the increasing number of little things that erode the businesses performance such as late payments, dragging compliance deadlines, late arrival from staff, softening pricing from suppliers and the like.

Cocooning

The exhaustion of entrepreneurship affects everyone. If you are introverted by nature, this killer will impact you even more.

By isolating yourself from your environment to find some reprieve from the hectic weeks that govern your business, life will only bite you in the back.

Related: Business Plans: A Remedy for Failure

If business is about people, you cannot afford to not be meeting people and activating a sensible networking calendar as a business development tool to prevent isolation from your industry, politics and the people influencing the direction of things to come that will impact you and your business.

Loneliness is bad enough without you having to amplify it!

Blame

There are many reasons for our inability to succeed in business. From uncertain government economic policy, red tape, compliancy pressures, weak staff capability and skills as a result of a shocking educational system, potholes and Nkandla amongst others.

There is a perverse satisfaction in being able to blame something else for our inability to move ahead and make it happen. The reality is that everyone is in the same boat. Languishing in blame only depletes the most precious commodity that we have.

Time. It can never be taken back. The remedy might well be to take a teaspoon of cement with honey and toughen up. A business is built through action, not ideas and building a business anywhere in the world is tough!

First warning

Silent killers are lurking in everyone’s business — which are yours?

Journey back to health

Small changes in strategy can result in massive improvements.

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

Business Survival

Stop Surviving And Start Thriving In Business

It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.

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To thrive – and not just survive – in business you need three basic building blocks: 1) attract more customers and clients; 2) who spend more; and 3) buy more often. But how do we make this happen in the tight, recessionary environment we find ourselves in South Africa?

Despite the tough economic conditions, businesses can still thrive. In fact, many small businesses have been found to thrive in difficult economic conditions and are known as counter-cyclical businesses.

So how do you turn the tide from surviving, to thriving? You need to start thinking creatively, making informed decisions and being agile in the business environment. Always start with your marketing strategy. It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.

Related: Business Basics: The Four M’s Of A Successful Start-Up

Ansoff Growth Matrix

Business leaders continuously explore various growth strategies to retain and grow market share. One of most respected and often used is the Ansoff Growth Matrix. It was first published in the Harvard Business Review in 1957, written by strategist Igor Ansoff to help management focus on the options for business growth. Ansoff suggested that an effective strategy considers four growth areas, varying in risk. This strategic planning tool guides us to understand our current situation, contemplate strategic options and consider the associated risks.

  1. Market Penetration: Market penetration has the least risk of the four options. Here you are selling more of the same things to the same market. You know your product and market well. The question is, how can you defend your market share and sell more to your existing customer? You may consider special promotions or introduce a loyalty scheme.
  1. Product/ Service Development: Product and service development is slightly riskier as you introduce a new component into your existing market. The advantage is that you sell to a customer/ client that you know, and they trust you. Ask yourself how to grow your product and service portfolio? You may consider adding new services and products or modifying your existing offering.
  1. Market Development: With market development you target new customers and clients with your existing products and services. You sell more of the same things to a different market. You can consider new sales channels, online or direct sales. Do a proper market dissection to target different groups of people, considering different age groups, gender and demographics.
  1. Diversification: Diversification is very risky. Here you consider introducing a new, unproven product or service into an entirely new market that you may not fully understand. You may need new expertise, acquiring another business or venturing into another sector. The main benefit of diversification is that during difficult times only one component or element of the business may suffer.

Related: My Business Is Growing… What Now?

The fifth element: Passion 

In addition, I would add one more element critical to business growth: Passion. It is the single component most critical to business success and, combined with any one or combination of the four areas of the Ansoff Growth Matric, it can equip small business owners with all they need to thrive in their business environment. Passion determines your business success, so make sure you have it in heaps to reap the rewards of your hard work.

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Business Survival

6 Common Decision-Making Blunders That Could Kill Your Business

Among the logical errors nearly everybody makes is thinking only everybody else makes logical errors.

John Rampton

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Humans are often very irrational. If you’ve ever explored behavioural economics or psychology, you may have found a host of examples demonstrating situations when we make objectively bad decisions.

Below are six of the largest decision-making blunders we all make. Avoiding them will dramatically improve your decision-making, your quality of life and success.

1. Sunk-cost fallacy

Of all the ones on this list, the sunk-cost fallacy is the most common. Many of the decisions we make are final or difficult to change. For example, let’s say you invest R1 000 in Facebook, and the price of the stock goes down to R600 the following day. The fact that you put in R1 000 initially is irrelevant to the situation at hand; you now have R600 worth of Facebook shares.

What this means is that once the decision is made and our cost is incurred, there’s no point thinking back. You already put in the time, money or other form of investment. Considering that in any future decision is illogical, despite how tempting it is. Instead, present yourself with the new options at hand — without considering the sunk cost.

Related: The 3 Dumbest Business Mistakes New Entrepreneurs Make Most Often

2. Narrow framing

Would you take this bet? You pay me R1 000 if a flipped coin lands on heads and I pay you R1 200 if it lands on tails. Most people would say no. We tend to be risk-averse, unwilling to risk something like R1 000, despite the reward being a bit greater.

Now, what if I offered you that bet, but I promised we would flip 100 coins? Each time, the loser pays up. Would you take it then?

Almost certainly, right? The chances that you lose money, overall, are extremely slim. This idea can be applied throughout life. When we’re in situations that will repeat themselves over time, we should take a step back and play a game of averages.

3. Confirmation bias

Another common one in the worlds of psychological and behavioural economy is confirmation bias. It hurts our ability to keep an open mind and shift our opinion. When we have a held belief, we typically look for information that confirms our opinion while ignoring data points that tell the opposite story.

For example, if I’m really excited about a new software product that I just integrated into my business, with ten of my employees as users, I might have made up my mind about the quality of the service before we put it to use. I would then be more likely to listen to the three employees who enjoy it, not the seven who don’t.

There’s almost always information that will validate our opinions, no matter how wrong they might be. That means we need to always look for conflicting evidence and, from there, make judgements based on more well-rounded information.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

4. Emotionally driven decisions

When we’re angry or upset, we’re much worse decision-makers. When you have to make an important decision and happen to be in a bad mood, you should hold off. Instead, wait until you cool down and can think more clearly. It will remove the outside influences and let you think more rationally.

5. Ego depletion

This one makes intuitive sense, but it’s one of the most common ways to make bad decisions. The idea of ego depletion is that when we’re drained, physically or mentally, we’re less likely to think critically. Think about the times you’ve been exhausted after a long day of work. In those moments, you don’t want to have to think hard about anything. Instead, you want your brain to work automatically.

What that means is that when you’re tired and faced with challenging choices, you’ll rely more on your instinct or automatic processes as opposed to analysis and thought. That can be extremely problematic in situations that require effort.

6. Halo effect

The halo effect says that once we like somebody, we’re more likely to look for his or her positive characteristics and avoid the negative ones. This is similar to confirmation bias, but it’s oriented around people.

Related: 10 Stupid Mistakes Smart People Make

For example, let’s say I just hired someone named John, who was great during his interviews. Through his first few weeks, John does a few things well at work, but he also does many things poorly. The halo effect — brought on by his wonderful interview persona — could cause me to ignore his poor attributes and emphasise his good traits.

This can be detrimental to our ability to make judgements about others. We have to realise our biases toward certain people and eliminate them.

These are a handful of the many decision-making errors we’re all prone to. Although it’s challenging to scrutinise your preconceived notions, doing so is worthwhile. It gets easier over time and will, ultimately, make you a more effective decision-maker — personally and as a business owner.

This article was originally posted here on Entrepreneur.com.

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Business Survival

8 Reasons Why Failure And Focus Are Essential To Business Success

There are two Fs that define the long-term and sustainable success of your business – Failure and Focus.

Nicholas Bell

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There is an event that runs globally across countries such as the United States, Spain, France, Brazil and Israel. It is a conference that is aimed at the entrepreneur, the investor, the developer and the designer. It also caters exclusively for failure – FailCon asks the entrepreneur, specifically within the technology space, to embrace failure. However, this focus on failure isn’t about leaping blindly into the ball pit of collapsed dreams and wallowing in its sorrow as you shout ‘Bazinga!’. It’s about being comfortable with the idea that failure can happen and using it to drive your business focus and long-term success. These eight steps define exactly how…

1. Not big, iterative

Giving someone advice to fail big isn’t practical. It isn’t the kind of attitude that investors will be drawn to either. Instead, embracing failure is about being open to the fact that it may very well happen to you and some of your ideas. It isn’t necessarily going to be a gigantic failure on a scale of company-wide collapse. It could just be that you had an idea, and it wasn’t a very good idea so it failed.

Related: Beauty Of Failure: The Art Of Embracing Rejection

2. Focus on your agenda

If you’re not focused on your end game and business agenda, don’t expect your staff to be. This level of focus is critical as it gives people direction. They then understand exactly where the business is going, what it hopes to achieve, and the role that they play in taking it there.

If you don’t have this level of focus, your staff don’t have anything to latch onto.

3. Learn

learningThis is where your ability to fail is of value. You need to test your assumptions and ideas and then use their failures to learn more about how they could potentially succeed in the future. You have to learn from your mistakes. Don’t drown in self-doubt, take the mistakes and move them towards enhancing your business.

4. Success isn’t easy

Look, if being a hugely successful entrepreneur was easy, everybody would do it. You need to keep the focus and intensity you brought on your first day all the way through to today. Create short term goals and objectives that give you endless purpose and a sense of achievement and use their success to drive you onwards towards your final destination.

Related: Flourishing Through Failure And Finding Fortune

5. Build in plenty of goalposts

Justify every decision and long-term goal through relentless measurement to ensure they are the right decisions. The last thing you want is to hit your goal in 10 years and discover that it wasn’t the right one, your business hasn’t gone anywhere and you’ve worked incredibly hard for nothing. The effectiveness of your time, decision making and execution is critical.

6. Define failure

What does failure mean to you? Understand how you define it and then use this as a barometer to define your idea of success. As long as you have clear objectives for both, you can assess your business, its effectiveness and your results. As mentioned in above, always set goals and objectives so you give your company and people a sense of purpose.

7. Your ideas aren’t always that good

Some of your ideas are not going to fly. They’re going to collapse with an embarrassed sigh. The lesson is that you should be constantly questioning yourself so when you are in a situation where your ideas don’t work, you can objectively examine why they failed and use these learnings to change and adapt.

There needs to be a healthy tension between learning through theory and practice. The latter is learning to win and to handle defeat in real time with real results.

Related: Your Business Failure is Your Fault

8. Get over it

It’s quite easy to wallow in your failure misery and lose years to personalised anguish. It’s harder to just get over it and move on. The thing is, it’s moving on that counts. Those who get up, dust themselves off and start again are those who end up thriving. The ability to compartmentalise and learn is invaluable as you take your business from your first idea through to a sustainable, epic enterprise.

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