Doing business today is as challenging as ever, especially with the on-going recessionary influences in South Africa and abroad. Added to this, those setting out to start a new business are faced with the ever-rising cost of fuel as well as energy and raw materials and the tightening purse-strings of possible investors.
If one were to review the reasons for a failed business, mistakes in marketing, finance and employment are hardly ever the primary factors. Many companies go under despite a solid product offering, skilled resources and detailed financial plans:
1. Agreeing the terms of engagement
A lot of businesses are started by two friends or colleagues who agree to split the equity and the decision making. Unfortunately, these deals have a history of falling apart, usually painfully and expensively. Sooner or later one partner begins to feel their own contribution is more valuable than the others. And if there is no mechanism for handling these differences, you’re in trouble. It’s a good idea to workout out a buy-sell agreement at the start if the business to govern what will happen in the event of a stalemate. If you can’t agree on the terms of a buyout while you’re still friends, how can you hope to do so when the relationship has soured?
2. Ignoring signs of trouble
Failures of judgment at the top have killed more small businesses than lack of money, talent and information combined. As entrepreneurs we’re often influenced by our sentiments to act in ways that actually put our businesses at risk. It’s absolutely essential to put aside regular time to step back, take a good cold look at what is going on and check whether it still adds up. When you do that, you need to trust the numbers: don’t let your attachment to the business blind you to warning signs of trouble.
3. No back-up plan
Of course you believe your business will succeed, or you wouldn’t be doing it. But failing to put a backup plan in place is suicidal. What if your product takes twice as long to develop as you thought, or customers buy only half as much? It often takes twice as much time or three times as much money to get going as you predict.
4. Excess cash
Oddly enough, too much money can be as much of a curse as too little. It can tempt you to hire people you don’t need, approach problems in ways that don’t focus on the value to your customer, take your eye off the market and weave dangerous inefficiencies into your business. Don’t ever get too comfortable.
I love working in flat organisations without lots of structure and hierarchy – it’s one of the reasons I started Netcash. But it would be naïve to think we could survive without some structures and channels for making decisions. When people start looking for direction, they need to know where it’s coming from.
6. Isolation at the top
Even if you keep an open door and employees know they can give you honest feedback, sometimes you need a trusted advisor outside the business. Your lawyer or accountant is not necessarily the right person – how many of them run their own businesses? Find a mentor or peer group of other entrepreneurs who have faced the same issues.
It’s tempting to fund a business with debt and keep 100% ownership – but very dangerous. Your bank is not your partner and it has no real stake in the success of your business – if things go wrong it’s got your house, your car and everything you own to fall back on. An equity partner, on the other hand, has got to pitch in to make the business work. As the saying goes, it’s better to have 50% of something than 100% of nothing.
8. Too many eggs in one basket
It’s great to have a bread-and-butter client, a big account that keeps the money rolling in. But if you lose that client, your entire business could be at risk. Keep your client base as diverse as possible – and if you can’t, make a plan for what you will do if you lose that account.
9. Competitive advantage
One successful product or service doesn’t make a business. If you really have found an attractive market, you can bet there are competitors looking to take a piece of it. Keep on researching, developing, introducing new products and new levels of service. Make the competition scramble to keep up, rather than digging yourself a static position and defending it with everything you’ve got.
10. Moving on
At some point in the life of almost every business, the original founder needs to step aside and let someone else manage it. The skills and attitudes needed for a successful start-up are very different from those needed to manage a stable, mature company. If you stay on past your sell-by date, you run the risk of poisoning the business. Rather get out while you’re ahead and either enjoy the rewards of success, or move on to a new challenge. Then read this advice all over again.
How To Grow Your Start-Up Venture When You’re Lost
Advice by Anton Ressel on how to grow your start-up venture to get you on the right path.
I have recently started a small business. I would like for my ventures to grow, with some assistance. How do I move forward?
The starting point for any venture is some form of a plan. I am not talking about a telephone-directory thick business plan, nor a plan developed for you by someone else in order to try and raise funding, but rather a tight, concise plan that lays out your core business, your potential customers, your product or service focus and the primary actions you need to do in the short-term to get the concept off the ground.
There are many good templates for a simple strategic plan available online, such as the Business Model Canvas. You should also look at what business development programmes, if any, there are out there that may be able to offer some support.
Finally, you should approach SEDA and see what support they could possibly provide. Find more information on SEDA here.
What tools will make my small business run smoothly?
As a small business owner, it’s normal to find yourself being an accountant, a salesperson, an operations manager and a PA all at once. Here are five tools to help you wear multiple hats without feeling overwhelmed.
Surprisingly, one of the biggest challenges of owning your own business is staying on top of administrative tasks in addition to getting your actual core work completed.
It’s a reality that these admin tasks – from invoicing customers to collaborating on a document – are typically done by the business owners themselves, because there’s not always budget available for any support staff.
We recommend: 4 Signs that your Small Business has Finally Arrived
Here are five tools that can help you manage your business more seamlessly, leaving you free to chase your entrepreneurial dream.
1. Online invoicing software
While creating invoices manually may work in the beginning, this task can quickly become time consuming and hard to control as your business grows.
Manual invoicing also means that things can slip through the net, so you forget to chase outstanding invoices that can in turn impact your cash flow.
A cloud invoicing tool like Freshbooks lets you create invoices online and email them to clients from within the interface.
Besides an easy dashboard showing you how much you’re owed at any point in time, Freshbooks also lets you print reports to use for accounting purposes.
Best of all, your clients can login to their own portal and view invoices, timesheets and more.
2. Cloud file sharing software
Whether you’re on your own or working in a team of 20 people, at some point you’ll need to share documents with another party like a team member or supplier.
These tools allow you to upload and store data (presentations, photos and more) on your cloud-based drive, and then share them easily with anyone you wish.
The best part? The basic versions of both of these tools are free, so it’s as easy as creating an account and you’re off.
3. Asana – project management
A large factor in a project’s success is how efficiently it’s managed internally, because this impacts whether you stick to deadline and how much the project costs in the end.
If you’re sick of sifting through emails relating to a particular project, or can’t keep track of who’s doing what, an online collaboration tool like Asana can help.
With Asana, you can create and assign tasks within a project to team members, and start group conversations that all members can see.
In essence, team members now know exactly what is due when, who’s working on what and whether there are any snags. This keeps work streamlined – and removes the dependence on email as a workflow management tool.
We recommend: 3 Time Management Tips For the Busy Small Business Owner
4. Shared calendars
If you don’t need the full monty in terms of project management, a simple shared calendar can go a long way to keeping employees on the same page.
Using a collaborative cloud system such as Google Calendar that’s shared with everyone on your team means people can quickly find meeting times and holiday weeks that suit everyone else.
Google Calendar can also be synced across multiple devices like your phone and tablet, so you can always stay in touch with scheduling.
5. Other Google Products
Several products within the Google fold have already been mentioned above, but there are others that can help you run your small business more efficiently. If you run a business online, Google Analytics is Google’s free analytics software that tells you who came to your site from where, and what their interactions on the site were.
Finally, if you have a business with one or more physical locations, Google My Business allows you to get your business details (address, pictures, videos, opening hours) onto Google’s search results for free.
Expand or die?
Tips on expanding a business abroad
Should I expand abroad? I am currently considering expanding my kids’ clothing business abroad, with a view to broadening my customer base. Can you possibly offer me some advice on how to go about determining whether this would be a feasible idea, and if there is profit to be made in foreign countries?
Expanding overseas is seen as a natural step in the growth of many businesses, but there are a number of things to take into account. Only after you feel you have covered all of these areas properly should you press ahead.
First take stock of your position in your home market. If you don’t yet command enough of a market share, you may want to reconsider whether now actually is the time to go abroad is.
Remember you are going somewhere where the regulations, economic outlook and customer behaviour can be totally different, so it is even more of a risk than your home market.
I often see entrepreneurs who have less than 5% of their home market trying to go abroad, which simply doesn’t make sense to me. To put it another way – if you haven’t yet cracked Cape Town, don’t go after California!
Understand the market
Every little detail about the trading environment you are going into needs to be understood. There are some huge, multinational firms that have ventured out of their country only to get a nasty surprise. Think about the manufacturing regulations, which is particularly important for your type of business.
Also look at things like HR laws and tax requirements, and crucially, the relationship between currency and inflation rates. I once had a business in Turkey and my profits were being seriously reduced because of the due to unpredictable inflation and currency. I would say there needs to be around 6-12 months of solid research before you make that move abroad.
A more robust infrastructure
Lawyers, accountants, even translators – these will all be critical figures in ensuring your business copes within a new market. They make up the infrastructure of a business, and the stronger the infrastructure, the better you will be.
These people all need to be experts, and I don’t just mean being able to speak the language! They should know all about the business environment in that country, as well as general customer behaviour.
What types of garments are most popular? What times of the year are best from a clothing point of view? They will essentially be your guides who help you come to the correct strategic decisions.
I would strongly recommend finding an international partner. Don’t try and be a hero and go it alone. Working in conjunction with somebody who knows the industry and country will leave you less vulnerable.
You may have to share some equity with them, which a lot of entrepreneurs don’t like doing – but consider this. Would you rather own 60% of a business that has real value and growth prospects, or 100% of a failing business?
Remember the partner will also be able to introduce you to key contacts, which can increase your pipeline.
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