Posts Tagged ‘Small business’

Operator Error Is Why Most Businesses Fail

Sunday, November 1st, 2009

Q: I am thinking about starting my own business, but statistics show that most new businesses fail. Why do you think most businesses fail?

A: This is the column that probably gets me kicked out of the entrepreneurial chapter of the Priory of Scion. I look silly in those long robes anyway, so here goes.

A thousand apologies to my entrepreneurial brothers and sisters, but. I think the more important question is: do businesses fail or does the entrepreneur in charge of them fail? I have to be honest and tell you that I think most business failures must be laid at the feet of the person in charge.

Sure, there may be contributing factors to the demise of a business, such as a huge chain store moving in next door, a down economy, the lack of qualified employees, new government regulations, the failure of a strategic partner, etc., but any entrepreneur worth his salt should see such things coming and make adjustments to weather the storm.

And the truth is sometimes the storm can’t be weathered and you have to abandon ship. Is that a business failure or an entrepreneurial failure? I think the coin flips both ways.

Starting a business is never easy and the fact is approximately half of all small businesses fail within the first four years, with a large percentage of those failures occurring in year one.

There are many reasons why businesses fail, but according to a 2003 survey by U.S. Bank, the majority of business failures can be attributed to three reasons: bad management, bad financial planning, and bad marketing.

The survey showed that seventy-eight percent of the business failures examined were due in part to the lack of a well-developed business plan and a business owner who had no business being in the business he was in.

In other words, the business owner did not have the adequate knowledge or a thorough understanding of the business he had chosen to start. This is why software entrepreneurs like me don’t start shoe stores. I have feet, I wear shoes, but that’s not enough to qualify me to go into the shoe business.

Seventy-three percent of the businesses surveyed were also managed by owners with rose colored calculators. These optimistic entrepreneurs over-estimated revenue and under-estimated cost.

Seventy percent of the failed businesses were led by entrepreneurs who were in denial regarding their own competence, or more to the point, their own incompetence. These business owners either didn’t recognize (or more likely chose to ignore) their own entrepreneurial shortcomings. These entrepreneurs also did not seek assistance from others who might have made up for their inadequacies. It’s hard to ask for help when you are supposed to be the one with all the answers. It’s harder still to lose your life savings when your business tanks.

The final contributing factor to the death of sixty-three percent of the businesses who died from bad management was that the owners had no relevant or applicable business experience. Just because you eat at McDonald’s does not mean you’re qualified to manage one.

Bad financial planning was the second reason why most businesses fail. According to the study, eighty-two percent of the business failures studied reported poor cash flow management as a contributing factor to the death of the business.

Seventy-nine percent of the businesses were inadequately funded to begin with and seventy-seven percent miscalculated the cost of doing business. In other words, they failed to take into account all of the costs involved when setting the price for their products.

Bad marketing was a contributing factor in the death of sixty-four percent of the businesses surveyed. Many of these misguided entrepreneurs either minimized the importance of marketing and promotion or ignored it totally.

A vital part of marketing is knowing who your competition is and always knowing what they are up to. The entrepreneur who ignores his competition is a fool (gee, was that too harsh?) and is always destined to fail, as proven by the fifty-five percent of the dead businesses in the survey who either didn’t even know who their competition was or simply chose to ignore the competition altogether.

Here’s a nice hole in the sand for you, sir. Please insert your head

Another mistake made by forty-seven percent of the deceased businesses was that they relied on just one or two customers for the bulk of revenues. This is a common mistake made by many business owners who devote all their energy to one huge client. What they don’t seem to understand is that if that one customer goes away, so does most of their revenue.

Moral to the story: before diving in you should know the industry, know the market, and know the competition. You should also leave your ego at home, ask for help when you need it, be realistic with the finances, and go out of your way to tell every person on the planet about your product.

Will that guarantee the success of your business?

Not at all, but it sure can’t hurt.

Here’s to your success.

Tim Knox
Entrepreneur, Author, Speaker
Tim is a nationally-known small business expert who writes and
speaks
frequently on the topic.
For more information or to contact Tim please visit one of his sites
below.

http://www.dropshipwholesale.net

http://www.smallbusinessqa.com

http://www.timknox.com

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Small Business 101 Deadly Ignorance

Sunday, July 5th, 2009

American small business is again in transition. Many employees, now working from home, are no longer tied to a geographic office and the woes of commuting. This is a relatively new phenomenon with hints of explosive sector growth in the days ahead. As this turbulent economy has forced downsizing, offshore restructuring and closures in large companies, many new entrepreneurs have been born. These are people, who instead of tirelessly attempting to find new employment and possibly enduring the same fate as previously experienced, are now starting small businesses and enjoying the benefits and perils of self-employment.

There’s an old story telling of an Admiral’s decision to fight a battle against overwhelming odds. It seems that he was approaching the coast of an enemy land, with a larger naval force closing in from behind and a great army approaching from the land ahead. He prayed and then addressed his men. He announced that their battle weary forces would land on the beach ahead, dig in and prepare for the upcoming battle. There was no turning back and no other alternative. He ordered their ships burned after they landed. Their only choice was to fight to win or perish. They defeated their enemy because he eliminated any other escape route. They were fixed on the goal of survival and none other.

That is the same attitude we as entrepreneurs must take. We can not afford to be denied. We must grow and prosper or our business will surely perish. We must constantly be looking for ways to cost-effectively market our business and increase sales. We must control costs and have sufficient cash flow for daily operations. Each of us must be persistent, relentless and vigilant. As CEO, we are the manufacturer, the sales team, the marketing department, legal office, accounting office, human resources manager, IT manager, the webmaster and so on. We can’t afford to be all these positions. Our job is to sell! We must locate cost effective resources to help us grow and protect our investment in our business.

The growth of the internet has changed our marketplace as well. Years ago, a small business owner decided upon a geographic chunk of the market and set up shop. Today, that shop is typically located in an office at the entrepreneur’s home. The marketplace is now the world. The costs of marketing products and communicating worldwide are so low that almost anyone can take part in this revolution. Sophisticated voice mail, cell phones, email and effective ecommerce web sites now provide the illusion of size and grandeur for even the smallest home-based business. The end customer typically has no idea whether their supplier is local or across the world. He may be dressed in a shirt and tie or in his pajamas! All that typically matters is that the exchange of product and services is successfully made for a profit.

It is critically important for the small, home-based entrepreneur to be aware of resources available to her as she makes this great leap. Too many people leap prematurely into business only to fail because of poor planning and insufficient financial resources. Do not get caught in this trap. Don’t quit your day job until you have enough cash on hand to pay the bills for at least a year into your new venture. Become aware of and develop the resources available to you. You want everything possible going for you as you make this leap of faith into the entrepreneurial world.

Here in South Carolina, we have the outstanding Women’s Business Center (http://www.scwbc.org), a division of the SCMEP, South Carolina Manufacturers Extension Partnership (http://www.scmep.org), one of the best kept secrets available to businesses at all levels in our State. Other States have similar programs modeled after ours. These are incredible resources, partially funded by the State and private resources, available at little to no cost to entrepreneurs, with the purpose of aiding the successful growth of small business. Some additional national resources are:

http://www.nationalbusiness.org

http://www.nase.org

http://www.gosmallbiz.com

http://www.empoweringbiz.com

http://www.nfib.org

http://www.qualitybusinessdirectory.com

There are also numerous magazines devoted to small business, home-based business, marketing, sales, accounting, etc Get tuned in to these and other resources available to you. Read your industry publications to stay abreast of competition and other facets of your business interests.

A single legal issue, FACTA problem, accounting error or marketing miscue can put you out of business. In the case of FACTA, insufficient security or poor record-keeping these days could find you legally responsible for a single employee’s identity fraud issue, which may end up being very costly. A single lawsuit or vendor dispute can shut you down. Many entrepreneurs are ignorant, ill-prepared and under-schooled with regard to these and other issues. Do not get caught in the deadly ignorance trap.

There is more opportunity available today than ever before for the wise entrepreneur. Get all you ducks in a row before you make the fateful leap into the new world marketplace. Be smart, learn all you can as quickly as possible and take action on your ideas. Like the Admiral, be determined to win in the face of what may appear to be overwhelming adversity.

Daniel Sitter is the author of the breakthrough e-book, Learning For Profit, the revolutionary how-to book providing simple, step-by-step instructions to teach people exactly how to learn new skills faster than ever before. It’s currently available from c|net’s download.com, the author’s web site http://www.learningforprofit.com/ and a variety of online book merchants. Mr. Sitter is a contributing writer for several online and traditional publications. His expertise include sales, marketing, effective learning techniques, self-improvement and general business interests.

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Why is It So Important to Hire Exceptional People

Friday, May 15th, 2009

The people we hire for our business become our goodwill ambassadors. We, as owners, are sometimes predisposed, and the people we employee represent the image of our business, the brand we are developing, and the standards our business is based on.

As business people, we need to protect ourselves and incorporate security measures regardless who we hire. We will be able to track any theft in money or merchandise. That’s just good business!!

The snag might be that we can’t always check all the time if our customers are being served properly, or standards are being kept in place during our absence. Just think how nice it would be at times to have exceptional people watching the shop, making money for us, while we are having some enjoyable time away. This means we should not ignore our business every day; by owning a business, at times we take advantage of that freedom. So, by hiring exceptional people with the right work ethic, we might reduce some of what we might refer to as the slack factor.

How do we choose the right person?

Do we pick someone because we like him or her? They’re funny, and, even though they only have a few of the desired characteristics, we probably could be great friends.

Let’s keep in mind this is a working relationship. Clearly defined, we are employers and therefore must keep personal feeling out, and criteria in. This should not mean we do not care about and like the people who work for us.

In a business forum their confidence will come from us, a good, fair, and firm employer that they can trust to do what we promise. To accomplish this, it is vital to pick our employees based on the characteristics we have put in place for exceptional people.

We need to review their resume, look again how they answered the interview questions, and how they would fit in with our other employees. Remember, everyone has a unique and different personality. By putting criteria in place, we can choose our employees fairly and without prejudice. It is important to remember that if someone should not meet our criteria we must let them down gently and with respect. The same applies when firing. Besides, these people could even become loyal customers in the future.

Hire right, or manage hard!!!

Arnold Nadler is a long-time entrepreneur and founder of The Startup Business Doctor, a private company specializing in helping new and small businesses get their company off the ground. Programs include professional coaching, franchise opportunities and inexpensive advertising packages. You can get more information at StartUpBusinessDoctor.com Feel free to send me your comments on this article.

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Achievements Outweigh Education and Experience

Sunday, March 8th, 2009

Q: When it comes to succeeding in business, which do you think is more important: education or experience?
— Regina M.

A: Regina, have you seen the television show, Fear Factor? If you haven’t seen it you’ve probably heard about it. Fear Factor is the show where they put contestants through all sorts of pseudo-death defying feats like bungee jumping off a bridge over a pool of crocodiles and driving a car through a wall of fire (you know, the stuff we did for fun in high school).

The contestant who overcomes their personal fear factor wins the cash and prizes (usually at the cost of their dignity, but I digress).

The highlight of Fear Factor is the eating competition. That’s when contestants are invited to partake of all sorts of culinary fare. Yummy stuff like monkey brains, all manner of live bugs and spiders, moose intestines, old fruitcake (the horror!), and my personal favorite, live giant worms. At this point the competition becomes not so much who can overcome their fear actor, but who has the lowest gag reflex.

Your question makes me feel a little like those contestants, Regina, because no matter how I answer I am opening a can of giant worms that I will undoubtedly be forced to eat later.

My highly educated peers will argue that education is much more important than experience, while my highly experienced peers will argue that experience is more important. Either way, it’s worms ala carte for me.

Oh well, I’ve eaten more than my share of crow over the years.

How much worse can worms be?

It’s important to understand that the success of an entrepreneur is not measured by how much education he or she has or how many years of experience are under his or her belt. An entrepreneur’s success is measured by achievements, not words on a resume.

By definition, an entrepreneur is a risk-taking businessperson: someone who sets up and finances new commercial enterprises to make a profit. Entrepreneurs start businesses. The smart ones then hire MBAs to run them.

Let’s start with education. Is a Bachelor’s degree or better required to succeed in business? Of course not. An MBA from Harvard might give you a leg up in a job interview, but it certainly doesn’t guarantee that you will succeed in business. Nor does it automatically mean that you will be a better business person than someone who didn’t finish high school. Knowledge is a good thing – if you know what to do with it.

Perhaps it is the academic environment itself that turns mere mortal nerds into budding entrepreneurs. The late ’90s proved that college students with no experience beyond organizing a frat keg party could start businesses that would exceed all expectations.

Many would argue that the key to success for most of these ventures was that the founders (or the VC financing them) were smart enough to know that while they had an abundance of education, they needed experienced managers to really run the show.

Larry Page and Sergey Brin were college students when they started the company that would become Google. They were smart enough to bring in Eric Schmidt to be chairman and CEO when the business took off. Schmidt was the former CEO of Novell and CTO of Sun Microsystems. A PhD, Schmidt is a man of education and experience.

Jerry Yang and David Filo were candidates in Electrical Engineering at Stanford when they started YAHOO (Yet Another Hierarchical Officious Oracle) in 1994. They brought in Tim Koogle from Motorola to run things shortly thereafter and now the company is led by Terry Semel, who previously spent 24 years running Warner Bros.

Now on to experience. Is experience a prerequisite of business success? Again, not at all. Many experienced entrepreneurs gained their experience in failed businesses, so experience does not instantly translate to success.

So, when it comes to succeeding in business, which is more important: education or experience? While neither is as helpful as a rich relative, here’s the answer that will hopefully help me avoid those worms: Both education and experience can play a large part in business success.

The more important question is can you succeed in business without one or the other, or even without both? And the answer to that one is: yes. Can I get ketchup with those worms?

Many successful businesses were started by first time entrepreneurs who never went to college. Natural talent, ambition, drive, determination, and good old dumb luck have fueled many success entrepreneurs, myself included. I don’t have a degree (I drove past a college once. It looked hard, so I kept going). Would a degree have helped make my business trek easier? Perhaps.

Then again, I know people with advanced degrees who are flipping burgers at McDonalds. It’s good experience, I suppose.

A combination of education and experience (and a variety of other things) is the best recipe for success. As the old saying goes, “There is no better education than that which comes from experience.”

In the end, it really doesn’t matter how much education, experience, talent, luck or money you have. It’s what you do with it that matters.

Here’s to your success.

Tim is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs.

http://www.prosperityandprofits.com

http://www.smallbusinessqa.com

http://www.30dayblueprint.com

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Business is Very Similar to Understanding the Game of Hockey

Sunday, November 9th, 2008

Have you ever walked into a busy retail store, and heard a patron say, “this place must be making a fortune”? Obviously this analysis is simply based on the amount of people in the store at the time. Then maybe a year later, the same establishment closed. That very same patron might wonder what happened.

Many people love to watch the game of hockey, why is that?

They understand how the game works; enjoy evaluating and observing their favorite players in action. These fans will keep themselves up to date, go to the actual games, have long discussions with friends, watch the sport shows, and read the newspapers. Through these means they can study the players, know their stats, and can give an educated opinion on the game of hockey. Most of these types of dye hard fans are very passionate about the game, and some might agree with me when I use the term obsessed. If some of these fans would consider dedicating themselves the same way in business, they could be very successful!!!

How does hockey relate to understanding business?

The player’s would be your employees.

Your fans are the loyal customers.

The referee’s is the governmental bodies who enforce the laws.

The stats are your business numbers.

The passion comes from within.

Final thought

It is very important to have the right business training before venturing out on your own. This way you have a clear perceptive on how the game works, and what it will take to be good at it. The patron in the store was just an impressed fan, but did not know how to play the game. There is nothing wrong with that, and everyone is entitled to an opinion. However maybe the next time you hear someone say, this store is making a fortune, hopefully you will have gained some better awareness about the game of business!!!

Arnold Nadler is a long-time entrepreneur and founder of The Startup Business Doctor, a private company specializing in helping new and small businesses get their company off the ground. Programs include professional coaching, franchise opportunities and inexpensive advertising packages. You can get more information at StartUpBusinessDoctor.com

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Employees’ Poor Performance Is A Matter of History Where 60% is Viewed as Success

Tuesday, May 6th, 2008

Recently I come across the following scale in a national research report to grade each state’s education performance within numerous areas. Do you see anything questionable about this scale?

Grading Curve: A (93-100), A- (90-92), B+ (87-89), B (83-86), B- (80-82), C+ (77-79), C (73-76), C- (70-72), D+ (67-69), D (63-66), D- (60-62), F (0-59)

If you aren’t scratching your head yet, please allow me ask another question. If you are an employer, a human resource or a quality control manager what expectations do you have toward the performance of your employees? In other words, do you expect your employees to know 50%, 60%, 75%, 80%, 90% or 100% of their job skills or job description? At what level of knowledge and years on the job, would you consider that employee’s performance to be sub-standard and would not entitle her or him to a promotion or a raise and might be within the area of specific discipline strategies from suspension to termination?

Now you might be thinking what is this lady talking about. Common sense dictates that every employee should know at least 75% or 3 out of every 4 requirements of their job and within a certain time frame progress to 100%. Errors are costly in business and employees’ errors are extremely expensive as they have a cascade affect within the organization.

Even though the above scale is for a national research report on education in America, this scale is present in many classrooms throughout this country. What has happened is that the low expectations within the classroom have migrated up and now are affecting research organizations that consider 60% as passing. F is failing and everything above F is passing. From a simple performance perspective, if we don’t fail, we have success because success has been defined at 60%.

These low expectations have contributed to the low results that have been documented through such research as the National Assessment of Educational Progress where for example reading scores collectively for 17 year olds over the course of 33 years have not changed.

The high standards of 40 plus years ago where anything less than 75% was failing are non-existent in the majority (that being over 50%) American schools. NOTE: As a former school board trustee, I continually fought to raise the bar to 75% as passing, but that outraged teachers, parents and students who argued such standards would prevent the students from playing sports. For playing sports was no longer a privilege, but a right.

Many young people experience 12 years of conditioning where doing less than your personal best is OK. And guess what? You even get rewarded by a promotion to the next grade. How cool is that? Now, these same young people go into the workforce with a belief that it is OK to just get by as long as you don’t fail. During my 20 years in management, I saw this on a regular basis with many of our new hires.

If we, as business owners, truly desire to improve the performance of today’s employees, we need to raise the standards within both the schools and the organizations that report on the schools’ and states’ performance. Until we stop this cycle of mediocrity, we will continue to receive employees who expect the world without working hard at acceptable levels of performance. And these employees will continue to view 60% as success.

Leanne helps individuals, small businesses and large organizations to double performance in real time. Click here to learn the Secret of Success and sign up for a free monthly newsletter. Please feel free to contact Leanne at 219.759.5601. If you truly don’t believe doubling your results is possible, read some case studies where individuals and businesses took the risk and experienced unheard of results.

One quick question, if you could secure one new client or breakthrough that one roadbloack, what would that mean to you? Then, take a risk and give a call at 219.759.5601 to experience incredible results.

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