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Recovery from problems

A better year

A Good year Last year was a bad year for many companies – here is how to make sure 2015 is better

 

A variant of this article was published as the Sanlam Business Tips for Business Owners January 2015 edition. This publication is a great resource for entrepreneurs, well worth subscribing.

 

 

Last year was one of the most difficult for businesses in recent times. The strike in the platinum mining sector started in January and was only settled in June. Losses to the mines and their workers were enormous, but the trickle-down effect of the mines not buying meant suppliers were badly affected. That in turn affected their supply chains, down to tax consultants of managers of third tier suppliers. Only a week after platinum strike settlement the metalworkers strike paralysed industry for a month. The post office did not deliver mail for months in some areas, new power stations again experienced construction delays, the radical EFF appeared on the stage and the e-toll saga developed in Gauteng.

On top of all this the South African national pastime of sharing bad news brought a mood of pessimism and resignation. Already in 2015 we have seen threatened strikes, load shedding xenophobic violence. What, you may ask will make this year any better than the previous one? One of the answer to that question is you. There are many things you can do to shield your business from negative external events, and to seek the opportunities that any adverse event brings. Continue reading

The dreaded top of the “S” curve

2014_March This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in March 2014 and is posted here by their kind permission

 

A threat or a real opportunity?

 

 

Successful start-ups normally begin slowly, then grow rapidly. Growth is not usually a straight line, but can be compared to an elongated “s” curve, with a slow start then strong growth until it levels off. Think about a flat topped mountain – the lower slopes are quite gentle then the sides steepen until the plateau on top, where the business becomes static with little or no growth. Arriving there can be a problem where the company depends on growth to pay the bills, and if nothing changes then like the mountain example the only way from there is down. How can you avoid this trap?

Many S curve books focus on large corporates, getting to the plateau when they reach market saturation, but the slowdown can occur in businesses with less than ten employees, and in as little as two years from start-up. This is often attributed to running out of the friends and family the business relied on as customers in the early stages, or running out of working capital.

Running out of time

In my experience a frequent reason for getting to the top of the S curve is the management style of you, the entrepreneur. You often run everything, and do it very well. You learned this when the company launched and you had to manage everything – from sales to logistics. As the business grew you got better at them than anyone else, so there was no sense in delegating to others. One day you run out of capacity to do more work and the business stalls, limited by your available time. Continue reading

Staring at failure

13 May Cover

This article was written by Ed Hatton, the Start Up Coach for the South African edition of Entrepreneur magazine, as the My Mentor column published in May 2013 and is posted here by their kind permission.

 

 

That terrible time when it looks like the business cannot continue

 

There comes a time in almost every business’ life when failure seems inevitable, and the entrepreneur fears that they are unable to continue. His or her self confidence nose dives. Prospects for success or even survival appear to be extremely limited and a sense of hopelessness sets in. It is a terrible time, and often happens within the first year of operations, sometimes near the launch.

There is a real basis to this fear. Businesses frequently fail and start-up businesses are especially vulnerable, with many never getting beyond the first year of operations. Entrepreneurs may not have the skills, knowledge, risk taking ability or drive to manage their businesses profitably.

Rational thinking

The key to managing through this stage is to decide rationally whether the business is really doomed or whether the entrepreneur has just hit that painful wall that left so many others bruised and shaken but stronger and thriving. Many business owners quit in despair at this stage when with the right tactics they could have succeeded. Decisions have to be made only on facts and stripped of emotions, pessimism, and blame. This is extremely difficult for an entrepreneur to do alone at a time when they are swamped by doubt about the whole business concept, their own abilities and their fears of the consequences of failure including catastrophic financial loss and shame. This is a great time to have a mentor to turn to.

An old business saying suggests that the best loss is the one taken early. If a rational analysis of the state of the business shows that there really is no likelihood of the business succeeding then plans must immediately be made to close the business with as little damage as possible. It is not smart to continue to ride a failure into yet more debt and broken promises.

Finding out why

An assessment of the current situation is vital, write down cash resources, sales prospects, market reaction, product and service quality and fitness for purpose and all the things a buyer would look at it he were thinking of buying the business.. These must be compared to the business plan to see what has changed. Why were the expected returns not made? Are the causes fundamental or can they be reversed? Be certain that the real causes have been identified; this is not a place for rose tinted spectacles. Once the causes of the distress are identified it is a whole lot easier to make a close or survive decision. Often the crisis is brought about by something as simple and reversible as the failure of marketing promotions to attract potential customers, deviating from plans to satisfy unreasonable demands by early customers, trying to attack too many markets or spending too much time on product development and not enough on selling. This is where a mentor can bring an impersonal outsiders view, especially if the mentor has experience in managing similar situations. Continue reading

The subject expert entrepreneur

13 April coverThis article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in April 2013 and is posted here by their kind permission.

 

You have the expertise but where are the customers?

 

 

Challenge
This entrepreneur had 26 years experience in the security industry when he started his own security company. For several years he has been unable to secure guarding contracts, and asks for help
Response
Every start up entrepreneur believes that a sustainable and profitable enterprise can be built and this belief is reinforced by expertise in the product or service that the company will deliver. An expert in the chosen field has big advantages; he or she does not need to climb the product learning curve that affects so many start-up entrepreneurs. However as our questioner has discovered to his cost, expertise in the chosen field alone does not guarantee success.
A successful business must provide customers with services which they perceive to be more desirable and valuable than the services available from competitors. This perception is not just about the product or service; it covers the supplying company, people, styles, and brand association – the whole package on offer. The challenge for start up entrepreneurs is to create a business that provides the package which will attract customers away from alternatives – and then communicate the package to them. Continue reading

Tough times

Image courtesy of Paul FreeDigitalPhotos.net

Image courtesy of Paul FreeDigitalPhotos.net

How to negotiate difficult market conditions

“It’s tough out there” a veteran entrepreneur said to me recently, “this is the worst I have seen in 30 years of trading in this market”. Many businesses are really feeling the pinch as the long lasting effects of the global economic downturn slash budgets and postpone new developments. The phrase about tough conditions is heard frequently.

In the local marketplace labour unrest which often turns violent, energy cost and availability concerns, high inflation, increasing red tape and low labour productivity add to the problem. During the good times competition increased with more companies being launched or expanded. This means a shrunken market is being contested by too many suppliers with high and increasing costs. Buyers become more demanding because they can – there is always someone who will shave the margins to the bone just to keep the factory ticking over and some staff employed.

Effective action

Good entrepreneurs react to situations like this; they do not simply accept that times are tough and that their businesses will underperform. The business needs to win more of the scarce business, effectively denying this slice to competitors, and it needs to compensate for increased costs by increasing efficiencies. Continue reading

Risky business

This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in February 2012 and is posted here by their kind permission.

 

Having one large customer is wonderful – until something bad happens

 

 

The Challenge

This entrepreneur has printed training manuals for a large national company for 18 months. He purchased additional machinery for their work, although there was no contract in place. Recently the orders have dwindled and the new machinery stands idle. The buyer now places orders with a friend. The entrepreneur asks if there is any way he can complain about cronyism.

Our response

Most small businesses dream of having at least one really large company as a customer. Big orders mean rapid growth and the cost of sale is lower than dealing with many small businesses. But there are disadvantages – entrepreneurs entering deals with very large organisations should consider Porter’s ‘Five Forces’ model, where the power of customer is identified as a competitive force. Continue reading

Competing with giants

This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in July 2011 and is posted here by their kind permission.

Start ups must respond to aggressive and bullying tactics to survive
By Ed Hatton

The challenge
A small concrete pipe manufacturer with great customer service opened a factory in East London to support the local demand from local contractors and government. This reduced the cost and delays in transporting pipes and was an immediate success; turnover increased rapidly. The large and powerful manufacturers in this industry lost market share and reacted by slashing prices dramatically, absorbing reduced or negative margins with their substantial resources to attack the upstart. The new factory cannot match these prices and there is no product differentiation. Their question: how do they compete?

The Solution
Voltaire wrote that “God is on the side of the big battalions”, but I wonder if the Almighty would want to be associated with some competitive practices of large and predatory organisations. Entrepreneurs starting new ventures in competition with powerful organisation often face the kind of threats experienced by this questioner. The competition may be price based as in this case or it could be massive increases in marketing spend, cornering the raw materials supply, buying key staff from the start up and others. Many believe that free competition and entrepreneurship are the best routes to more employment, but sadly practices on the ground are often very different.

How can this entrepreneur compete? Continue reading

Starting over

This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in May 2011 and is posted here by their kind permission.

 Moving a business to a new location can be like starting all over again. By Ed Hatton

Challenge

An entrepreneur moved his event management and wedding planner business to a new province where no-one knows his business. He needs to attract clients but isn’t sure where to begin. He has been distributing pamphlets, but so far no-one has gotten back to him.

Solution

This entrepreneur had a thriving business doing wedding planning, parties and corporate event management and then he moved to a different province. When he started operations in his new location he realised just how much personal reputation and word of mouth had meant. In the new location he is unknown and potential clients are wary of entrusting important events to him.

The business must be started again in the new location. As before, he has to build a client base and a solid reputation to provide a platform for growth. He has the advantage of being experienced in running events and weddings, so he does not start quite as ‘cold’ as he did originally. Against this are a number of part-time wedding planners and event managers who are established and compete with him for business. Continue reading

Taking baby steps – a strategy to overcome disaster

pic courtesy of imageafter.com

pic courtesy of imageafter.com

Here is a familiar story. A good and profitable business sees a potential threat become reality and turnover falls suddenly. The former comfortable profit becomes a monthly loss.

The first imperative is to stop losing money which means that there must be more gross profit or lower expenses or both. Surprisingly tiny, almost insignificant changes will stop the company losing money. It’s the practice of taking baby steps instead of giant leaps.

For example: A business turns over of R1M per month before the crisis at a gross margin of 40% with operating expenses of R350K per month, leaving a net of R50K per month. To simplify the accounting this article will look at profit per month, as if this was a cash business and ignore tax. Say turnover shrinks by 20% after the disaster strikes, and the profit turns to a loss of R30K per month.

If, instead of making radical changes or retrenching staff, the company implements a careful strategy of tweaking several factors the loss can be eliminated without major change. Continue reading

How to panic sensibly – strategies for overcoming a business reversal

Pic courtesy of freeimages.co.uk

Pic courtesy of freeimages.co.uk

In most businesses there is always a risk of a sudden and serious reversal. A big customer stops buying, a supplier kills a product range, there is a strike in your sector, a major competitor appears, or any one of many potential threats occurs. Turnover slows and profits fall below breakeven and turn to losses.

Usually the business owner now exhibits some degree of panic. Common responses include the owner (male or female, the male gender is used only for convenience in this article) punishing himself by taking out less money, adding to his worries and possibly getting into personal debt. Then he delays paying creditors as long as possible and as a reward may have raw material or inventory deliveries being suspended because his account is not up to date. Often he holds off paying his VAT and incurs penalties. He may institute some special offers for new customers to regain the lost turnover, but this will affect his margins and alienate his regular customers who are paying a higher price. Continue reading

The new base line

pic courtesy of imageafter.com

pic courtesy of imageafter.com

In an economic downturn, as the world experienced recently, many small business owners react in peculiar ways. They will tell anyone who will listen about how bad times are while ignoring the depressing effect these words have. While they are usually skilled decision makers they often panic and retrench skilled staff, cut back on customer support and otherwise cut costs but have no plan to review these changes in the future. They avidly read case studies of businesses that have found a wonderful solution to their plummeting sales and therefore become recession proof; and then desperately try to find a similar ‘magic wand’ answer for their own business.

Some operate in the hope that the bad times are a temporary blip on an otherwise smooth growth path; an inconvenience which will disappear soon. They believe that at worst it may mean retrenching a few unwanted workers. They will prepare highly optimistic forecasts for the future, anticipating that ‘things will get better’ in a few weeks or months time.

A better way

There is a better way to weather these bad times. But first the small business owner has to face a few facts: Continue reading