This article was published as the Sanlam Business Market, Business Tips: December 2013 newsletter. The Sanlam Business Tips is an incredibly useful and free resource for entrepreneurs. If you have not yet subscribed you should.
Many business plans lead businesses into disastrous situations
We all know we should check our cars before travelling. Equally important is the need to check your business plan for faults and potential failures before making it the core of your business, or using it to ask for finance. Here is a 6 point check:
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.
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
A new entrepreneur faces a steep learning curve with no mentoring
An entrepreneur started a website to provide youth with a free service for employment and small business opportunities. The income comes from web publishing and affiliate programs. He has no IT background and has to learn operations, marketing, finance and everything at once. He also doesn’t have anyone to bounce new ideas off.
This entrepreneur, operating in a rural area, wanted to make a difference to young people and small businesses. The web site breaks even but he is frustrated at the slow growth and his own lack of knowledge. This is a near-universal problem with new businesses, the learning curve is both steep and multi-disciplined. Affordable advisors are hard to identify.
Learning and getting advice
Finding appropriate learning opportunities and information while running a new business is a challenge. There are many courses advertised and choosing the right one is crucial for entrepreneurs on tight budgets and with limited free time.
Start with the free information on the internet. Entrepreneur magazine’s website at www.entrepreurmag.co.za is a valuable resource, so is the SME Toolkit (www.southgafrica.smetoolkit.org) and many others. There are many great business blogs which starts ups can follow at no cost including my own at http://marketingstrategy.co.za. It takes time and patience to search for good information, but this is time very well spent.
Entrepreneurs should not be afraid to ask for advice, but only when they have done the basics. Many business people are happy to help but don’t expect them to come up with answers when the entrepreneur has been too lazy to investigate options. Start with a successful business nearby that is not in competition with yours and then ask the managers for assistance. This works well in the internet world, where free advice is a part of life. Coaches and mentors are available for a fee, but set the expectations and budget in advance. Continue reading