Article By Valentine
Okolo
Deciding to start your own business can be one of the most
exciting and rewarding decisions you make in your life. A good percentage of
new businesses fail today for a number of reasons which I will be explaining in
this post.
In today’s business
world, succeeding in a new venture can be quite challenging and demands
adequate strategics and planning. As a matter of fact, whether you will
succeed or fail depends on how you’re your planning and executing strategy is.
Now when you plan, you must anticipate every possible
scenario and when you execute you must do so with the greatest of diligence and
attention to detail. Am not going to talk about new business planning, I have
already covered that in a separate post which you can find here
: 5 Tips to Help YouWrite an Effective Business Plan. Am going to talk about how you can
avoid the worst nightmare that can befall any new business: The 10 Killers of
New Businesses.
1.
Bad Management
A business is only as good as its owners
and those who manage it.
Bad management can be seen in a lack of clear objectives or strategy, confusion
among senior leadership, poor decision-making.
As a rule, you should always have a
business plan before venturing into any business. Poor business research or
missing out critical details can also spell the doom of the business even
before starting. If your business must survive, then you must get it right from
the business plan.
2.
Inadequate Working Capital
Inadequate working capital is what I call “Business
Cancer”. It will eat up the life of that business slowly and surely. Most
people think that the moment they can come up with the capital to start a new
business, they are good. Take my advice, if you do not have enough money to
take care of overheads for at least the first 2 years of the new business, DON’T
START. A new business is like a new baby that needs food to grow, starve the
baby and she would die.
3.
Poor Customer Service
Some people take great pains to start a business
and then employ nonchalant people to serve their customers.
One truth you must know about customers is
this:
Customers
are both demanding and ruthless; they reward highly those companies that serve
them best and allow those companies that serve them poorly to fail.
Let’s face it; customers care more about
themselves and their own satisfaction than they do about the success or failure
of your company. Customers will continue to patronize you as long as they
continue to have good experiences over and over again. This means that as a
customer service representative or service person, you must continue to provide
a wowing experience every time a customer visits you which lead to customer
satisfaction. It therefore follows that for your business to be successful
there is no substitute for satisfying the customer. In order for you to deliver
that superb customer service experience, you must learn to demonstrate at all
times those customer service skills that portray you a true service
professional. So here are
customer service skills every customer servicerepresentative should possess.
4.
Wrong Business Location
Location is everything. I have seen people
run out of business because their business was located in places where their
targeted audiences weren’t in. You must first determine where your target
audience is located and how best to reach them.
5.
Overwhelming Competition
Competition includes all the actual and
potential rival offerings and substitutes a buyer might consider. Understand
that your competitors include actual and potential offerings from industry
operators, potential new entrants and market competitors.
A new business can easily be muscled out by
a strong competitor who has already gained grounds in the market. Competitors
can be ruthless and to survive you must learn to be even more ruthless and
determined. You need a lot of patience and consistency to gradually create a
niche for yourself. No matter how hard it may seem, hang in there, with time
you would gradually begin to create a space for yourself. One advice though: ensure
you don’t run out of working capital.
To analyze its competitors, a company must
identify its competitor’s strategies, objectives, strengths and weaknesses and
then device its own strategies to overcome them. It must also have a clear
understanding of the environment it operates in. With all these being said, you
need a business strategy to overcome the competitor.
The strategies available to a company will
depend on the strength of opposition it is facing, its distinctive
competencies, the expectations of its customers, the conditions prevalent in
its environment, its resource capabilities, the cost/benefit derivable from the
application of the strategy and its current position within the market. In addition,
your strategy will also depend amongst so many other factors on your:
i.
financial muscle,
ii.
objective,
iii.
the level of competition,
iv.
competitors approach,
v.
your market position,
vi.
Marketing indices amongst others
For instance, a Low-Cost Provider Strategy
will allow you to be the industry’s lowest cost provider. The company decides
to pursue this in two ways:
A) Lower price below that of its competitors in other to attract buyers
and maximize profits.
B) Lower its cost of production while keeping price constant in other to
reduce costs and increase profits.
Whichever option it chooses, the company
must be careful to ensure quality is not eroded and that all basic
functionalities and features of the product or service they render are not affected.
When employing a low cost strategy, you must find ways to cut costs across
board by ensuring all cost drivers are lower than that of your competitors. In essence,
while pursuing points A or B above; costs must be cut across production,
administration, marketing, purchasing, research and development, finance and
human resources.
The Broad Differentiation strategy on the
other hand allows a company to design or attach unique features or attributes
to its product or services such that consumers become attracted to the product
or service because of its unique features. A company pursuing a differentiation
strategy is more concerned about the quality of the offering rather than price
cuts.
The Low-Cost Provider Strategy and the Broad
Differentiation strategy are only a few out of a good number of competitive strategies
that can be employed and because it is so broad, I would not be able to cover
it in this article. However, you may avail my course on
“Overcoming Competition in Business” to comprehensively study them.
6.
No Backup Plan
Try to have a backup plan for every
possible scenario. Make sure your plan has a plan in case it fails. Make use of
Insurance. Remember: there are 3 ways to manage a risk: To effectively handle
these business risks, the following steps should be taken:
• Assess The Risk: To effectively assess
the risk the following question need to be answered. Does a risk indeed exist?
If it does exist, is there any alternative to be chosen? How much information
is available about these alternatives? What is the potential impact of the risk
should it occur?
• Assess the Alternatives: What would it
cost the organization to pursue each of these alternatives? Note that the cost
being referred to include both financial costs, human costs, cost to the
organizations image, material costs, environmental costs, competitors reaction
to your course of action etc. Alternatives could also present the option to:
a) Transfer
the Risk to another party more competent to handle it. (E.g. through insurance,
joint ventures and strategic alliances, outsourcing etc.)
b) Mitigate
the Risk. I.e. to manage the impact of the risk by minimizing the odds.
c) Ignore
the Risk. I.e. brace yourself and accept the impact.
• Implement the Alternative Chosen: Once
an alternative is selected, an implementation plan is quickly arranged. The
plan should clearly itemize steps needed to implement the strategy chosen. The
implementation plan should also have a backup plan for another alternative
strategy should the former fail. There should also be a feedback process to
handle issues that may arise in the course of implementation.
7.
Inadequate Marketing
Selling is probably the most important part
of any business. Good selling involves providing the right product and services
to your customers thereby creating customer satisfaction.
If you’re not selling, then you would soon
be out of business. It’s that simple. A lot of upcoming SME’s find it difficult
to come up with advertising cash. To sell effectively you need to do 3 things:
a.
Acquire basic sales, marketing and business
development skills. There’s nothing more embarrassing than a salesman who lacks
product knowledge. To cut a long story short, when you acquire basic sales,
marketing and business development skills, you will be able to: Develop your
personal sales standard, Acquire basic customer communications skills, Have an
effective marketing strategy, Identify your niche market and strategies to win
your niche market as well and Understand what business development is all about
and the process by which new business is introduced.
b.
Master the art of managing customers. To be
precise, you need to display exceptional emotional intelligence.
c.
Thirdly, you need to master the art of sales
forecasting. To be precise, you need to be able to anticipate future events
with a certain degree of clarity.
8.
Unskilled Employees
Inexperienced and unskilled employees are
totally undesirable in my own opinion when employing for new businesses that
are technical or professional in nature. This is one of the fastest ways to
ensure the new business goes 6 ft. under the ground.
As a new business, employees must have
excellent product/service knowledge to help them perform their duties quickly
and accurately. Customers trust your organization when they know your employees
have the expertise and knowledge to deliver.
9.
Mad Risk Taking
Did I hear you say, the bigger the risk,
the bigger the reward? Well, you may be right, but remember that it goes vice
versa. My expert advice is to start small for new businesses. Test your
business plan first, if all goes well then you can increase the stakes. Mad
risk taking is dangerous and in my opinion silly. Come to think of it, why
would you put all your life savings in one mad venture? Don’t forget the 3 ways
I earlier mentioned on how to manage a risk. But seriously, to learn more about
how to manage business risks, read this article on
“Evaluating and ManagingBusiness Risk in Organizations”
10. Excessive Spending
Unwise spending from a business profits
does kill the business. Allow your new business to grow and then spend wisely
from it.
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Cheers.
Article
By Valentine Okolo
