Top 10 Small Business Killers: Common Mistakes Businesses make

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.

Bad management usually starts with a faulty business plan or no business plan at all. No let me say this: if you don’t have a clearly marshaled business plan on paper; DON’T START. Please read myarticle “5 Tips to Help You Write an Effective Business Plan”. 

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.

Please click to learn in-depth “how to acquire Basic Sales Marketing and Business DevelopmentSkills”

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