The flipside of “success” is “failure” and it’s the latter that every business owner and manager strive hard to avoid. By definition, the term “business failure” refers to the cessation of a company’s operations following its inability to generate enough revenue to cover expenses without adequate reserves.
In the recent times, there are many examples of strong businesses that have failed to adjust to the changing markets and economic times or to take advantage of opportunities – and this has ultimately led to their downfall.
Based on my 26 years experience working closely with business owners, here are my 9 key tips to avoiding business failure:
1. always ensure that you target your marketing.
Too many businesses have an undifferentiated product/service offering and fail to understand who their target customer is and what they require. Don’t be undifferentiated, make sure you’re speaking the right language and using the right channels and/or media in targeting your main group of consumers. Focus on delivering exceptional value. ACTION: Develop a structured Marketing Plan for your business and revise it regularly.
2. always plan ahead.
Talk about what you want to do next and where you’d want your business to go by preparing strategies that will help you focus on your business goals and objectives and to make sure that appropriate and sufficient resources are in place. Be rigorous in your planning and hold yourself and your Team accountable. ACTION: Develop a 5-year Strategic Plan supported by Annual Plans. Have 90 Days Actions. Cascade your plans so that everyone in your business is part of a plan.
3. have great business models.
It is a fact that most businesses fail because of poor business models – a business model describes you will engage your target market to profitably generate revenue. To avoid this, make sure that you have great and well-thought pricing models and economic cost models that will help your business focus more on creating, delivering and capturing value needed by your customers. ACTION: Understand your Business Model – there are some great tools to do this.
4. have effective processes.
All businesses are driven by processes. However, few businesses have well documented processes. Many businesses fail to have any continuous improvement processes and have a well entrenched view that they are already efficient. The reality is far from this and many businesses can improve productivity by up to 30%. The challenge is to avoid waste in: time, resources, opportunities, materials, etc. caused by inefficiency – this results in higher than necessary costs and lower margins. ACTION: Apply simple Process Improvement Tools, like 7 Wastes to your business on a regular basis. Never stop searching for improvement.
5. engage your team.
As a leader, you should be a good example to your team. Teach them how to own issues, take responsibility, be accountable and model proper engagement, not only with their customers and clients, but also with each other. An effective team will overcome most business obstacles and enable your business to seize opportunity, when required. ACTION: Engage your Team by improving communication and feedback.
6. have great sales processes.
Sales is the engine that drives your business. Most businesses that fail do not have effective sales processes in place. So with that said, make sure you have great processes that your salespeople can follow. ACTION: Clearly define your Sales Pipeline and develop a Sales Model that delivers.
7. ensure you have adequate cash buffers.
“Cash is fact – Profit is opinion!” This great quote from Andrew Russo (Master Accountant) gets straight to the heart of the matter. Ensure you build adequate cash reserves in your business to ride out changing markets and economic conditions. Cash reserves also allow you fantastic flexibility when looking at opportunities. ACTION: Develop a plan for how you can build cash reserves in your business. Engage your Coach or Accountant in this process.
8. avoide uncontrolled growth.
Uncontrolled growth is often a pre-cursor to business failure. When business growth is “out of control” often cash flow is uncontrolled. Rising sales are barely enough to cover rising costs and cash is at a premium. Cash flow, staff, customers and production are all stretched often to breaking point. Avoid this by “taking your foot off the accelerator” – be more discerning in taking on clients – engage strategies that will slow demand (like lift your prices) – say “No” to opportunities that aren’t in your sweetspot – and introduce tighter financial controls and KPI’s. ACTION: Monitor key drivers in your business and ensure that you have the capability to meet demand. Develop strategies to maintain control.
9. take early action.
Too many businesses fail to “take effective action” until it is too late. Act early and avoid the Receivers! Set up effective monitoring systems. Plan for different scenarios (revenue, cost. Market conditions, competition, etc) and define “trigger points” – bank balance, sales$, profit %, market KPIs, etc – that will cause you to evaluate your options well in advance. These options should include plans for how you will address the challenge – reduce staff numbers, cut costs, close non-performing divisions/products, etc. Make these decisions now rather than trying to make them when under pressure. aCTION: Develop plans to address particular scenarios with effective trigger points.
Focus on ensuring that you have all 9 elements covered and you will do more than stave off failure you will be on the road to success.
What is the element that has the highest priority for you? Pick one and start working on it now.