So much of our worldview is shaped by personal experiences. Fierce competition, cost-cutting pressures, and leveraged buyouts resulting in massive corporate restructurings convinced me at the age of seventeen that such traditional values as employee loyalty, security and hope were waning. The average person no longer worked in same building as his CEO. Intimacy was gone. Such was life coming of age amidst the increasing polarized classes in the 1980’e landscape, I decided it would be safest to become an entrepreneur. Incidentally, many business students in today's world view starting and operating their own business as a viable alternative to being employed by an established company.
According to the U.S. Bureau of Labor 38.8 – 45.1% new businesses fail in 4 years. Most run out of cash before they reach their break-even point and have insufficient revenue to keep going. But why? What might we learn from the chronicles of other’s failure which can be applied to our own business aspirations?
I ran out of money wintering my first business (I was a tender 17 year old mowing lawns). But believe me— if there is no guiding structure to your company, or if there are cracks in the foundation, problems will accumulate long before you are obliged to send cease and desist letters to your creditors. (In building construction “honeycomb” is a symptom of a poorly laid foundation, it happens when the concrete mix is not properly vibrated during the pour)
But there is good news. When the symptoms of bad management are properly understood the organization can be effectively treated. But get a check up soonest because like concrete, it gets harder the longer you wait. This illness does not have to be fatal; an entrepreneur can get a series of vaccinations.
Another post-mortem symptom of failure is that the company had not developed a working dialogue with its customers. It is not nearly enough to fancy an opportunity in the market, or to dream up a new idea for a product/service, that notion must be reconciled. Like a checking account we look at the particular transactions. In this case checks and balances is accomplished through consistent feedback with customers.
In my experience, the worst thing an entrepreneur can do is to stop working on his business because he gets too preoccupied working at the business. Prepare now. Understanding the peculiar customer is imperative to success. Learn to survey, if you don’t know how visit amazon or a public library. Improve processes and audit existing customers regularly. Doing this is just the first step in what needs to be thousand mile journey.
Every day the customer must be crowned as king. It is his dreams, values, fears and concerns that the entrepreneur must reliably and consistently address. It is tantamount to success that expectations are met. Do that and the company will become reputable; the world will truly be your oyster. I managed to do this with a few companies including Scott’s Building Solutions and Port City Trade. Currently I am working on making it happen again for LegalBee.
Marketing is all about finding a problem, and solving it. You simply must find the thing that will work and improve it so that it becomes the best option for a certain set of people. Don’t attempt to be everything for everyone, guard against drifting from idea to idea: Know your customer, and know your core competency.
The second thing that happens frequently in new businesses is they fail to get their value proposition correct. They know how to create value but they do not realize that this alone will not drive interest in what they have. People who are new to business may lack the experience to recognize what it takes to generate interest and convert sales. While this comes natural to some it is not so for everyone. The entrepreneur must learn to be persuasive. He must figure out how to convince people “why” they should pay attention. People do not buy products and services because of what they do, they only purchase when it feels right. The most famous examples of this are taught in business schools around the globe.
The founder of Revlon’s famous quote;
“In the factory, we make cosmetics, in the store, we sell hope”
Iconic brands not only fill a need in a market they share passion, desire andexcitement with people around them. Tens of thousands of mom and pop businesses around the country do this daily and they do it quite well, earning sufficient revenue and profit to continue at business indefinitely. Do not mistake this quiet majority as anything other than the productive champions that they really are. In other words do not confuse scale with success. Success exists on a small scale too. There really is no such thing as a “small business” Your business must matter. In fact, people are roughly all the same size. Success occurs at a much greater frequency on a small scale than it does on a large scale.
Media just has the tendency to steer attention to the “super duper successful” the most obscenely visible players, the so called significant few who can afford Super bowl advertisements.
The best way to engage others about your company is to convey your own genuine enthusiasm, to show why you do the thing that you do in the first place. If your reasons are also important to others than your chances of success are greatly increased!
Identify that which matters to you, discover your own true voice, and find those who share your feelings. Lead with the power of conviction for that which moves you. Learn to convey that clearly. Perfect your elevator speech. Know your talking points and be able to compellingly recite them in sixty seconds without advance warning.
Some of the greatest threats to a new business are internal. They occur within the mind of the ill prepared leader. It is urgently important that the new Leader remain grounded and firmly focused on keeping all systems functional. Understand dysfunctional tendencies which muddle success and derail the best of intentions.
This might be a lack of knowledge about finances. Many operations fail because the leader executes a mathematically untenable plan. The price you are charging for the product might have profit potential but if your terms fail to achieve sufficient revenue to meet supply obligations it will end in disaster. Scaling the business upward requires careful calculation. If you pay creditor’s net 30 and receivables are net 60 there will be a problem. Seek proficiency at understanding balance sheets, income and cash flow statements and anticipate issues before they actually happen.
Burn out and overcompensation are two other problems business owners face. It is important to encircle with competent advisers. Swellheadedness causes many otherwise smart people to flounder in business. Invite confident people to your circle who are not afraid to say what needs saying. Whatever weaknesses that you have, face them squarely and be the leader that you must be to stay the course.
Finally, test your plan.
Follow the example of Zappos. As the story goes Tony Hiesh did not know for sure if people would bother to order shoes on eBay. The question was is there anyone who will buy shoes that they can’t even try on first? Many thought the idea was crazy. So Tony and his team exercised prudent judgment and ran a quick test: They threw up a website with shoe images taken from manufacturers’ websites, imbedded some “buy now” buttons and watched to see what happened.
It worked and orders began to stream in. When an order came through, one of the guys would run to the local shoe store, buy the requested shoes at full retail, and then they packaged and shipped them out. Did they lose money on every pair of shoes shipped? Yes of course they did. But they quickly learned whether they had a potentially viable business idea. They did this while minimizing upstart risk by carrying zero inventories and not having to worry about expensive fulfillment capabilities.
A bit of preventive medicine and you too can soar with the happy bunch whose businesses actually succeed.
Aside here is a case to consider:
The picture above is of Monticello a formerly glorious luxury Hotel from the Victorian Era in Longview WA that is not performing well. It has such potential but seems to be just barely keeping the doors open. The restaurant within is closed entirely. In Walla Walla WA a comparative Hotel from the Lumber Barren age is the Marcus Whitman and it is flourishing. The Marc restaurant at the Marcus Whitman is one of the best high end places to eat in town. What do you think the factors to consider might be for such a discrepancy between the two places which are both downtown in similarly demographically defined cities?
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