There
is one rule all aspiring entrepreneurs and business owners should abide by;
any business can fail. History has shown time and again that those “can’t miss” opportunities rarely, if
ever, work out. There are no guarantees. There never has been and there never
will be. Unfortunately, too many entrepreneurs make the assumption that they
can’t possibly fail, or that the businesses that are currently succeeding aren’t likely to
fail anytime soon. It simply doesn’t work that way. It's a reality of business ownership and one that some business owners ignore completely.
Any Business Can Fail
So, why would I bring up the obvious point that any business can fail? Well, there are essentially two reasons for this.
First, I know of a business owner whose business was a success for well over two decades and who always maintained the business was foolproof. He would often question how anyone could fail in his market. I, on the other hand, would congratulate him for his success but remind him to remain vigilant. Unfortunately, the company is now struggling to survive.
Second, while business failure can be an obvious outcome, it isn’t obvious to all. It’s obvious to those enterprises that do fail. It’s obvious to those who’ve seen enterprises fail, and it’s obvious to any rational business professional who has witnessed failure. Unfortunately, there are other individuals who refuse to even entertain that failure is a possibility. Just as there are people who are too negative, there are also people who are too positive and it’s this unwillingness to entertain failure that is their business venture’s eventual undoing.
The purpose isn’t to dissuade anyone that wants to start a business from starting that business. Instead, it’s meant to make sure you are well aware of the risks of business ownership and that you constantly remind yourself about how to stay on top. As such, I decided I would reiterate the five essential criteria for success that came from an earlier post entitled, Best Business Practices: Top 5 Rules of Successful Businesses.
#1: Become a Market Expert: Don’t concern yourself about whether your company should be a market leader, market challenger or follower. Focus instead on making sure you, your business development team, and your company, are market experts. Understand your customers, your competitors, their strengths and weaknesses, the threats posed by competing technologies, your market’s immediate and long-term future, and any emerging trends that will impact your enterprise. Become an expert first, and then work your strategy around your business knowledge and know-how.
#2: Protect Profit: Never lose sight of the importance of profit. Your first line of defense is to protect your gross profit on sales, which includes your sales minus your cost of goods sold (COGS). Your second line of defense is to protect your operating profit, which is your gross profit minus overhead and other indirect expenses. Finally, your third line includes protecting your net profit, or otherwise referred to as your net earnings, or your bottom line. This is calculated by taking your “pre-tax” profit and deducting your taxes. Each of these steps represents a line of defense, one where you do everything you can to protect profit.
#3: Control Costs: Never lose sight of your company’s costs. Regardless of whether those costs pertain to your direct costs to manufacture, or your direct costs of sales, understanding how your company generates gross profit goes hand-in-hand with controlling your costs. If ever there was one business management rule all can agree on, this would have to be it. However, it also happens to be the one rule that dooms an enterprise.
#4: Run the Right Supply Chain Strategy: This is a definite favorite of mine. It’s the one issue I constantly have to remind my customers of; run a supply chain approach that suits your market, meets the needs of your customer base and is ideally suited to your business model. Instead of choosing the “best” inventory management doctrine, choose the one that is best suited to your business. Don’t emulate the success of another company in a completely different market with different business cycles. Instead, focus on a strategy that meets your needs and your market’s business patterns.
#5: Reduce Cost of Capital & Financing: Yes, interest rates at extremely competitive and they aren't the cause of high financing in today's economy. The problem is twofold; first, customer demand is down. When customers aren’t buying as often, and aren’t buying as much as they once did, then a company has to finance its inventory longer. Second, bankruptcies and delinquent customer payments are up. When customers take longer to pay, a company’s cost of capital increases. To read about some ideas to help reduce your costs of receivable and inventory financing, please read: Strategic Planning: Reducing Inventory & Receivable Financing Costs
Entrepreneurs are constantly reminded of the need to remain positive, to remain committed to their pursuit and to some extent, to eschew the mere mention of failure. In most cases, they learn to ignore those dissenting opinions that try to dissuade them from starting a business. In fact, the more often they hear these opinions, the more likely it emboldens them to continue their pursuit. While it is vitally important to remain positive, it simply doesn’t mean an entrepreneur should ignore the obvious, ignore the potential for failure, or simply assume that their business success is assured because their strategy can’t possibly fail. It simply doesn’t work that way.
To read about the importance of using a market feasiblity study to protect your interests, please read: Is a Market Feasibility Study More Important than a Business Plan?
The above video is from the post: Defining Value Assertion and Value Proposition in Business Development
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