The Number 2 Reason Why Businesses Fail is:
Poor Strategic Management of Business
There is so much that falls under this topic.
Here are some important key factors that worked for me.
will take about 15 minutes to read….
Business Planning
Failing to create a business plan is one of the most common mistakes new business owner make.
Plan. Plan. Plan. What is your goal? What time frame and resources (including money) are needed to meet that goal? Do you have the time and resources to achieve this? Beware of creating a product based on your own personal tastes. Your customers needs must be at the forefront of your plan at all times.
Part of your plan should have a marketing strategy in place. If you have a product you sell, marketing your product to the correct audience at the right time is critical. Who are you selling to? Who is going to buy your product and why? What is unique about your product, and how does it benefit the customer?
Creating a winning business plan is one of the first things you will need.
Conduct thorough market research and ensure there are no barriers of entry that you cannot overcome. Barriers of entry are high start-up costs, skilled staff that is not available, and a need for specialised machinery to manufacture a product. This should form part of your due diligence.
If you are a reseller of a brand or a trademarked item, ensure you have permission to advertise on selling platforms. These are just a few examples.
If you can’t do this alone – call in the experts who can help. You should always have a sense of direction.
KPI’s (Key Performance Indicators)
KPI’s are necessary so that you are able to measure your performance over time. Set targets and know what you are aiming for. These are simple tasks you can perform.
For example: Your revenue growth or your customer satisfaction or the number of new visitors your website has. You should be able to measure these. How much is it costing you to acquire a customer? You should also look at benchmarks to see how you are travelling.
Risk Management
Identify your risks or threats and get yourself a plan to minimize them. Risks can be quite broad and every business has them, but they are different to each of them. Write them down in a way that you can understand them and then assess them. By assessing them you would choose the likelihood of them occurring; and if indeed they were to occur what kind of impact would they have on your business. Keep in mind that risks can often be dynamic, so you should monitor these on a regular basis. Put simply, what may be considered to be low risk today, may jump and become high risk a few months down the track. In addition to this, you should be mindful of one particular risk having a domino effect and creating a different sort of risk somewhere else in your business. For example, by ignoring a compliance risk you may run the risk of a bad business reputation.
The TARA method is simple way to accept and manage your risks. It assists you in making informed decisions about the type of risk you have and what you intend to do about it. It is short for:
Transfer – you generally transfer the risk to a third company. Example insurance.
Avoid – you don’t take the risk
Reduce – you reduce your risk. For example, investing in machinery to mitigate the risk of downtime in manufacturing.
Accept – you don’t particularly care and you are happy to accept the risk
Some Examples of Risk:
Credit Risk
Customers (by conducting a credit check on your customer, you can manage this risk)
Compliance Risk
Keep up to date with any rules and regulations or laws that may affect your business. They may change from time to time and you must stay on top of them. For example, the European laws regarding privacy (GDPR) were introduced in 2018. Failing to comply will result in serious penalties. There are services that can keep you on top of all these changes such as Iubenda.
Supply Chains
Ensure your business does not rely on one supplier. Networking is an important part of business and building your connections is like a superpower. I made sure that we had at least 2 suppliers for every aspect of our business. This included raw materials, packaging supplies and even office equipment. It will provide you with price negotiating power as well as reduced risk for supply chain issues – such as shortages and shipment delays. Supply chain disruptions are a major threat to any business and you should seek to mitigate your risk. You should also be mindful about giving too much power to your suppliers.
Manufacturing
If you are a manufacturer, invest in additional/duplicate machinery to avoid downtimes. Check to see what sort of raw materials are required to manufacture your product and if they need special storage. Look at your quality control procedures and ensure you are compliant with any laws and regulations. You must be Worksafe compliant at all times.
Understanding your production capacity is essential. How many units are you able to make under your current set-up.
Shelf Life
Understand the shelf life of products.
Let’s say that you send out 12,000 parcels a year, and you use satchels as your packaging. You source a compostable/biodegradable satchel for $1.50 a piece, and you order as and when needed.
Your supplier proposes that if you order a minimum of 20,000 satchels at a time, you will receive a better price per satchel. You are thrilled at the thought of saving thousands of dollars, so you go ahead and place an order of 20,000 satchels. You pay, and you are set for the whole year. In fact, you are set for almost two years!. It sounds like a great deal. Only it’s not – because a compostable mailing satchel has an average shelf life of about nine months. From the 20,000 satchels that you ordered and paid for, you will be throwing out 11,000 of them. Wowza! That’s thousands of dollars out the window. It pays to read the fine print and do your research.
Insurance
Ensure adequate business Insurance is in place. A good insurance broker can guide you with the type of insurance you need for your business. In general terms, you should seek to insure the building/premises (if you own these), and your business. This would include, stock, equipment, and even income protection. Think outside the box as well. If you have a dog with you at work – ensure you have insurance that covers all aspects!
Going Online / Digital & Using Multiple Selling Platforms
Try and generate sales from as many platforms as you can. For example eBay, Amazon, website, social media, brick-and-mortar, and pop-up stores. This means if one platform is inactive, you still generate sales from the others. Having a digital presence and going online is an absolute must for any business. Using CDNs (content delivery networks) will reduce your risk of DDos attacks on your online store.
Diversify your customer base
Ensure your business does not rely on one or two customers, no matter how big their order is. I had a general rule that no one customer was more than 20% of my annual revenue. Don’t put all your eggs in one basket. It gives them enormous bargaining power over you and losing them can be devastating to your business if they are over 20%. I know personally of a company that had to close their business because their main customer decided to go offshore.
Beware of flashy deals
Beware of big flashy deals that big organisations may offer for your product or service. They often weigh heavily in favour of them and they could drain your resources and your cash flow. Don’t get caught up in the novelty of big purchase orders, or stocking for example, your product in a major department store. Some won’t pay for 90 days and others request a 12-month open-ended return & exchange program. Ensure that it is genuinely financial viable for you to enter such agreements. Read terms & conditions carefully. I turned down quite a few offers to stock our products; although the quantities were tempting, the terms would have put our company at risk.
CyberSecurity & Online Fraud
Data theft is a major risk to any business, ensure you are protected. Learn how to reduce your risk of fraudulent transactions and how to spot the fraudsters.
Staffing Risk
Ensure that you are able to easily employ replacement staff without this being disruptive to your business. Build a database of Resumes/CV’s for potential employees. I kept an advertisement running all year round to achieve this. Consider outsourcing some business tasks – there are great benefits in doing so.
Be involved in your business so you can pick up on any issues early. (I personally learnt every aspect of my business as part of risk management. From the manufacturing ground to the executive office. I left no stone unturned. From time to time I would spend time on the floor with my staff even when I didn’t have to. It was imperative that the “team” spirit was felt and I was on top of the culture and the vibe.) Knowing to spot the signs early of employees wanting to quit is so critical. It takes less time and effort to retain staff than sourcing new employees. Be smart not right! A paternalistic leadership approach at times can have it’s advantages. Empathy is key.
Efficiency & Effectiveness
Be efficient and effective with your operation. They may both ‘kind of’ mean the same thing but they have an important difference between them – and you need both.
Being Effective is doing your job properly that gets a desired result. Being efficient is the ability to do that same job with ease and without wasting time and valuable resources. Time Management is critical to every business owner. You must work smart not hard. This is particularly important to solopreneurs who wear many hats to run their business. Having good time management can be the difference in success.
Don’t spend $5 to save $1 – Jane orders from her supplier $500 worth of product. Her supplier invoices her and adds a $10 delivery fee to her invoice. Jane rings her supplier and tells them she’s picking up to save on delivery.
Jane drives 45km to pick up her products and 45 km back. Jane spends $20.00 to save $10.00. (and thats not including her time).
Jane thinks she saved $10. Jane is nuts!
Distribution
If you sell online its critical you get your distribution right. You should dispatch your products in a timely manner and you should work with the best courier companies to have your product delivered at the speed of light. Ensure you are transparent about delivery times with your customers. If you are quoting a turn around and delivery time of one business day for shipping, ensure that’s what you do.
Negotiate your rates and when the year is up, negotiate them again. If you send 10,000 parcels a year and you manage to slash even $1 off your parcel rates, you have saved yourself $10,000. This is a big deal for small businesses.
SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)
Create a SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats).
This is created so that you are able to assess your business in these four areas, which would then assist you in your planning. Let’s take a look at some examples below:
Strengths
Strengths are generally things that your company does, to make it perform well. Anything that gives you an advantage, is a strength.
Examples: Your customer service that is far superior to your competitor, your skilled & loyal staff which have been with you for many years, systems & processes which make you efficient in your work and help increase your profits. Trademarks, and intellectual properties are also considered strengths.
Weaknesses
This would be the opposite to your strengths. These are in general, things that you company does not have, or lacks.
Examples: If you are limited to the number of products you can manufacture, or have outdated machinery or operating systems, this would be a weakness. The inability to be innovative or to stay ahead of your competition. If you lack staff, or your staff are not skilled enough, or if you don’t have good cash flow; these are generally weaknesses.
Opportunities
These are things you could take advantage of which would positively impact your business.
Examples: You could enter a niche market that has been identified that none of your competitors has caught onto. In niche markets you can often carefully implement a price skimming strategy. Similarly, you could enter a more global market that is currently untouched. For example, if you manufacture woollen gloves and only sell in Australia, you could look at entering a market where there may be a high demand due to longer and colder winters, or you could look at a niche market where the woollen gloves may assist people with medical conditions. This is broadening your reach.
Threats
These are factors that could impact your business negatively.
Examples: New competition, or old competition gaining market share. Economic factors are frequently seen as threats to any business. Consumer buying patterns/behaviours can change, there can be disruptions in the supply chain, cheap imports or even increased international tariffs can be disruptive if you are an exporter. A simple change in government policies can have a negative effect on your business. This can be as simple as a new tax that may become applicable to businesses and companies alike.
Cross Checking
Now, crosscheck your SWOT analysis and see if any of your threats or weaknesses can be overcome by your strengths and opportunities.
Proactive Vs Reactive
Be Proactive not Reactive (Hindsight is beneficial – Foresight is critical). To achieve this however, we must first understand what it means. Put simply, when you are proactive in business, you essentially do everything you can to prevent a situation from becoming a crisis. When you are reactive, you deal with the problem only when it comes.
For example: If you are experiencing delays in dispatching a product and you know that you will have a few upset customers, a proactive approach would be to communicate this to them, either by alerting them of the delays via email or phone or by adding a small gift inside their parcel apologising for the delay. A reactive approach would be to do nothing, wait for the customer to complain, and deal with the consequences.
If the customer is so upset that they leave you a negative review, you would most likely, understand that “in hindsight“, it may have been a better idea to have been proactive and that it was easy to “foresee” what would have occurred in this instance.
Learn
Seek out and learn from other peoples mistakes, rather than your own. The most cost effective strategy out there.
Imagine the advantage of knowing which turn to take, just by watching others taking the wrong turn.
Analysing Data
Analyse your data – or call in the experts to analyse it for you and give you a run down. Business Intelligence is an important part of strategic management.
Working Culture
Create a good working culture and ensure you are in line with Fair Work, award wages and you operate a safe working environment for all. Create a fair and equal workplace.
Be a business that leads the way to sustainability. A safe working environment includes both physical and mental and includes being in line with government policies and regulations. Steer clear and try to resolve any office politics as this can quickly create a toxic environment.
Avoid Micromanagement
Micromanaging – avoid this type of behaviour at all costs. Nobody likes a controlling employer / manager. This increases anxiety and stress levels, and reduces confidence in your team. If your team is not happy, their productivity will decline. Learn to delegate. You can’t do everything, so don’t even try. In fact you are probably wasting valuable time by doing so and leaving everyone around you deflated. Examples of micromanagement include managers or employers who sit on top of their employees for most of the day, nit picking at their work, questioning the way they do it, suggesting other ways it could be done (with no real evidence that their way is any better) and needing to give their final approval on pretty much everything. A micromanager is a the sort of person who cannot be left out of any meetings or simple conversations and must be copied in on all emails. They must know what is going on at any given time. In fact you will often hear them say things like, “stuff just doesn’t get done if I am not here” or ” if you want to get it done right, you have to do it yourself”. Here are ten signs of a micromanager.
Smart Vs Right
Running your own business can be a challenging test of patience. Always seek to do the smart thing – not the right thing. It’s crucial to maintain focus and composure in various situations. Instead of solely prioritizing what seems morally right, it’s wise to prioritize actions that are strategically advantageous. Always remember the significant impact your business decisions can have. It’s important not to internalize every setback personally. For instance, when dealing with a dissatisfied customer, opting to offer a discount and swiftly resolving the issue may be a smarter move than engaging in a dispute that could result in negative online feedback, even if you believe you’re in the right. The potential damage to your reputation and goodwill could far outweigh the cost of a refund.
Fixing Something That Is Not Broken
Don’t try and fix something that is not broken. If something is working well enough, you may run the risk of creating other problems if you meddle with it. We often see this happen when new managers come in or new owners. For example, wanting to improve the way your production team is set up, will more than likely create more confusion and less productivity. You would be, in this instance, trying to fix something that is in perfect working order.
Create an Expandable Business
Creating an expandable business from the very beginning is wise as it is able to accomodate and support growth. It is easier to scale a business (when the time is right) if it has the foundation from the get-go. A business with expandable characteristics is better positioned for successful scaling, as it possesses the essential foundations, processes, and structures to facilitate growth while minimizing disruptions and inefficiencies.
Exit Strategy
Have an exit strategy in place. Whether it’s setting a goal to work until you retire and close your doors, or whether its building up your business to sell it, you should ideally have an exit strategy. Looking at retiring early? Start planning! If you are looking at capitalising on what you have built, then you will need to prepare for this, some years in advance. Selling your business takes time and requires long term planning. Just as it is important to understand your barriers of entry when you first start your business, it is equally important to understand your barriers of exit.
Poor Strategic Management is the number two (out of the top four) reasons why businesses fail.
Let’s check out the other reasons why businesses fail & see more information on each:
It’s essential to understand these four reasons as they have critical information to the success of your Finances and Strategic Management which is one of the most important steps in the 5 basic step guide to running a successful business.
