Do Business Well

Your first thought might be that “why businesses fail” would just be the flip side of “why businesses succeed.” While there are some similarities, there are also some significant differences.

Ingredients to Business Failure

1. Inadequate capital
2. Product or service not needed
3. Underpricing
4. Excessive overhead
5. Insufficient time commitment from owner
6. Bad luck and/or timing
7. Poor understanding of business
8. Problem location
9. Poor accounting controls
10. Internal theft

As you can see, the reasons for business success are all positive attributes and skills. The reasons for failure are primarily very specific mistakes. In fact, many of these business killers take their toll on businesses that do quite well on the six success attributes.

Inadequate Capital

You can start many types of very small businesses on a shoestring. I know; I have. However, you start with a major handicap. A few minor missteps, or one big one, and you’re history before you start.

For a retailer, undercapitalization means starting with inadequate inventory. A consumer will come into your store and you won’t have what they want. Because this happens frequently, sales aren’t enough to cover overhead. Now you can’t even buy enough product to maintain your opening inventory levels, much less add the items your customers are asking for. Later customers are even more likely to be disappointed.

Maybe you’re a wholesaler. Because you haven’t enough capital, you have to sell everyone COD. Because you have desire, and you are a great salesman, you overcome this problem. In three months you build up a little reserve, so you offer an open account to the biggest customer in town in order to get his business (he won’t buy COD). You didn’t know it at the time, but he got to be the biggest player in town by paying his suppliers very, very slowly. Without the cash from that sale, you aren’t able to pay your supplier, and you are virtually out of goods. With no product to sell, your business can’t last.

In each of these cases even a little cash buffer would have helped—maybe as little as one thousand dollars to five thousand dollars. If you’re in this situation, start now to arrange backup financing through your bank, friends and relatives, or outside investors. You may not ever need the help. But it is better to arrange for it now, and never need it, than to try to raise it when the wolf is at the door.

Product or Service Not Needed

Fewer than 50 percent of all products make it in the marketplace. When I feel I have already seen every bozo idea there ever was, someone will bring me another one. Amazingly, even the best marketers in the country such as Procter and Gamble or Coca-Cola misjudge consumer tastes.

It doesn’t cost a fortune to research your market to see if what you want to sell is of interest to anyone. However, don’t think that just because your neighbor and your tennis partner think your idea is real neat that you can start planning how to spend your fortune. Ask everyone you can think of about your plan. Show it to your banker, your accountant, and the head of your local chamber ofcommerce.

Possibly the public wants your product or service, but there are already plenty of quality providers in your territory. Are there too many dermatologists, Italian restaurants, or print shops in the neighborhood? Consider a variation, a special niche, or a different neighborhood. If not, what do you plan to do to overcome established competition: advertising, promotion, discounting, hustle?

Have you already made the mistake of offering a product or service that nobody wants? There may be time to save the farm. Quickly evaluate the assets you are left with. A good location? A Yellow Pages ad? An investment in equipment or fixtures? How can you use these assets to provide a different product? Even simpler, can you change what you are offering in some way to make it successful?

Underpricing

An excellent method for taking a bite out of market share is to underprice the competition. It is a very common approach for a new business offer a big price advantage to get new customers.

These discounts need to be seen as a cost of doing business. If you do $5,000 in business and give a 10 percent discount to get it, you have a real cost of $500. If you have figured your overhead for all other costs at $2,000, but you don’t count that $500, you may think you made money or only lost a little. Keep up this personal deception for a few months and you could easily run out of cash and never understand why.

The obvious answer to the problem of low prices is higher prices. You may be surprised to discover that you can raise prices quite a bit before you see a significant loss in sales. It’s smart to create a story for your increase. Be honest. “Gosh, Barbara, after analyzing my statement, I realized that if I kept selling to you at those prices, you’d need to find a new supplier next month. I would have been out of business.” This approach carries the ring of truth and will generally work quite well.

Possibly related posts: (automatically generated)
Why Businesses Fail part 1

• Serious Selling Your Business part 3
• Serious Selling Your Business part 4
• Serious Selling Your Business part 2
• I Made My Own Advertising Work part 3
• Why Businesses Fail part 2
• Why Businesses Fail part 3
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (1-9)
• Why Businesses Succeed
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (10-18)
• Business Financial Thumb Up rules, don’t Break the Bank

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