Most businesses go in cycles, whatever the general economic
conditions. As existing customers drift away and markets shrink,
businesses have to adapt by taking up new opportunities and
making new contacts. The wise business person recognises these
changes and plans how to deal with them. Even in the worst
economic situation, businesses can do well.
Ironically, you are just as likely to get into difficulties
with a successful and fast-growing business as with a business
that is struggling. Most people start in business to be independent
and in control of their own lives and it is important to make
sure that you stay in control as your business progresses.
Growing pains
Establishing a business can be a painful and challenging
experience and familiar problems often recur as your business
matures and grows. Sometimes running a business seems more
like fighting one fire after another. Don't worry. These are
growing pains. Every business has them, and yours are not necessarily
unique to you.
Now that you are up and running as an established business
you might fall into one of four stages in the development of
a business:
These are similar to the human life cycle birth, adolescence,
maturity - with one important exception: in business you can
go backwards as well as forwards. This guide will help you
judge which stage you and your business are at. This will help
you to find out which areas you need to work on to develop
your business.
These 4 stages have some clear characteristics:
Business Survival
You are in the first 6 to 24 months of running your business,
possibly the first 6 to 12 months. This stage is about making
a living, however modest. The original business plan probably
bears little resemblance to current reality and probably many
aspects of your business have turned out differently from how
you imagined.
Business Consolidation
As you emerge from the survival stage you will have a clear
idea of what your business does, who your customers are and
which suppliers you can rely on. You will also be aware of
your weaknesses. These will probably be in management and business
skills, rather than the core skills you need to provide your
service or product. Profit margins and operating margins are
tight. As a result you need good information systems and levels
of communication to make sure that you remain profitable and
control the business.
Early Business growth
You have come to realise that you have a good business with
a solid base to build on for the future. You are now in a position
to think longer term beyond the day-to-day running of the business
and can start to consider how you wish your company to grow.
Essentially, your business can only grow in three ways:
- Developing your market (finding more customers).
- Developing your product or service (introducing a new
line or adding a service).
- 'Acquisition' (such as buying out a competitor).
Remember: your business can also slip back. For example,
a recession could damage your carefully built-up customer base
and put you back to square one.
Team building
This is the most sophisticated level and one which many businesses
never reach or aspire to. Your business has grown well beyond
the stage where you can run it all by yourself. Often people
running their own businesses find it very difficult to delegate
tasks and responsibility to others, however if you don't delegate
jobs to other people (who may actually be in a position to
do some things better than you), your business will grind to
a halt. The size and complexity of your business should reflect
your own ability and ambitions. You need an understanding of
good leadership and the style of leadership you need to manage
your staff.
Where are you?
Whatever stage your business has arrived at, you will probably
have faced a variety of problems along the way - recognising
those problems is the first step towards finding some solutions.
Have you experienced any of the situations below?
Business Survival
- I do not have enough customers.
- I am struggling to make ends meet.
- I still have more outgoings than income.
Business Consolidation
- I still get unpleasant surprises from my business.
- I do not have the information I need in order to make
decisions.
- I do not make as much profit as my efforts deserve.
Business Growth
- I spend most of my time running around solving mundane
problems.
- I feel the need to spend more and more time in the business.
- I work harder but my profits don't increase.
Team Building
- I think the only way to get things done is to do them
myself.
- I wish I had another pair of hands.
- I am never happy with the people I employ.
Surviving Business start-up
Businesses of any age and at any stage can find themselves
in difficulty, however the first 6 to 24 months are often the
most traumatic, with the highest failure rate being in this
period. Not all of these count as failures, most of these early
closures are voluntary.
If you are still barely making a living, are constantly short
of cash and are working ridiculous hours, you need to have
a hard look at your business. The difficulty is to recognise
the warning signs in time. People often see their business
as an extension of their personality, and only continue because
of pride. This is human nature. However, it can lead to a more
painful demise further down the line.
A business is not really established until it is generating
a reasonable income for its owner and is financially sound.
Often these things will not be achieved for a few years. During
this period, learning takes place very fast for the owner.
No matter how good the original business plan, many of the
problems that arise will be unexpected.
These early problems can be divided into four categories:
Preparation problems
Problems arising from not preparing well enough before the
business was launched (even though your preparation may have
seemed good enough at the time).
These include problems such as:
- Product or service does not meet customer needs.
- Customer demand is not high enough to make a living.
- The business proves to be short of capital.
- The costing and pricing policy is not right.
- Difficulties emerge in relationships with partners, family,
suppliers or customers.
Although these problems are common, they can eventually destroy
your business so it is vitally important that they are dealt
with promptly.
Unforeseen problems
Problems beyond the control of the business and are difficult
to predict.
These include things such as:
- Downturn in economy.
- Changes in the law.
- Major changes in customer needs.
- Changes of important people (such as a key employee, supplier,
bank manager).
Because these problems can not be predicted they are harder
to overcome and usually need a major rethink of the way you
run your business.
Information problems
Problems arising from information systems do not deliver
enough of the right information to management. Too often businesses
ignore their information needs because they are not 'money
generating'; when problems do become evident it is too late
to deal with them. Because of this simple control systems should
be in place to monitor:
- Sales performance and customer feedback.
- Resource use during production.
- Profit margins and cash flow.
'Strategic' problems
Problems arising from a lack of longer-term planning, often
brought about by stress and time pressures. Strategy planning
does not need to be a formal process. Above all, it is an attitude
of mind.
When planning strategy consider the following:
- Try not to depend too much on a single customer or supplier.
- You must plan how to fund the business in the future.
- You must keep in touch with the outside world in order
to anticipate problems and opportunities.
Obviously, problems are bound to occur. It is essential to
recognise the real causes of difficulties (as opposed to the
symptoms) and respond to them. If you treat symptoms rather
than causes, the relief will only be temporary and it is likely
that problems will re-appear. Much can be learned from making
mistakes. The secret is not to make the same mistake twice.
Remember, the successful business-owner regularly compares
actual performance against the original plan. Quite often,
the business will find success offering products or services
that are different from those set out in the original plan.
Direction and strategy
Do you really know what your business is good at? Do you
have a good idea of where you want to be in three years? Do
you know if you are doing well enough to get there?
These may seem fairly simple questions, but it is surprising
how many businesses fail to ask them. Businesses need to plan
in the first place, but they also need to check constantly
that they are on course.
One of the reasons why business-owners fail to plan properly
is that they are too close to their business. Your time may
be taken up with solving day-to-day problems. As a result,
you may not have time to take a step back from the business
and take a long look at it.
Another reason for this lack of planning is that many business-owners
just do not have the relevant background and experience to
analyse the business properly and make sense out of what is
happening - because they are still in the early stages of running
their business.
There are three main areas you need to look at in order to
review performance.
They are:
- Customers and markets.
- Finance - particularly cash and profit.
- Managing the operations - resources and people.
As you can see the reason to plan and keep planning is vital
to any business. The rest of this article is available amongst
our free gifts and can be obtained with one of our industry
standard business plans.
