In the first of his blogs for My Business Alan Kaplan looks at some of the key areas that cause an estimated two thirds of startups to fail before their fourth year. The post will conclude tomorrow.
A man drove past a lovely plot of land for sale at a bargain price, in an area where he envisaged building his dream home.
|Click here for Part Two
of Alan's story
Before buying he had the foresight to take along an expert who advised him that what appeared to be a patch of mud was actually quicksand. He suddenly got a sinking feeling in his gut and immediately aborted the deal.
A year later the man was retrenched and being unable to find employment used his funds to establish a small enterprise. Although he lacked experience, he felt he knew enough to go it alone, deciding to improvise as he went along.
He started the business, without realising that by operating in this manner he was back on quicksand with potentially devastating consequences. He closed his doors two years on.
Whilst he understood the benefits of consulting with an expert in the first instance he was unwilling to do so when it came to the establishment of his business.
To be objective, some SME’s are extremely successful, but with some estimating that only a third of new start ups make it to their fourth year, this post sets out to examine a number of potential problem areas and to recommend ways to avoid or remedy these.
1. Lack of expertise and market research.
Many start trading simply on the basis of an idea, but without the appropriate skills or experience or even basic research to establish market parameters, consumer targeting and needs, competitive activity and other relevant issues.
In order to improve the probability of success, it is important for those establishing, or wishing to grow an SME, that they acquire the necessary expertise through training, or hire those who have, in either an internal or outside capacity. In addition to expertise, relevant experience will tip the scales even more in the right direction.
As regards market (and marketing) research, relevant information can sometimes be sourced online or alternatively if on a really low budget you can conduct basic qualitative or quantitative research yourself with sufficient skills.
Of relevance, however is that bad methodology or incorrect interpretation can be even more devastating than a lack of research.
Some years back I consulted to one of the world’s top advertising agencies in relation to an expensive advertising campaign that failed miserably in the white goods sector.
The strategy on which the failed campaign was developed hinged on a number of group discussions which I established had fatal errors on a number of fronts including the selection of participants, methodology and interpretation.
Some years later I lunched with the CEO who advised me that whilst my report had ‘helped put things right,’ that my findings were never disclosed to the major client. Frankly, I was not surprised.
Depending on their stage of development and research requirements, SME’s can resort to online research companies or syndicated research questions or work alongside a consultant with research, business and strategic expertise in a more holistic and synergistic manner.
2. Inadequate business model, planning and vision
Many SME’s start without thinking through their business model, which sets out to establish the rationale of the organization, the manner in which it operates and how it sets about creating, delivering and capturing value for itself, its customers and other stakeholders.
For example, if you are going to sell books will it be from a physical outlet, an online store or both? Will you specialise by category e.g. educational titles only or stock a general selection?
Will you have a loyalty program in place and if so how will it operate? What makes you different from your competitors? Will your point of difference enhance the experience of buyers and the target market? If so, how?
Business models have consequences. If, for example, you choose to have low mark ups on your books you need volume sales. An important aspect of a business model is whether or not you have, or can afford, the resources needed to deliver the chosen model?
Many SME’s fall short when it comes to planning across a wide range of areas including strategic planning. Reasons for this include a failure to understand the need to plan, a lack of expertise, or the inability to afford professional help.
In some instances management feels that it simply does not have the time, which is another instance where outsourced professional input can make a major difference.
As far as business models and planning are concerned, the initial step for SME management is to obtain an understanding of these which, in the first instance, be done at no cost through an online search.
Online templates to help create business models and plans can also be resorted to, but lack the considerable benefits an expert with lateral thinking and an objective hands- on approach can make. Furthermore the consultant’s interpretive skills has commendable merit.
Many SME’s are born without vision and being blind are unable to see where they are headed. Before an SME can determine its best strategy it has to know where it is and where it’s going, otherwise how can it determine the best way to reach its goals, establish its objectives and compare itself to competition?
Some years back and before the advent of Specsavers and similar brands, I was asked to consult to a company in the eyewear sector. I advised them that international trends showed that heavy discounting of glasses, lenses and other eyewear was on the rise and that they should take cognisance of this. They did not see eye to eye with me on this and their myopia proved costly.
Alan Kaplan PhD is an Executive Director of Optivance 360 a multidisciplinary consultancy that helps SME’s grow and flourish. Alan’s international experience spans more than 25 years across academic, media, agency, client and consulting areas. Alan’s profile can be viewed on LinkedIn and he can be contacted on 0418758555. The skills and experience of the core Optivance 360 team, together with its service offering and value proposition can be viewed at www.optivance360.com