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The most common mistakes made by start-ups – Part two

Alan Kaplan
24 November 2011 5 minute readShare

In this, the second half of his post on some of the most common reasons that start ups fail, Alan Kaplan looks at branding, financial planning and the importance of attracting the right employees.

Continuing on from yesterday's post, which looked at the importance of planning and market research, here are some further potential problem areas and ways to avoid or remedy them.


3. Failure to understand brand potential and the lack of a marketing plan

Many SME’s I have worked with don’t realise how important it is to build a brand with the potential to become a valuable asset. To illustrate the point, some companies like Disney have a brand value component estimated to account for more than half the entire value of the company.

The principle whereby a brand has the potential to be of considerable value holds for organizations of all types and sizes.

Some SME executives believe that all that is needed for a brand to succeed is a name, logo and tagline and in many instances fail to optimise even these, which although extremely valuable when properly done, represent less than the tip of the iceberg.

Areas of importance in terms of a brand’s development and strategy include a situational analysis, mission and vision and brand identity including core and extended values. Brand positioning, execution, management and measurement are other key areas that require development.

In addition to the above, many SME’s lack a marketing strategy and plan, to provide direction. Many are unaware of even the most basic of concepts like market and marketing research and the 4P classic marketing mix. Whilst more sophisticated marketers go far beyond this framework the basics provide a useful framework from which to develop.

SME’s could begin by resorting to online resources to acquire an understanding of brands, branding and marketing and subscribe to online newsletters or feeds that focus and build an appreciation of these areas.

Furthermore they could hire these skills within the company or work alongside a specialist consultant or relevant agency to advise and assist, as long as the choice is relevant and affordable and adds significant value.

Having worked for corporates the calibre of Cadbury-Schweppes, been active in consulting and owned and managed a niche SME advertising & marketing agency with clients ranging from start-ups to blue chips the calibre of Agrevo, Aventis, Sakata-Mayford, BASF, etc,  I would be happy to advise, on an objective basis.

4.  Inadequate financial skills and discipline


Many SME’S experience difficulty in areas related to finance. These include, but are not limited to the following:

a) There is often a failure to perform expert due diligence when purchasing an SME which results in an overpayment for the business relative to potential earnings. Before purchasing any business including a franchise it is well worth consulting relevant financial and legal specialists to appraise the offer objectively.

b) Lack of financial planning, forecasting, budgeting and poor financial management. SME’s need to establish a system, with the help of a professional, that enables them to identify and monitor key performance indicators (KPI’s), as well as detecting significant deviations between expected and actual outcomes.

c) Poor cash flow. Many SME’s experience cash flow difficulties at some stage of their business. In this regard SME’s need to monitor their cash flows carefully and take relevant action. SME cash flow management should incorporate the use of ratio techniques to uncover trends in the financial soundness of their organizations.

d) Bad debts. Although somewhat obvious many SME’s don’t conduct sufficient credit checks on clients or having done so on a single occasion feel that no further credit checks are required. An early warning sign occurs when clients that have traditionally met your payment terms suddenly take far longer or don’t pay in full. The impact of bad debt is heightened in instances where the bulk of an SME’s income is dependent on a single source. Some banks offer guidelines to assist small business whilst specialist credit reporting like Dun and Bradstreet (http://dnb.com.au ) can play a valuable role. Trade credit insurance can also be sought through QBE.

e) Reliance on a single supplier. SME’S that rely on a single supplier can run into financial problems when it comes to renewing a contract. To illustrate this an SME that is dependent on a large company to supply an active ingredient was recently told that to renew its contract it would have to accept a 40% price hike on a ‘take it or leave it’ basis. The particular ingredient is highly specialised and finding a substitute involves a costly and time consuming search. Unless sourced timeously it will severely impact the company financially. Before embarking in a particular direction, SME’s should ensure that there are alternative suppliers so that they are not held to ransom.

f) Overtrading. Some SME’s run into financial difficulties by overtrading. By expanding too rapidly they run the risk of incurring costs substantially beyond anticipated revenue. This is particularly disadvantageous when fixed costs e.g. in the form of lengthy leases are undertaken without the necessary expertise and risk management procedures are not in place. Professional advice is the best option in this instance.

g) Capital Raising Problems. Many SME’s require capital at different stages of their development and failure to procure funds can severely inhibit an organization’s growth. In this regard many options need to be assessed including factoring, asset based finance, debt, equity finance, opportunity based funding (using firm orders or new contracts) or trade credit, etc.  Seeking independent expertise to assess which option is optimal is advised. In this regard banks, accountants and professional consultants are all viable sources of advice. 

5. Lack of direction as regards human resources and training

Quality people are assets of the highest calibre for any organization. Many SME’s, especially start ups, lack the funds and credibility to attract the calibre of person they need.

Without proper management and excellent staff support an organization cannot reach its potential.Whilst fund raising can assist to access the funds required to attract a higher calibre of staff, another possibility is to incentivise a suitable partner for their skills contribution, even if their contribution is not on a full time basis. Another option is to employ a consultant to provide expertise on an affordable fee basis. As an organisation grows, organisational structures, HR programs and retention strategies need to be developed.

The delivery of professional training courses, workshops and similar enhance skills, support competence and help instil a more competitive mindset. In addition service levels are also progressed. This in turn benefits your brand, as management and staff are both important ambassadors for your organization.

SME’s should work with a credible supplier of professional human development courses to undertake training courses most relevant for their needs. In addition they should investigate training courses that are subsidised by Government as these can be extremely beneficial.

Whilst there are many other areas of potential difficulty for SME’s this post has identified some key issues with suggestions on how to address these issues.

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 twenty five 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

The most common mistakes made by start-ups – Part two
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Alan Kaplan

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