Ask small business owners why some of them fail and they’ll tell you it’s because they don’t make enough money. This makes about as much sense as saying that Enron went under because the price of its stock fell.
It begs the question, why don’t they make enough money, and misses the opportunity to seek out fundamental causes like:
- Financial projections based on wishful thinking rather than real numbers and actual market conditions.
- Failure to articulate and communicate the value of a product or service.
- Inadequate professional development of the owner or manager
We usually think of “strategic planning” as something that goes on in large organizations, not small businesses, yet it is as necessary for a neighborhood market as a multinational corporation.
Lack of revenue isn’t the root cause of small business failure. It’s the effect of inattention to strategic planning.
We usually think of “strategic planning” as something that goes on in large organizations, not small businesses, yet it is as necessary for a neighborhood market as a multinational corporation.
KNOW YOUR MARKET
Small businesses fail because they don’t do the things that big businesses do to succeed.Verizon would never establish a new calling plan without doing the necessary spadework beforehand. Neither should a small business.
Financial experts call this due diligence. It’s the “reality check” which all ventures need if they are going to achieve their goals.
Due diligence asks, is there a market for the product or service I intend to offer? How many players are currently in that market? If I get into it, will there be enough of the pie left over for me to meet expenses and compensate myself adequately?
The first step in due diligence is to take a hard look at the numbers. Compare projected sales against projected costs, and don’t forget to include the “cost” of your time—after all, you won’t be working at another job while you are getting your operation up and running. Will the margin be large enough to keep body and soul together while you grow?
The second step is to take an equally hard look at the marketplace and measure the need for your product or service against those who are already providing it to determine if there is a niche for you.
Will the market be able to supply the customer base you need to be successful? Large corporations spend millions of dollars doing market research, and small businesses must do the same.
If making projections is not your forte and your idea of market research is to ask a few friends what they think about your idea, get help (see sidebar). Talk to someone who knows how to crunch the numbers.
You may be convinced that you offer a better widget than anybody else, but if you don’t know up front how many you’ll have to sell at what cost to stay alive you may be setting yourself up for disappointment.
Large corporations minimize the risks of new ventures by the careful and methodical practice of due diligence, and you should do likewise, no matter how small your operation is.
KNOW YOUR BUSINESS
Once you are convinced there is good reason to believe that there is a place for you out there, now comes the work of communicating your value to potential customers.
Businesses large and small fail when they do not communicate in clear and precise terms exactly who they are and how their customers can benefit from them.
K-Mart got in trouble a few years ago because it had not been clear to its customers about what it stands for and its competitors had. Target is “cheap chic,” WalMart has low prices, but K-Mart vacillated between Martha Stewart and the Blue Light Special and the message got muddled.
The future health and well-being of your business depends on defining who you are and directing every facet of your marketing efforts toward getting that message across.
Many small business owners have only a limited understanding of what marketing is.
Some confuse it with sales, which is a totally different animal.
Some think of it as a synonym for advertising, but advertising is actually only one component in the marketing matrix, which is frequently presented as the “Four P’s”: product—what you have to offer, price—what it will cost, pipelines—how it will be distributed, and promotion—how you make it known. Advertising is a means of promotion, but by no means the only one. For a marketing program to be effective, every “P” must be well understood and implemented. Each is only a piece of the puzzle, and when the pieces all fit together the resulting picture is the defining message you communicate to your customers.
The process of learning how to articulate precisely who you are as a business entity is difficult. Without extensive interaction with your customers and professional resources that challenge you and force to clarify your thinking, it’s almost impossible.
It’s very much a birthing process—a seed is planted, an embryo forms and grows, and painfully a new being comes into the world.
To be continued next month …
