The current economic climate is not particularly favourable for start-up businesses, and despite assurances from all quarters that the recession is “over”, many small businesses are struggling to survive, let alone grow their turnover and profits.
Recession aside, what are some common reasons businesses fail to reach their potential?
Not being realistic about growth, or growing too fast
First a note of caution: while growth is desirable, growing too fast might overextend your business financially.
Borrowing too much in an attempt to grow rapidly may well cause an otherwise successful business to fail when there is no reserve capital, and financing cannot be extended in case of seasonal slowdowns or an unforeseen crisis.
Rather, start-up companies should aim for realistic expansion and steady increases in turnover and profits. In the current climate, lean companies have a definite advantage. The old adage “less is more” holds true here.
The start-up founder lacks general business know-how
Even in good financial times, many companies are not able to make the jump and expand from being a small owner-run enterprise to being a mature and profitable business that can operate quite independently of its owner-manager.
Instead of the financial environment, the competition or the government being responsible, it is frequently the very founder who is to blame.
In his best-selling book, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About it, Michael E Gerber explains how many entrepreneurs start a business in their field of expertise, but don’t know about matters such as finance, marketing, management and operations.
These business owners continue to work in the business, and do most of the work themselves while trying at the same time to “manage” the business, and soon become hopelessly overstretched. They make the fatal error of thinking that if you understand the technical work of a business, you understand a business that does that technical work.
Gerber argues that by applying business systemisation to a small business, similar to the business processes employed by large franchise companies such as McDonald’s, an entrepreneur can make all the company’s routine processes predictable and consistent.
It is no secret that franchise businesses are far more likely to succeed than independent start-ups. If you apply the franchise model to your business, staff will be able to follow a guide or manual to duplicate your outcomes, to the extent that the business will increasingly be able to function without you supervising day-to-day activities. This will leave you with plenty of time to focus on expanding and improving the company.
A lack of business systemisation
In the long run a small start-up company does not grow into a medium-sized enterprise with multiple outlets, and eventually into a successful nationwide business, without the entrepreneur taking charge of strategic management and applying the principles of business systemisation to areas such as production, marketing, sales leads and customer feedback.
Systemising the business processes of your start-up company will preserve institutional knowledge as it is transferred from you to your staff; will allow you to monitor and review processes and procedures and improve them in line with best practice; will make your employees more productive; and will ultimately lead to greater efficiency and increased turnover and profits.
Small businesses fail to grow and get to the next level not because their owners are not passionate enough – all entrepreneurs have a degree of passion that made them want to start a business in the first place – but because the owners lack the vision to see themselves as more than mere “technicians”, and the courage to become corporate leaders instead.