Hints and Lessons to help your Business Succeed – PART 2

PART 2 – Ten Commandments – Common Risks Companies Run – [PART 1 Here]

Supporting my view that work/life practices have changed permanently due to Covid, this article underlines the proposition: “Howard Davies [NatWest Bank Chairman] said he expected lasting cultural changes even after the danger from the virus receded. “The days when 2,500 people walked in through our office door on Bishopsgate at 8:30 and then walked out again at 6 o’clock, I think that is gone. I suspect there won’t be that many people who will be doing five long days in the office.”

In a Bloomberg TV interview, Davies said that many of NatWest’s office-based employees would probably continue to work from home part-time after pandemic restrictions eased, in the latest sign of big business reassessing working practices.

“Central London will not go back to as much footfall as we had before. I don’t think there’s much appetite for that, because people are concerned about the risks of travelling and also they’ve discovered that they can do things in a different way, and that wasting all that time on the Northern line is not necessarily the best way of spending your life.” Read this short article: “https://www.theguardian.com/business/2021/jul/21/london-office-life-not-likely-to-return-to-pre-covid-practices

Unwilling or Unable Management – Businesses usually fail because their management isn’t willing or able to make them succeed. This does not apply only to a new enterprise although 85% of start-ups fail in the first year.  An established company often needs to expand or diversify into new or related activities which are termed in management-speak, “horizontal or vertical integration”.  The creation of a new division, for example, will equally require the application of “start-up” principles.

Successfully launching a new venture is difficult. Often it’s near impossible to succeed although it’s more likely that management is unwilling, rather than unable, to make it work.  Many management teams recoil when they realize how long and difficult the road to success will be and will use any excuse to abandon ship. How often have I caught the classic wail of failing management: “The banks don’t understand, they just pulled the rug, they ruined a good business”.  Probably for good reason!

Sometimes start-ups apply inordinate effort for little prospect of return and need in-house abilities beyond the management team’s skill-set.  Willing management that lacks ability will re-position itself with deletions and additions, using every device to promote success. By comparison, a management team lacking in determination isn’t positioned nor even motivated, to fix anything!

Inadequate or poorly managed capital – This isn’t just about the health or receptiveness of access to capital; the company must either make it on the capital it has OR raise more capital.  Success requires much more capital than failure.  It isn’t necessarily about the underlying growth or lack thereof, rather, it’s more about the management of working capital, the life-blood of any enterprise, and so often the cause of failure.  If initial capital has been underestimated, or care is not exercised in nurturing existing resources, the funds needed to survive are insufficient, then it’s “game over”.
Imagine a growth market where companies are trying to gain market share whilst attempting to re-define a market of, say, five players down to two “winners”.  The availability of capital and access to it will have a disproportionate influence on the outcome. Equally, in a falling market, where the prudent stewardship of capital will determine survivors, increased liquidity through reduced current assets such as debtors and stocks, will give an uninformed management a false impression of the level of free cash reserves.

Every enterprise needs a capital strategy for well-being and growth but many fail because they lack the on-going skills of money-management and understanding the nature of cashflow versus profit.

I have often used an example of the “Monopoly Game” when counselling budding entrepreneurs.  Picture the common Monopoly game having been in progress for some time with four people when one actor becomes bankrupt.  The remaining players invite you, the entrepreneur, to join their game and offer free start-up capital of the usual £1,500.  How long do you think you will survive?  The answer is, inevitably, not long because the established players have already carved up the market. Thus all you are likely to achieve is two or three rounds of the board, paying out much more than you are receiving in.  This is the classic loss-making scenario when cash reserves drain to zero.

Completely random external events – S**t happens and often it’s both random and devastating to many unprepared, youthful businesses as well as those having been established for many years.  Companies can fail for reasons beyond management control when change dynamics enter the marketplace or product life-cycle.

Any business making reasonable headway in the summer of 2008 with a product aimed at financial firms, including Wall Street, large banks or mortgage companies, will be well aware of this effect. Sometimes enterprises are “overcome by external macro-events” and succumb as a result.  Any enterprise, even large corporations, can do almost everything right and still fail because of these sudden, phase-shift events.

The common SWOT analysis is but one recognised management tool which helps to identify these trends although in the case of the recent housing crisis, which culminated in the demise of Lehman Bros and initiated a global financial crisis, fewer than twenty astute financiers saw the crash coming: https://www.investopedia.com/terms/s/swot.asp

Michael Lewis’s book: “The Big Short”, a worthwhile and enlightening must-read for business people everywhere). http://www.telegraph.co.uk/culture/books/bookreviews/7568068/The-Big-Short-Inside-the-Doomsday-Machine-by-Michael-Lewis-review.html

Low urgency:  Following the previous point, every enterprise is in a race against time and insolvency.  Show me a startup management team that isn’t streetwise and active 24/7 and you will see failure in the making.

When the team doesn’t keep a fast pace, they fall behind in everything and when this happens no amount of money or clever thinking will close the gap between them and their fleet competitors. Time lost is time gone forever.  Sometimes there are legitimate reasons to move slowly and carefully but it is difficult to know when patience should surmount urgency.

To stay appropriately urgent, management should assess the rationale for applying the brakes.   If critical information or data points are imminent, it is usually worth waiting.  If the desire is to perfect something prior to launch, it is usually not worth waiting.  The team should accept that the imperfect is not the enemy of the good, it is enough to be just “good enough”.  This will ensure progress because sometimes ‘failing to act is acting to fail’ and there just isn’t time for inappropriate inaction.  A management team that tends toward slower responses to opportunity and challenge will invite cumulative damage to the company’s health.

Not Enough Experimentation: You cannot understand too much about anything related to a company’s progress.  The rapid assimilation of the truth assists competitive advantage.  In a competition the hare wins against the tortoise more often than not.  He who gets to the truth first wins the race.  Eventually of course everything will be known to pretty much everybody but before that point a better understanding of key customer insights and market analysis offers a key competitive advantage..

A management team that prides itself on being “smarter” about customers without having empirical data for its “intelligence” will lose against a team with better data, earlier — nine times out of ten. Failing to Plan is Planning to Fail.

Furthermore, if the product and key processes aren’t continually perfected with feedback and testing, as per the ‘continuous improvement concept’ mentioned in Part 1, the enterprise is at risk of losing the competitive race.  A core belief of test and refine cycles is essential to arrive at the processes, product, support or market understanding necessary for growth.  A business which relies on its own internal wisdom consistently over the results of a dispassionate customer dialogue and testing is screwed, or soon will be.

Wrong Timing: Being early to a market is a slower death than being late to a market.  Either way, if the timing of the offering is well off  the market opportunity, failure is highly probable.  It is not difficult to get market and/or product timings wrong.   Most Venture Capitalists have stories of great ideas that suffered from nothing more than abysmal timing.

In surfing or sailing seeing the big wave is too late, you will have probably missed it.  Timing the BIG wave is about proper anticipation within the context of many other waves. By the time the success of a Tecso or an EasyJet is generally recognized, the opportunity to ride that wave has long gone.  Forward thinking or thinking ‘outside the box’ or just ‘gut feel’ and intuition is the mark of many a successful business person like Richard Branson et al.  Warren Buffet offers much wisdom on this subject: http://www.moneyweek.com/investment-advice/how-to-invest/how-to-be-a-value-investor-like-warren-buffett.aspx  It can also be too early, even with a great product and a well-defined market, timing remains critical.

A classic example of such a product was called MyRoom.com in 1997 offered an online private space for teenagers where they could create their own web space, invite friends, have an email address, and enjoy a customized radio station.  It was well executed but way too early, FaceBook arrived later with the benefit of market and product advancements at the right time. Wrong decisions at the right time trumps right decisions at the wrong time.

If a company’s market timing is way off, the venture won’t live long enough to see its day in the sun.  Laker Airways is another classic from the sixties: http://en.wikipedia.org/wiki/Laker_Airways  Virgin and EasyJet came much later and succeded.

Salespeople shouldn’t determine Target Markets: It is unfair to ask salespeople to define target markets.  The job of truly understanding market segmentation and customer profiles is a broader responsibility involving differing skills and experience from a broader range of the team.  A sales force is often asked to solve this question, on a “trial and error” basis, where they cold-call lots of people at random and report back on whatever they learn from the suspects’ response.

The outcome is unscientific to the point of being completely unreliable and more than useless because it most often results in false data and misleading information.  The right suspects have to be asked relevant question sets to determine the best prospective customer profiles with the greatest needs-matching, offered cost/benefits and perceived value delivery.  Only when an established profile is developed through market analysis techniques can salespeople be focused to deliver effective performance targets.

Salespeople have to be managed effectively to win profitable business by defining their prospect targets clearly and providing to them tools to close the sale before the next guy.  Salespeople are often talented hunters but, for maximum efficiency, they need the prey to be carefully defined for them.  If you say, “Go shoot rabbits”, without first defining rabbits, salespeople will shoot at everything that moves, declare them all to be rabbits, and argue that whatever they hit is proven to be a “rabbit”.  This wastes time and valuable resources and won’t secure profitable customers who can be serviced on a scalable basis

Given any amount of time, salespeople are not able to identify the most appropriate target customers; it isn’t their skill set.  Salespeople are great at determining a matching solutions to a customer’s needs, but help them by eliminating as many suspects as possible.  They will then be able to focus on the worthwhile prospects, beat their sales & profit targets, within budget expense and be the indispensable asset which every company, large and small, must have.

Xerox had many ways of energising their salespeople all which boil down to: “Winning isn’t everything, it’s the ONLY thing!”  http://www.evancarmichael.com/Sales/3193/The-Secrets-of-a-TOP-GUN-Xerox-Sales-Professional.html

I always recommend anyone who wishes to improve themselves to first take a professional sales course.  I learned SPIN and it has held me in good stead from that day Xerox trained me; have a look, it’s worth it: https://www.membrain.com/blog/a-brief-history-of-modern-sales-methodologies-for-sales-leaders

The Value Proposition is neither Understood nor Valued: The proposition offered by an enterprise must solve a problem for whomsoever feels it and be recognized as the appropriate answer.  In life science investing, for example, the target market question is in two parts.  First, how many people have the condition or disease that this treatment addresses. Second, how many with the condition will seek treatment.  The market is the “subset” which demands a solution. http://en.wikipedia.org/wiki/Value_proposition

If the target market doesn’t understand what it is or what it does or why they might want it, the enterprise will not make it to its happy place.  Something can be a stunning new performance product or ‘better mousetrap’, but what it can do or how it can be used is found only in the seller’s perspective. It will never sell on the basis of being “intrinsically good” for ‘technical’ reasons, it will only sell for what it will actually do and how it will add value for the customer.

In the buyer’s perspective, the product/service is not all it can possibly do or even the one or two things it will do essentially for them, but what it will do for them better than anything else.  In the Xerox World, this is called ‘selling the benefits’ or helping the prospect to buy and the proposition is epitomised in the maxim: ON TIME, ERROR FREE. https://www.pipedrive.com/en/blog/spin-selling

Substandard Product: In the 1980’s, the statement was “perception is reality” in other words “sell the sizzle”.  This reflects the power marketing once had to influence prospects about a product.  Today, reality is REALITY thanks to the availability of user reviews of just about everything in cyberspace.  BI (Before Internet) a company could achieve a perception that their offering was superior with a less than stellar product using creative advertising, sales muscle and many other psycho-marketing techniques.

Some companies grew rich on “vapourware” but those days are over now. The product/service has not only to be great but be the best through the informed opinion of knowledgeable users.  This is the 21^st century corporate, global world – the planet is full of  “knowledgeable users” – who demand the finest products, per se, rather than settling for products with persuasive marketing, sales or advertising. The buyers now KNOW, what was in the past, the salesperson’s private world.  Thanks largely to the internet and the information explosion, most competitive product and service equivalents are exposed for what they can really do for the customer in real time.

Inadequate Focus: When starting out with a blank piece of paper, there is an unlimited number of possibilities.  The great double-edged sword of the business experience is freedom.  This freedom exists to pursue anything or everything but success is dependent on focus.  Businesses that fail to focus early and effectively on target markets will not prosper for long.

A technology, service or product can be developed that is useful to many individuals, companies or industries but it needs a specific segment of those individuals, companies or industries that the proposition helps and thus focuses intently upon them.  Within any industry, the second new customer sale is a bit easier than the first, and the third sale easier still etc. For example:

In the hospitality industry, the Holiday Inn Hotel group could be a customer, so then the Novatel or Ibis hotel chains will know immediately that their respected competitor has in effect “validated” the offering merely by having bought it. This is known as a ‘third-party reference’ and is an essential component of the outdated salesperson’s ‘Site-Seller’ now mostly substituted by the website technology.  However, another customer from another industry would not recognise the Holiday Inn reference with such a validation. This is but one form of the many market “differentiations” required to allow a company to stand out within the market crowd.

CONCLUSION: The commitment to create a great product is central to successful corporate DNA.  It permeates all thoughts, actions, plans and attitudes throughout the organisation.  If it doesn’t, the product isn’t going to be great and if the product isn’t great in today’s market, the venture will fail to compete and is unlikely to survive.

Knowledge Engineering has emerged as a valid and recognised discipline for which one use is when a business needs to be evaluated to survive the extreme challenges present in the current global economic sea of Great White Corporate Predators.  The mix of skills required to survive in today’s commercial environment is huge and thus the selection of key personnel to fill the decision-making positions within enterprises, regardless of size, is the single most relevant factor in its future success or failure:  “People buy People first, Product second”

Next week, PART 3 will explain why some new businesses fail.

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Author: Austrian Peter

Peter J. Underwood is a retired international accountant and qualified humanistic counsellor living in Bruton, UK, with his wife, Yvonne. He pursued a career as an entrepreneur and business consultant, having founded several successful businesses in the UK and South Africa His latest Substack blog describes the African concept of Ubuntu - a system of localised community support using a gift economy model. View all posts by Austrian Peter