Starting a new business has a tremendous upside but there is an equal, if not higher, risk of failure and loss. As noted many times in our material, statistics show that 80% of new businesses fail within the first 5 years. Due to this statistic, we stress a well designed and thought out business plan coupled with an enormous amount of research and planning and use of that data in the implementation of the start-up business.
Lately, life has been little better for existing businesses which are failing at an alarming rate. Of course this is due to the unique economic and banking conditions that currently exist. Most business owners have not experienced similar economic issues and could not recognize the signals prior to the damage. They kept operating as they always did, never stopped to evaluate the environment around them nor did they take timely action when the obvious was upon them.
When businesses come to us for consultation they expect an immediate answer to their problems. Yet they typically do not have an analysis of the situation for us to review, they just give us the symptom and request a solution. This is immediate proof that there is not internal company analysis or evaluations being performed on a regular basis, if at all. Once we suggest that an analysis must be done prior to being able to help them with their problem the expense of that is objected to. Our response is always two fold;
We request the time and support to prepare an assessment from which we then attempt to carve out a solution. When one is sick and they call the doctor, do they receive a prescription or treatment option over the phone, of course not. There first must be an examination after which the prescription or treatment is prescribed. There must always be an assessment of where one is and what the options are. Too many businesses never perform this and if they did they probably would not need us to diagnose the problem.
We then explain that every business is perfectly designed to produce the results that are being attained. In other words, bad production, poor quality, inadequate response time, etc are all a direct result of the systems in place or lack thereof. When things go wrong, one must first look internally rather than blaming the economy or the competition, there is usually a solution within the organization.
When starting a new business these same concepts must be adhered to in the design of the business plan. In other words, you must design systems into your organization in order to make it run efficiently and then you must continually evaluate the systems. Even a “one person” operation needs organization and a system; otherwise things are not done in a manner to assure consistent results.
We point this out to discuss the topic of self analysis. Many of the problems in large and small businesses exist in the organizational elements of the company and are not looked into because these systems were typically put into place by the owner and the owner can never be wrong. Alternatively, many times the owner may be willing to change but time is never taken to sit down and perform a routine assessment. Egos and failure to self evaluate are common reasons of small business failure. Pride and passion are assets that the business owner must have but they cannot be placed ahead of good business practices. A great example is the business plan. This is usually written by the owner and is designed to promote the company and obtain investors or bank financing. With that as the rationale for its drafting, many times the data is skewed in a more positive light than reality and/or detailed research is not done for whatever reason and glaring holes exist in the plan itself. Thus many small businesses are started and are doomed to failure before the first widget is produced. Therefore, one must be diligent to be realistic when doing the business plan and then assess the good and the bad. View the project in realistic terms, not in terms of hopes or goals. If the plan shows poor cash flow or multiple year losses, redesign it or terminate the project.