What makes for a successful business?
Some of you may not be aware that Small Business Advice Week took place earlier this year. To mark the occasion I thought I would share my five rules for success (or avoiding failure).
Of course, if we knew the answer to the question, we’d all have our own successful businesses. But there’s a big difference between knowing what to do and doing it. These five rules for success are not so much a guarantee of success, more a guarantee of failure if you don’t do them. So here’s your checklist to avoid failure.
Know when to plan and when not to. Planning is important. Without a plan you’ll struggle to get a bank loan, for a start. A good plan says what you are going to do, when you are going to do it and what resources you need to do it. Most importantly, they say what you hope to achieve by doing it, because the world about you changes, and sometimes plans need to change. If you focus on the end state (where you want to be) rather than the plan (how you get there), then planning works. It means that your plan is outcome focused – what you want to achieve – rather than process focused. There’s a guide to business planning on the Business Link website.
Cash is king. If you have financial decisions to make, just say to yourself, cash is king. More technically, it means that you are better off having cash now than a highly profitable business going bankrupt. Cash flow is the biggest cause of business failure in the UK. This means businesses are operating profitably but run out of cash at the bank (or reach the limit of their overdraft). So how can businesses make a profit and still go bust? Easy. You’re paying bills today but your customers are paying you tomorrow. As you grow, your payments increase and so do your debtors – you have thousands owing and no money in the bank. So you go bust. Retailers (one of the most popular small businesses with the highest failure rate) are particularly prone to this disease. All that stock has to be paid for long before it’s sold. With insufficient capital, they run out of cash. Here is a good guide to cash flow.
And that leads to my next important rule – understand your customers. Who is going to buy what you sell, and why will they buy it? This means understanding the difference between features and benefits. Features are what you build into your offer, but benefits are why people buy. For example, have you ever looked at the shape of an iPad? It has a slightly curved base, so that when it’s lying flat on a table all four edges are raised above the surface – that’s a feature. Now, when you want to pick up an iPad, it’s very easy – you can slip the tips of your fingers under the edge without a problem. That’s a benefit. You are going to be available for customers until 10pm at night. That’s a feature. Your customers can call you when they get home from work. That’s a benefit. Once you know who your customers are, you can find out what they are really looking for (the benefits), and supply that (the features). Peter Merholz has a short but interesting article in the Harvard Business Review on how to get to know your customers.
Now we come to the other side of features and benefits – why you must stop being fixated on features. People tend to start businesses to do things they love doing, and they are totally fixated on the features. The trouble is, their customers are not, all they want are the benefits – they don’t care about how they are delivered. Just because you like doing something doesn’t mean that other people will love to buy it. Once you recognise that your customers aren’t a bit like you, you are on the way to understanding what they are like.
Putting skills at the top of the tree gives you a competitive edge. The better you and your employees are at doing your jobs, the more you will delight your customers and the better you will succeed. Highly skilled employees are more productive, produce better quality goods and services, and are more reliable. Training works, and so the more you invest in developing the skills of your people (within reason) the better the pay back. And if you worry that the people you spend money training might leave, just remember that the ones you don’t train might stay! What’s more, all the evidence is that firms that invest in the skills of their people have lower staff turnover. If you want to find out how higher skills can benefit your business, go to the UKCES website and look at the case studies on high performance working.