5 Reasons Why Your Business Success May Be Limited
Many business owners go into business without fully examining the 5 main reasons why their business success could be limited. A good business plan is designed to lower the risks to your success by exploring these 5 reasons (plus more) and reversing the limitations before they start, however, not everyone does a business plan before starting a business. At Prize Performance LLC, my business performance consulting firm, we see business owners all the time that fit into at least one of these reasons. Some business owners fit into several. Some of these businesses operate with weak success for decades while they falsely tell themselves all is well. Sadly, some of them end their business ventures and their dreams. Smart business owners will examine these reasons carefully before starting a business. Other business owners ignore these reasons and start a business anyway. If you are in either situation, take hope because you can recover by taking immediate steps to understand these steps and improve your business conditions.
The False Start - Your business looks like an opportunity, but there is little potential for sales or profit
Any business venture you may consider should be put through a series of tests to determine your strength (or weakness) in the marketplace. This is not easy to do if you haven’t done it before, but it’s essential to determine what five key areas tell you about your business positioning. We at Prize Performance follow the formula known as Porter’s 5 Forces. This formula is too detailed to cover in this article, however, the formula was created by Michael E. Porter of Harvard University and is a strong and reliable predictor of your business position in the marketplace. Click here to learn more about Porter’s 5 Forces.
Other key steps to determine if there is a potential for sales or profit is to talk to potential customers and determine their sentiments towards your product or service. You can do this formally, using focus groups or you can do this informally by gaining the cooperation of individual customers and interviewing them. The results of their collective sentiments will tell you many things about their decision criteria to buy from you or buy from someone else, or perhaps buy nothing at all.
I’ll give an example:
A newly established software company developed an application intended for appointment and resource scheduling for a highly specific personal service industry. They wanted to take this application to the market and sell it for what they assumed would be a big profit. Market research revealed the customer liked it, as it worked well for their purpose. Further market research revealed the market size (in the US) customers would realistically provide, at most, annual revenue of $48K. The company had already sunk $100k in product development alone. This market was too small! A loss was already brewing and sales had not yet begun!
A lack of knowledge of the important elements creating success
There are several elements that create business success. Each one is highly important and must be deliberately and thoughtfully constructed to bring your business great success. Many of these can be found when you construct a business model canvas of your business or thought through when preparing a business plan. These critical items are focused upon exactly who your customer is, how you plan to proposition and sell to them and what resources you’ve arranged to profitably sell and satisfy their need. Provided in a list these are:
- Value proposition – The value you given to your customer
- Customer Segment – Who exactly, is your customer and what is their need
- Channels – The method for selling to your customers
- Customer Relationships – How you create demand
- Cost Structure – All of the costs needed to operate your business
- Key Activities – The activities that satisfy the customer and generate revenue
- Key Resources – Everything your business needs to generate revenue
- Revenue Streams – Alternate revenue and profit sources
A lack of leadership to move your business from point A to point B
This principle assumes you know HOW to get your business from point A to point B. If you already know, then great, you are then relying on your leadership skills to get there.
If you don’t know how to get there, you must examine the reason why because in this situation, your leadership skills can’t help you. It’s the same as being a highly skilled driver. If you don’t have a map and don’t know where you are going, you may drive extremely well, however, you are sure to get lost.
This principle also assumes you know where you want to go and what you want to be in the future. This is your business vision. Once again, the same driving principle applies, without a vision, you can’t get where you are going. You are lost.
Assuming you know your vision, and you know how to get there, your next challenge is to lead your people to make it happen. This will involve taking your vision, translating it into tasks for each department head and giving each a plan for them to drive. Each of marketing, sales and operations needs a strategy and a plan to individually drive their own tasks to acquire, sell and serve customers well, at a profit and satisfying their need. Then you’ll need to support each group’s need for resources such as messaging, advertising, selling, servicing, billing and payment collection. While the tasks are extremely important, so is the need for funding to perform the tasks. All must be preplanned and pre-calculated as part of each group’s strategy and plan. Then you’ll need to be the cheerleader to keep them going and be the orchestra leader to make sure they are doing it together, in synchronization.
A lack of knowledge of how to compete
If you’ve done your advance work, your customer has told you who they are, what they want, how you meet their need and how you fit into this picture. The difficult thing for most business owners is to stay on top of the constant changes in this wide description your customer has given you. When customer conditions change, you need to know about it and you need to adjust your business to accommodate them to keep the customers you serve and acquire new ones. Without it, competitors will meet this customer need better than you can, causing you a loss of customers and sales. This is your secret to competing. While the strategy to do this may change, this is the magic formula. It foretells changes are needed and directs you on how to change.
This is not easy, and your industry changes are very different from other industries’ changes. This is normal, and requires you and your company to do be unique and different to compete. Here are some qualities of good companies that do this well:
- Listen to your customers – perpetually
- Interpret what your customers say
- Be creative in your interpretations
- Confirm your interpretations with your customers
- Adjust your company as needed to keep in alignment with your customers
- This may mean service or product adjustments or introducing new ones
A lack of overall business knowledge – This is not industry knowledge
As you can tell from the previous topics I’ve highlighted for you, much of the information you need to be successful as a business owner has nothing to do with how to schedule appointments and deliver a good product or service to your customer. There is much more to being successful. Here is a list of some key overall business knowledge you need to best run any business, regardless of your industry:
- Read and understand financial statements
- Create, read and understand your key business analysis
- Look forward, set goals and drive your business to reach those goals
- Evaluate company and other strategies for success or improvement
- Design and implement new, more successful strategies when needed
The Executive Summary
Every company has its industry specific needs and requirements to be successful. This is not the only requirement to be successful. Other skills and practices are required. Not applying the other required skills can limit your business success. These are:
- The false start - your business looks like an opportunity, but there is little potential for sales or profit
- A lack of knowledge of the important elements creating success
- A lack of leadership to move your business from point A to point B
- A lack of knowledge of how to compete
- A lack of overall business knowledge
If you experience one or more of these, your company success is likely limited. If you are in this situation, there are two choices you have. First, you can learn what to do. Second, you can hire an expert to help you do it, and learn about it in the process. The Prize Performance LLC team can help you with either option.
I invite you to contact me if you have questions!
Rodger Stephens, CPA, CGMA
Rodger Stephens, CPA, CGMA is CEO of Prize Performance LLC. Prize Performance LLC is a consulting firm specializing in accelerating business performance for small to medium sized service businesses.