Tag Archives: business management

Business Vitality: Preventing Adversities Before They Occur

by James D. Roumeliotis

“Panic” and “chaos” are not what one should undergo in business. Unfortunately, many entrepreneurs are caught off guard more often than necessary when operating their business. In his book “The E-Myth Revisited”, dynamic author Michael Gerber states that a business person ought to work “on” his/her business, rather than “in” his/her business.

Start-ups have a leg-up if they launch and persevere on the “right track.” The appropriate definition of these two words together imply following a proper course of action. The analogy which can be applied to a business well-being is our own personal state of formidable health comprising of a healthy diet, frequent exercise and undergoing an annual physical. The objective is to be proactive, rather than reactive.

Remaining diligent and active as opposed to reactive

Entrepreneurs may be quite well versed with the products and/or services offered, but not necessarily with running their business including a bucket list of daily administrative tasks. Most notably, sales, marketing and finance/accounting undertakings. This is where honest consideration should be given in either bringing in a partner to complement the entrepreneur’s weaknesses or an external adviser and/or mentor to guide him/her. A sounding board should not be dismissed as prohibitive, thus solely for larger organizations. Seeking professional help is an important way to avoid or plan for business challenges.

Moreover, when drafting a business plan as the road-map, include a SWOT (Strengths, Weaknesses, Opportunities & Threats) matrix and “what if” scenarios — which will reveal and prepare one in avoiding the pitfalls of running a business, as well as coping with various challenges which can arise. In addition, consider plotting a business model as a prelude to the business plan. It makes you think through your business plan, which in turn communicates the business model. Both should synchronize. Make certain a short term (less than 12 months), medium term (13-30 month), as well as a long-term plan (30-60 month) have been conceived.

Savvy business people – whether new or seasoned entrepreneurs or CEOs of large corporations possess:

  • Insight and foresight;
  • Strategies and execution competence;
  • Alternative plans with an exit strategy in case situations turn awry;
  • The perception to take “calculated” risks rather than dive into the abyss;
  • Openness to third party advice;
  • Focus and consistency to achieve their goals and objectives;
  • The ability to see opportunity before their competition does and act upon it in a timely manner.

Negligence with current enterprises

Growing pains in any organization require a formidable administration to keep the business operating efficiently which includes customer front & center, profitability and more than adequate cash flow. Telltale signs of weak organizations can be traced to inept leadership. The following points highlight the deficiencies:

  • Poor customer service – slow or no customer inquiry replies – abysmal handling of sales and service complaints. Service is portrayed as a reward, not a right or benefit.
  • No Unique Selling/Value Proposition. Companies need to define and articulate their unique value proposition and deliver on it consistently. Create the platform for sustainable and competitive advantage.
  • Operational deficiencies – various ailments and no structure
  • Absence of or very little communication amongst staff and management. Divisions aren’t well-coordinated and do not function as a team.
  • No transparency. There is hardly any openness from management.
  • Unethical practices – short-term selfish objectives in search of market share. Top executives should promote social norms and principles as moral agents.
  • Lack of proper execution of decisions and with new products/services.
  • Productivity incentives should be implemented to boost results and employee morale. People must be given a reason to work hard and be efficient.
  • Creativity is practically non-existent. An absence of innovation and employee empowerment will hurt progress and stifle new ideas.
  • No clear vision/strategy – there needs to be a strategic vision that reflects a truly unmet need and has the commitment of a dedicated CEO. That means that there is a well-defined target audience with a distinct value position that is differentiated, meaningful, and deliverable.
  • A weak sales force along with an unattractive compensation plan.
  • Favoring nepotism and bias – promoting family members over other qualified employees often leads to resentment or, worse, prompts valuable non-family employees to leave the company.
  • Poor hiring practices – should hire for attitude and train for skills.
  • Slow/delayed decision-making process – too many layers – overwhelming bureaucratic structure.
  • High turnover, which leads to poor employee morale, reduced intellectual capital, lower service levels, higher operational costs and decreased productivity.
  • Management in a state of denial about their organization’s shortcomings – remaining with the dysfunctional status quo.
  • No channel strategy. Some companies focus on building a product, but don’t think through how to get it into the hands of customers. Even if your product is great, unless you can sell directly, you may be dead in the water without strong channel partners.
  • The hidden game – corporate politics – power plays by a handful of individuals for their own benefit to the detriment of their colleagues and the company.
  • Misrepresentation of brand(s) – too much hype – empty promises – not delivering on expectations – leads to dissatisfied clients who will alienate the brand.
  • Weak financial controls – cash flow dilemmas – over leveraged/under-capitalized (high debt-to-capital ratio) – not reinvesting a certain percentage of profits for future growth.
  • Absence of sound marketing program(s) and/or brand strategy. A brand is defined by how it behaves, from the products it builds to how it treats its customers, to the suppliers with whom it works.
  • Growing too fast and not staying on course as the company grows.
  • Lack or very little employee training & development.
  • Deficient in control systems – reactive rather than pro-active.
  • Lack of continuous improvements or complacent.

The way to solve an organizational problem is to swiftly confront the structural issues with a moral sense of purpose and ethics. It must also have preventive systems in place in anticipation of issues which may arise.

For its clients to receive stellar service, the enterprise must have its house in order. Besides structure and an efficient operation, employees should be trained and empowered to do their jobs efficiently.

Companies that disrespect their employees and shut-out clients get willfully isolated and have a short life span through an erosion of market share and significant loss of revenue. Thus, a company’s goal should place emphasis on serving its people properly and fairly. Higher morale generates higher profits – though occasionally other priorities hinder that objective, for example, self-serving behavior by certain executives.

Superman Businessman

Operational prevention: Implementation of systems and risk management

To preventing operational problems before they even occur requires anticipating them through operational intelligence. The purpose of risk management is to identify potential problems before they occur. To do so entails early and in-depth risk analysis through the collaboration and involvement of all parties involved in running the business. It’s where brainstorming occurs about potential problems regarding the product(s), service(s), market(s) etc. to search for and foresee issues, as well as create solutions in advance – eluding the element of surprise at some point in time. Risk management is comprised of: 1) Identifying, outlining and analyzing potential risks; 2) A course of action in handling the identified risks, as well as the implementation of risk control/elimination plans when/where necessary.

Business leadership should contemplate allowing constant flexibility to adjust strategy when necessary if the initial one isn’t effective.

There should be continuous checks and balances – especially with regards to internal financial controls through various procedures implemented to reduce errors or possible embezzlement by staff. Trust but verify ought to be the organization’s mantra and actual implementation.

Perhaps you can consider a risk analysis software such as a SAS platform whose practical use offers best practices to help the company establish a risk-aware culture through various enterprise risk models and forecasting. We note examples of aircraft pilots who diligently prepare prior to a flight – or ship captains making their plans prior to voyages at sea.

When all is said and done – avoiding pitfalls

Companies with inept leadership usually fail in the first or second year, but even established companies can stumble badly when they outgrow the capabilities of the founding team. According to statistics, as the latest available numbers from the two U.S. government statistical agencies responsible for providing data about new businesses illustrate, The Census Bureau and the Bureau of Labor Statistics, five years after new establishments were founded (1995, 2000 and 2005 respectively), 50%, 49 and 47 percent of them (correspondingly) were still in operation.

To be a successful and sustaining entrepreneur requires vision, strategy, execution and constant diligence – along with plenty of sacrifice. A new generation of young entrepreneurs think the road is smooth and a fast track to easy wealth. Obstacles and sacrifice are part of the deal. Harnessing opportunity and overcoming challenges on a daily basis to top the competition is constant work. These conditions are true no matter what the sector of business engagement or company size.

Enterprises spanning a wide array of industries, have earned distinction as “well-” or “best-” managed” by demonstrating business excellence through a meticulous and independent process that evaluates their management abilities and practices – by focusing on innovation, continuous training, brainstorming and caring for their employees’ well-being – as well as investing in meeting the needs of their clients.

Well-run companies thrive no matter what and learn from their mistakes – making certain they don’t repeat them. However, never give failures a second thought. There are no dress rehearsals in business either.

Onwards and upwards!

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Why Many Businesses Earn a Paltry Profit, If Any: How to Turn This Dilemma Around

By James D. Roumeliotis   

10 Reasons Your Business Is Not Making Money – InsiderBLM

A business that makes nothing but money is a poor business.” – Henry Ford

Every business launched should be infinite and earn a profit ─ unless, of course it is a non-profit organization. Profitability has an impact on whether a company can secure financing from a bank or attract investors to fund its operations and grow its business. Continuous prosperity is earned most notably by tightly controlled financial management, including cash flow/liquidity, a methodical and lean operation, and a policy with emphasis on employee, vendor, as well as on a customer focused environment.

However, many businesses are not earning a decent profit margin or produced one for some time. Those companies are at a stage where they can be profitable anytime, but they prefer to invest money back into the company to keep the growth steady. However, there are also scores of them where they cannot survive without external debt or they are operating at a highly unsustainable business model such as selling merely on price with no unique selling proposition (USP) and instead, paying more attention at how fast they are growing. 

How much profit should a business be earning?

A decent margin will vary considerably by industry and size of business, but as a general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high, and a 5% margin is low. The industries with the highest average profit margins include:

Large Industries

  • Software publishing
  • Pharmaceutical
  • Database, Storage & Backup
  • Semiconductor industry
  • Financial services (non-bank)
  • Healthcare support services

Small to Mid-size Businesses (SMB/SME)

  • Accounting services
  • Lessors of real estate
  • Legal services 
  • Management companies including consulting
  • Orthodontic and dental offices
  • Computer software and hardware technical operations
If You're Only In Business To Make Money… You're Doing It Wrong – Call  Porter

Industries with low profit margins include airlines, grocery stores and automobile dealers as they are typical examples of low-margin businesses. Capital and labor intensive industries usually have low profit margins, due to massive investments with a low return or a long term return (ROI).

For a complete list of industries and average profit margins click here.

Popular newer companies with high values but no profit

Some notable relatively young companies across the tech and lifestyle sectors such as Airbnb, Uber, Wayfair and Peloton, to name a few, have yet to break even since their inception despite the justification for high valuations which are generally around the future prospect of earnings, among other factors. All highly hyped start-ups had great stories of scale, regardless of whether their stories have yet turned-out as predicted. In fact, many are actually losing millions every year during the first decade (think Amazon). Reasons for not making any profit include, in part, a large investment in sales and marketing, product development, technology and operations. Some are less efficient with scale. Consequently, to make money, they will need to re-engineer their business model and manage costs from running far ahead of revenues.

How to restore your business gains

There are several measures to take to make certain your business thrives, and profits are frequent, as well as attractive.

  • Your profit margins ought to be in line with your industry or better. Consider offering a premium product which will yield a better profit and reputation. Avoid markdowns as they are profit-killers. In addition, enhance your brand image and increase the perceived value of what you are selling.
  • Negotiate better pricing agreements with your suppliers to reduce the costs of goods and widen your margins. Negotiate for discounts. You may want to include free shipping or other offers such as receiving extra products for free. This works well when you are purchasing in bulk.
  • Reduce supply chain costs and inefficiencies. One way to accomplish this is by shipping product in less than a full truckload (LCL) as it is more costly when it is full (FCL). Making several deliveries each week is more expensive than just one. 
  • Streamline your operations and reduce operating expenses. Automate specific tasks in your business such as putting repetitive activities on autopilot. This way, you can reduce the time, manpower, and operating expenses required to run your business. Cut overtime and excess staffing as much as it is feasible and control other expenses by implementing rigid budgets and needless expenses. If the purchase does not contribute to the growth and improvement of the business, it should not be made in the first place.
  • Avoid over leveraging as this entails having a significant amount of debt in use along with a debt service strain. While debts used to generate revenue can increase revenue and profit over time, excessive debt can inhibit profitability. Keep your debt on the wise and strategic side of things.

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