Small businesses’ practices and the issues of stagnation and collapse

Image courtesy jscreationzs/FreeDigitalPhotos.net

Image courtesy jscreationzs/FreeDigitalPhotos.net

I have been very fortunate to have worked in all sorts of businesses: small ones, medium sized ones, blue chips, collapsing ones, and very solid ones. As a University of Cambridge Advanced Business studies lecturer, I have had to carry out series of studies on business failures and successes. The combination of these experiences is basis of this blog post.

There is no generally acceptable definition of a small business. It is safe to say that this very important element in every economy can best be defined by their peculiar features.

Small businesses are known for the following features:-

*Small startup capital requirement

*Operates without a staff or one or two staffers

*Small office space

*Small stock up – for those businesses involved in buying and selling

*One-shop set up – no branches

*Very small assets value, including bank account

*Uses less of modern equipment and tools, especially the internet

*Inconsistencies in business practices

*Low turnover

*Low profits

The list above is inexhaustible. No doubt, there are many small businesses today which have become global players. Facebook, Microsoft, Yahoo!, Google, Apple Computers (and a host of other global names), did not start from the top; they all started from the scratch.

If these businesses can be this successful, why is that many small businesses never leave their starting point, or worse still, later collapse. The following are my findings (it is important to note that for some businesses, a combination of these factors could be their problem; for some, a single factor could be their their problem):-

Inability to raise good capital:- Capital is the life blood of the any business. Where it cannot be sourced, or where enough cannot be sourced, then there is a serious attack on growth. This is because, every additional investment that is made in a business is a potential for future growth.

Modernization has made the issue of business financing less stressful and diverse. Here are some finance options open to small businesses:-

*Loans from friends and associates or micro finance banks.

*Thrift and credit societies for soft loans.

*Credit purchases.

*Equipment leasing from firms that are friendly to small businesses.

*Debt factoring.This involves selling of debts to finance firms like banks

*Ploughed back profit or earnings.

*Selling of disposable properties.

*Soft hire purchase arrangements. This is also an alternative to buying properties.

 An analysis of these options will have to be done before a decision is made. The terms of each option are usually a major guide.

One of Mark Zukerberg’s secret of success was getting good capital to push his dreams further. In 2005, Accel Partners, a venture capital firm invested $ 12.7 million into Facebook, which at the time was only open to Ivy league students. This led to a huge expansion of the network.

Giving priority to huge profits as against growth:-  I am one of the very strong followers of the late Apple boss, Steve Jobs. I have read many articles on him and I love listening to him because his words always contain strong meanings and implications. He once said that ‘’being the richest man in the cemetery does not matter to me. Going to bed at night saying we’ve done something wonderful ‘’ is ‘’what matters to me.’’- (Craig Biddle -theobjectivestandard.com) Doing something wonderful would certainly require you to do something, not because of the money, but because that is what you really want to do. It also means you are not following the crowd to do what they are doing. This helps you to stay focused and always wearing your thinking cap. When this happens, all your efforts tend towards success and growth, dwarfing the motive of money-making.
Not having a Sellable product:-  Not every product is sellable. Surprised to read this. Every product has its time and location. A wrong time and location will surely jeopardise growth and may eventually snuff life out of a business.  Wrong timing of product release and location of small business has been a major setback for so many of them.  It slows down growth and if the situation becomes severe, it may lead to a collapse of the business.

Closely related to this is the issue of quality. It is a matter of time when even the less privileged ones in the society will turn their backs on sub-standard products. They do not last long. Food items might lead to health issues. This causes a drift to another product, no matter how cheap. The cycle continues. Growth will be a miracle in this situation. And when stagnation persists for so long, collapse cannot be ruled out. High quality is a major reason for the huge successes recorded by the small businesses started by Jobs, Gates, Zuckerberg, Page, Filo, Yang and several other blue chip companies worldwide that started from the scratch.

Not surpassing your competitor in what you are selling :- The world of business is premised on the principle which recognizes the fact that for every business you want to go into other people are either doing it or will join you in that line of business later. So, survival is the order of the day. Surpassing your competitors is like a game of football where you have to get the ball pass all the players and goal keeper and then score. That means you have to very outstanding in your business practices. A great achiever, Steve Jobs, has this to say in this respect: ‘’ the only way to do a great work is to love what you do. If you haven’t found it yet, keep looking….And like great relationship, it gets better as the years roll on.’’ – (Craig Biddle –www.theobjectivestandard.com). For small businesses, this could be, and has been an uphill task.

Very poor record keeping, especially financial records: – I liken the very poor record keeping habit of small businesses to the AIDS virus!!! Why? On the face of it it looks as if all is well with the business. But unknown to the business, a problem exist which is unknowingly affecting many aspects of the business. Poor record keeping is the major reason why :-

*A fraud can occur and the entrepreneur may not  know on time or may never know

*There might be a stock out and it is not known on time

*The entrepreneur may not be able to take sound investment decisions

*The entrepreneur may not be able to control expenses

* He may constantly have reconciliation problems with creditors and banks

*The entrepreneur may never be able to state his financial at any  time

* He may never be  able to know whether he is  running at a profit or loss

*The entrepreneur may never be able to tell how much his turnover in a year is

*The list goes on and on

Meanwhile all seems well with the business. A close examination of the practices above will show that each of them are clogs in the wheel of progress of any business for that matter, worse still , if the business is a small one.

Having incompetent or inexperienced assistants/partners/workers:- Human capital is the most crucial of the resources an organization can put together. No matter the kind of sophistication in your business machines, very high quality goods and services, fantastic business ideas, wonderful location, and the like, it takes human beings to transform all of these into business growth and success. The success stories of   Gates (Microsoft), Mark Zukerberg (Facebook), David Filo and Jerry Yang (Yahoo!), Larry Page and Sergey Brin (Google) and Steve Jobs (Apple Computers), cannot be complete without the mention of some names of some very brilliant people and reputable organisations. Thus, slow progress or imminent collapse may definitely creep in where a business is made up of people or organisations that cannot drive the business towards growth.

Lack of foresight:-One key business skill is the ability to predict the market. Inability to do this creates constant shock-effects on the business. This is similar to the same effect a shocking situation has on a human being.  Too much of this shock-effect can be every inimical to a business. Having foresight enables the entrepreneur to plan and prepare ahead. It reduces too many stop-go situations. This is a situation where an unforeseen event creates a serious problem in the business which requires a complete change in the business, and starting a new line of practices becomes inevitable. If this happens often, progress will be deterred and imminent collapse cannot be ruled out.

One of the strongest points of Microsoft was that Bill Gates’ career has been marked by his incredible vision. Microsoft beat out the competition largely because they were always looking one step ahead, to the next revolutionary idea. The lesson is: if you want to get ahead in business, think ahead.

Inability to move with the times/changing global events: – Global events are changing at a very fast pace. Business techniques, methods and practices are fast changing at a per-second-basis. Information on better ways of doing business is being updated on a per-second-basis. The internet has made things even more difficult for small businesses that cannot have adequate access.  The result is that businesses that cannot meet up are put at a disadvantage, with the resultant consequence on growth and overall business success.

Poor marketing skills:- The whole essence of marketing is to bring about a sale. Marketing activities are very wide. Poor marketing skills slows down growth to a very large extent. Some of the marketing activities/practices expected of businesses includes :-

*Product issues – proper packaging, right colour, right size, right quality

*Pricing  issues – setting the right prices

*Distribution issues – excellent distribution plans

*Promotion issues-choosing the right type and mix of

promotional tools.

*Excellent customer relations.

Poor staff relations:- Lastly, where the business can employ a staff, the staff MUST be well taken care of. The entrepreneur must have a good relationship with the staff. Staff welfare must be a priority. A happy worker is more dedicated to his job, loyal, and less prone to criminal tendencies. Where the reverse is the case, the business suffers for it. The staff sees himself as a salary-worker who only works for his salary, with nothing at stake. He is less dedicated and more prone to criminal tendencies. All these and much more adversely affects the business.

A careful study of the above research findings will not only be very useful to small businesses, but the following businesses:-

*Failing business, i.e., businesses going through difficult times

*Medium scale businesses that want to grow

*Big businesses that have been facing challenges.

*New businesses or those coming on board

Good luck to us all and thanks for your time.