A rather startling bit of historic news broke a few years ago about startups in America. In 2008, emerging startups for the first time in history trailed business failures. That means more business are failing now than are new businesses entering the market to take up the slack in jobs.
Some great insight into this trend can be found in this article by Jim Clifton, Chairman and CEO of Gallup. He had a quote in the article that truly captures the challenge we face in America.
"Let's get one thing clear: This economy is never truly coming back unless we reverse the birth and death trends of American (SMB) businesses."
My intent here in this two-part article is to candidly address these two topics (the birth and death trends of SMBs). I will share a perspective - why and how to improve - that comes from 14 years of consulting for privately held businesses and advising/mentoring startups.
Part 1 - Why are they failing?
Try these reasons (compiled research of Moya K. Mason, “What causes small businesses to fail.”) :
- Choosing a business that isn't very profitable.
- Inadequate cash reserves.
- Failure to clearly define and understand your market, your customers, and your customers' buying habits.
- Failure to price your product or service correctly.
- Failure to adequately anticipate cash flow.
- Failure to anticipate or react to competition, technology, or other changes in the marketplace.
- Overgeneralization - be everything to everyone.
- Overdependence on a single customer or customer set.
- Uncontrolled growth.
- Believing you can do everything yourself.
- Putting up with inadequate management.
A war is being waged against business/strategic plans.
There are folks out there, especially in the start-up world, who are advocating that business planning is outdated. Here is an entry from one such “expert” who titled his blog, “Why you Should Ditch Annual Business Plans”
Leaders need to abandon traditional business planning and embrace the creative process instead. Business plans should look more like sketchbooks than spreadsheets. What do sketchbooks do? They help artists unlock ideas, to experiment and learn, to stretch boundaries, and to build talent. Artists take their best ideas from sketchbooks and use them to create their best work.
Businesses should operate as a similar collection of experiments. The testing and refining of new growth ideas ensures a constant connection with a changing customer base. Aggressive growth happens when leaders are able to continuously shift investment to those ideas that show the most promise."
Let’s look at the very basic elements of a business/strategic plan:
- What basic human problem am I solving?
- Is my solution unique?
- Do people want to buy my solutions? What is my proof?
- How big is the marketplace that I am selling to?
- Who are the competitors/trends I should pay attention to?
- What skills/people do I need on-hand to sell and deliver my solution?
- How many widgets will I have to sell to cover costs and be cash-positive?
- How long can I operate with cash on hand?
If you look at these 8 basic questions and compare them to the reasons for failing you have to wonder why business owners fight this basic step of business. I‘ve heard a few excuses over the years and share them here.
“While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second.”
Because of this, some (especially politicians) will immediately point their finger at our banks and other financing institutions and blame them for this problem. “If they would only loan more we would solve this problem.”, they will claim. There are even those suggesting the criteria for loans guaranteed by the Small Business Administration should be lowered to “untie the hands” of the banks.
Asking banks and our government to assume larger risks is not the answer. While it is unimaginable to find the CEO of Coke, Facebook, Home Depot or Uber unable to intelligently discuss forecast sales, cash flow, profits, trends that may impact their market, the competition they face and long-range growth strategies, these types of conversations with SMB’s and startups are dubious at best. So to suggest easier access to US government-backed loans is crazy talk. Let’s not make this mistake again. We’ve seen and felt what happens when our banks and government invest in speculation (Solyndra).
Heal thyself American business owners and save our economy (play the Battle Hymn of the Republic now).
America needs you, small and medium sized business owners. We need you more than ever! There is nothing Congress, or the President can do that will have a more dramatic impact on our economy and jobs than you can by dismissing those who irresponsibly suggest there are shortcuts to success in business. Or those suggesting you can Tweet, or social media, or robo-call your way to growth. Dismiss the notion that simply having an idea and ambition is all that is necessary to launch a start-up. I implore you to help heal our economy by healing your businesses. Become a disciple for businesses owners around you by first following the basic tenets of a growing business - have a plan, execute to the plan. Inspire your workforce with a vision of the future and a realistic written growth path. Show you can lead. Show you can set goals and achieve them on a recurring basis. Show you can be a responsible steward of someone else’s money (a bank for instance) by repeatedly making prudent, plan-based decisions on hiring, marketing, capital equipment and services. Let your profitable sales win-rate reveal how well you know your customer and respect your competitors. And finally, surround yourself with smart, critical thinkers who will not shy away from challenging you or telling you what you need to hear.
And my message to Washington DC - get the heck out of the way!
Part 2 will examine the second issue facing America - the declining birth trends of SMBs.
About the author: Mike Gomez is the President and CEO of Allegro Consulting, a business growth specialty firm in Atlanta, Georgia helping privately held business owners find new avenues for sustained growth for over 14 years. He is a start-up mentor at ATL Tech Village and Four Athens Tech Incubator, guest lecturer at GaTech and UGA, and prolific business speaker. His growth focused articles have appeared in the Atlanta Journal Constitution, ATL Business Chronicle, Gwinnett Business Journal, and the Business Insider. www.allegroconsultant.com