Coca Cola is one of the most successful businesses in the world today selling over 1.8 billion drinks per day in over 200 countries yet the first year the company only sold on average 9 drinks a day. This is a very important lesson for new business owners.
The Employee Mindset
When you first venture into business, you will notice that people who are conditioned to work for one month and get paid at the end of the month look at earnings short term and are likely not to have the patience to build a business from scratch. Learn not to take advice from such people if you are going to build a successful business. Work on changing your mindset too if you are conditioned the same way.
Building a business from scratch is scary and such comments only serve to increase your anxiety. A lot of people with new businesses make one costly mistake; they build the business as if they are waiting for the next bus to board, always looking around for a way of escape, probably a job offer. It is like being in business is a punishment that they couldn’t wait to be set free from. After a few criticisms, they decide that the business is not working, that it probably was a bad idea and close it down prematurely.
Businesses do fail and knowing when to close shop could save you a lot of money and time. It is not worth it to keep on pumping money into a business that is not making any headway, which could leave you deep in debt.
How do you evaluate your business?
How do you tell if it worth it to keep pushing on? How do you decide whether to close the business down and move to something else or to continue? After how long should you close a non-performing business? Should you close down your new business if it is not yet meeting its obligations after 1 year? After 2 years? Let us consider a few scenarios to help us understand how to evaluate different circumstances.
You have leased a piece of land and planted beans. A few months after planting, the meteorological department gives warnings that floods are expected. The floods sweep your crops away and you end up with no harvest. You suffer loses.
Would you judge your business as a failed business, stop it and move to something else?
You have leased premises and started a kindergarten. You are in your second year and the business still cannot meet its obligations; pay rent, teachers’ and non-teaching staff salaries, etc. Would you close down the business and move to a different line of business?
Imagine that you had a business that stocked manual typewriters in the early 90s. Computers had just entered the market. Your business had made losses 2 years in a row since the entry of computers. How would you move forward?
You were running a profitable simu ya jamii business in the early 90s. Business was doing well and you had made profits 3 years in a row. Affordable mobile phones were just about to enter the Kenyan market. Would you judge your business as successful and worth continuing with because of the performance of the past 3 years?
You had pursued a degree in law, gone through the Kenya School of Law and worked for a law firm for 3 years. You then set up your own law practice and it is 2 years and not yet profitable. Would you close down your law firm and change to a different line of business?
The general belief is that if your business is not meeting its obligations after a year or two you close it down for it is not viable. Do not make the mistake many people who are new to business make. Do not evaluate your business in isolation. What does that mean?
Your business is just but a single player in an entire industry. Do not judge it in isolation. “My shop/school/clinic is not making profit 2 years after I established it. It is not a viable business and I am therefore going to close it down.”
Are there other players in the industry? How are they performing? Is business doing poorly for the entire industry or just your own business? What are the reasons for the poor performance? Is the poor performance because of some poor choices you have made?
If the poor performance is affecting the entire industry and is because something more superior has entered the market that has made what you were offering unable to compete (such as the entry of affordable mobile phones in the market while you were doing simu ya jamii business), you would be wise to change to another line of business without wasting any more time or resources.
If the poor performance is because of temporary circumstance such as adverse weather conditions, poor choice of crop for the area where you are engaging in agriculture, political unrest, etc., you are better off not gauging your business as not viable as those are not permanent circumstances. Maybe you need to think of ways to survive during the lean times.
What sort of business are you building?
Building a business based on your field of expertise is different from running a green grocer or clothes stall. If you are building a business around your expertise in law, medicine, nutrition, engineering, life coaching, software development, design or other field of expertise, your journey to becoming a successful player in that field is likely to be longer than that one of someone operating a shop. Do not evaluate your business the same way.
A business around expertise should not be evaluated in the same way as a business selling goods. The two journeys are different. It takes many years to acquire expertise in a field and to get breakthrough in that industry. Some of the most successful lawyers, doctors, life coaches and architects have taken years to get where they are in their fields. They also took years of study before they qualified to practice in their fields.
It is rare that the top specialists in such fields is are young professionals who recently graduated from the university. Most experts are in their 50s, 60s, or 70s and there is a reason for that. It takes time to accumulate adequate experience and build your name to become an authority in a field. If you choose to build a business that is based on expertise such as web design, software development, network marketing, content writing, fashion design, psychology or life coaching, be prepared to invest months or even years in learning before you can become competent to succeed in the field.
When you start practicing, do not expect quick results. With such a business, I always recommend working with 10-year goals and being focused on growth and improvement. Choose your career carefully and once you set up your business, commit to stay with it for 10 years.
Put in long hours of learning and practicing and depending on the field, begin by giving your services for free or for very minimal charge in order to build a portfolio, which will be crucial for your marketing efforts. Designers, coaches, etc. need to begin by offering their services for free in order to get their names out in the market place and attract clients.
Be prepared that you will need to wait longer to reap the fruits of your labor than that person who starts selling fruits or roasted peanuts so work hard and don’t give up. The growth in a year or two might not be significant but a lot can change in 5 years or a decade.
You don’t throw away 5 years of training coupled with 5 years of experience to go try out something else because your business is not yet successful to the level you anticipated. The world’s most successful people have taken years to reach where they are, some of them 20, 30 years. Some of the world’s most successful companies are 40, 50 years old.
To be on the safe side, commit to a lifelong journey of learning and growing. Never slow down when it comes to learning. Keep your ear to the ground and be up to date about what is happening in the industry. Watch the competition and especially those who are doing well in the business and learn everything you can about them. If you are targeting the same clientele, then you need to know how you can outsmart your competitors if you expect to dislodge some clients from them.
Commit to your long-term goals but let your road map to those goals not be cast on stone. Be open to making modifications as you learn and become wiser. You will not quit, not unless there are some of the situations outlined above, which make the business no longer viable.
Evaluate your business frequently: set long-term goals and break them down into annual, quarterly monthly and weekly targets. Have targets for every step of the way. Read the numbers carefully and evaluate every area of the business: your business systems, the performance of your staff, business partners, your target market, your marketing strategy, your business expenses, etc.
Employees can bring down your business
It takes time to get the staffing needs of a startup right so refrain from hiring anyone on long term contract until you have clarity about the kind of staff you need, their job descriptions and their terms of service. Firing staff can be quite messy so work with short term contracts until your business can have handle full time staff.
Do due diligence while hiring staff and don’t just ask around for people to hire. Conduct interviews to help you identify staff who are the right fit for your business. Train staff well and supervise them closely in the initial stages. This should be for both full time and part time staff. Give them weekly targets and hold weekly meetings with them to evaluate.
Hold weekly meetings with staff and also make weekly reports mandatory. You cannot afford not to detect problems in good time. Evaluate all areas of your business regularly. Making changes promptly can save you a lot and ensure the long-term survival of your business. If a department is performing really poorly, you might consider having daily reports and more frequent meetings for a period of time, until you get things streamlined.
Maybe you have the wrong person in a key position in the business. If you ensure to give new staff short contracts, preferably 3-month contracts only renewable upon satisfactory performance when starting out in business, you will be able to correct the issue of hiring employees who are a poor fit. As much as possible hire staff on retainer basis and have the bulk of the income to be pegged on performance. That way you get to reward the right people. Making salaries uniform for all employees could kill he morale of the hard workers. The retainer system also makes it easy for you to identify the staff that you need to let go of.
If a product is not doing well in the market no matter what you do, you might need to change to a different product. Do not hold on to anything that is not working for too long as it could eventually bring down your business. You may opt to withdraw a product from particular markets and only sell it in those markets where it is doing well. You can also withdraw a poorly performing product and re-introduce it at a later date or repackage and re-brand it.
There are times you have to reinvent yourself. IBM used to sell typewriters and had to reinvent itself with the invention of computers. Holding on to something that is no longer valid can kill your business.
Do not declare your new business as not viable and close it down prematurely. Save yourself massive losses by staying on top of things, identifying problems promptly and taking corrective action without delay.