There are common mistakes made by all companies and, whilst they can leave a nasty dent in a large corporation, they can totally ruin a small business. These are the five biggest mistakes commonly made by companies of all sizes and what you can do to avoid them in your business.
1. Not managing cash
This is by far the biggest sin when it comes to running a business. It’s the single greatest cause of business failure and it’s what keeps most entrepreneurs awake at night (and if it doesn’t, it should!)
Your cashflow is an absolutely essential part of your business. If you have too much going out or not enough coming in, then you’re heading for trouble. It may sound obvious but it’s still the most common failing of companies of all sizes, so perhaps it’s still not obvious enough.
The challenge for any growing business is that there is usually a gap between what you pay to your suppliers and employees and what you get back in from your customers. Most business owners are painfully aware of this when they start their business and sales are few and costs relatively high. However, as sales begin to grow, it’s easy to take your eye off the ball and forget this gap. And whilst your sales are growing your costs are also increasing and your ability to switch off those costs at short notice becomes more and more difficult. And then you meet a slowdown in your sales or your customer payments and all of a sudden your bank balance tips further into the red than it’s ever done before. And your business can go from boom to bust almost overnight.
The only way to avoid this is to keep strict control over your cash and monitor it passionately. If you have a CFO or FD, even part-time, they can help you here. Never lose sight of the importance of collecting your debts as soon as possible and always keep a careful eye on what’s going out, what’s coming in and what you’re committed to. And make sure you have a system for forecasting your future cash position, especially if you’re growing fast.
And if you don’t know how to do it, find someone who does, quickly.
2. Poor marketing
Unfortunately, in the history of business, it’s not always the best products that win through. There are many great technologies, services and inventions that have fallen by the wayside because they simply weren’t marketed well enough. And usually it’s because there was a competitor out there doing a better job of the marketing, even if they didn’t have a better product or service.
Marketing is about how you communicate your product or service to your potential customers. And it’s about evoking the right emotional responses in those potential customers. If you’re out there banging on about what great features your product has, you’ll nearly always lose out to the competitor who tells the market what the product will do for them and how it will make them feel.
Of course, if you don’t do any marketing then nobody will know you exist. And if you jump straight into great big, expensive, scattergun campaigns, then you’ll just how to delete conversation in teams be pouring cash down the drain.
To succeed you need to concentrate on focused, targeted, emotional, benefits driven marketing and PR, then you’ll find the whole selling process will come so much easier. And that means your business will grow. And how will that feel?
3. Hiring the wrong people
Hiring the wrong person can be one of the most costly mistakes you make. And it can happen at any stage in a business. From the sales person who can’t sell, to the accountant who can’t add up, to the senior manager who tries to steal your job and take over the company.
When you think about the costs of hiring there’s a lot to consider. You’ve got the initial recruitment fees; the time and effort you or your team put into the recruitment process; the salary and benefits that the employee is paid; the tax, training, equipment and office costs that you have to cover and the time and effort spent in training the developing them. And then, if you realise you have to get rid of them because they’re not working out, there can be more time spent going through the process of removing them, the cost of notice periods, additional benefits and, more and more these days, some form of payoff under a compromise agreement so that they won’t sue you.
And then you have to start all over again, hiring someone new, having wasted a huge amount of time, effort, energy and money.
Get your hiring process in tip top condition and spend as much time as it takes to get the right person. Don’t settle for the best of a bad bunch and don’t see it as a lottery where you have to just pick someone and hope they work out. Know exactly what you’re looking for and design ways to test the candidates to ensure you get the right people. If it takes a day of testing, then do it, rather than commit a huge chunk of your resources based on a couple of brief chats that pass for interviews.
Check references, research the candidates on the internet, check their previous employers and look for ways to verify what they say. If it comes as a surprise to you that not everyone is honest in their job applications then you may want to consider letting someone else deal with the recruitment process.
4. Losing control
There are many ways that a business owner can lose control of their business. Sometimes it’s over-delegation of essentials like payments to suppliers. Sometimes it’s over-reliance on a management team that have a different agenda in mind. Sometimes it comes through raising finance and giving away too much of the company to investors.
As a business owner, it’s rare that you’ll find someone else who will care as much about your business, your customers, your staff and your investors as you do. It’s a great idea to bring in a management team to run your business for you but don’t be surprised if they have their own agendas and career aspirations, which may not always include you.
You can’t do everything, and there comes a point when you have to trust other people. The key is to make sure they know what you expect from them and to ensure you’ve got a way of monitoring what they are doing.
Control is invariably about information and the ability to make decisions. When you have good information you can see what is really happening and then you can take the right decisions. This can be information about what’s being spent and with whom. Information about what’s being sold, to whom, for how much and on what terms. Information about any significant agreement, deal or commitment that the company is entering into. Create great management information systems that really tell you what’s going on in the business.
Always be careful of anyone who seeks to put themselves in a position of control over your business. That includes staff, investors, other directors, suppliers, customers and banks. Think about what you’re giving away in any agreement and look for ways to protect yourself and stay in control if you want to protect the value in your company. The moment someone else can make decisions about your business then you’ve lost control.
5. Forgetting about the customer
Lastly, one of the most common mistakes made as a business grows larger is forgetting about the very customers that supported the company’s growth.
When you start in business you tend to stay close and connected with your first customers. You’re building a reputation and making sure you deliver first class service. You’ll often be on first name terms with many of them and know exactly what you’ve sold to them.
And as you grow, the gap between you as the business owner and the customers can grow larger and larger. And as it does, they can stop meaning so much to you because you start to see them as just names and numbers on a report rather than people you’re providing a service to.
And as that disconnection grows, it can be easy to forget what it was that brought the customers to you in the first place. The personal touches that made you stand out from your competitors. And after a while your company becomes just another commodity provider and your customers start to drift away to the competition.