Motivation of this article is to identify and assimilate the challenges faced by new businesses, which will threaten their existence. This will help in charting the course of a small business and also give a peek into the operational problems faced by other start ups during their initial set up phase.
Firstly, let’s discuss the art of building businesses from scratch. In this case the owner’s heading start ups require unique skill set compared to CEOs of established companies. Start up managers need more flexibility, be able to set the company culture and have the attitude to do what works, no matter what it takes. Innovation, operation and inspiration are very important for leaders to direct their company to profits and sustainability.
Speed Vs Perfection
Speed in implementing new products is very important as opposed to perfection. Large companies can promote quality over speed, whereas the owner of a start up needs to ask, what is the quickest route to revenue and profitability. Vision is very important in a start up for each employee begins with a blank slate and it is up to the owner to create a vision and inspire people. Also, marketing the business product and selling it to the customer are very crucial.
3 Important Functions
There are three essential functions for a small business to grow in the right way namely strategy, resources and performance. These three further sub-divide into twelve sections. Strategy includes market size, competitiveness position and the business model. Resources include cash flow, financial expertise and ability of the management team. Performance constitutes product development, distribution, promotion and marketing to the right customer base.
An Outlier Strategy
There is one interesting outlier in entrepreneurship. This strategy could be applied to small businesses which operate in niche areas. Normally, a company first into its market place has a huge advantage in terms of building market share, brand identification and credibility. However, in case of high tech companies, the first wave that goes into the market ends up spending tremendous resources and energy to educate the market. So, the best strategy is to ride on the early second wave of companies who take advantage of the existing education and beat out the first wave.
One factor that affects new business owners is the ever changing goals and demands of the business. A small business owner will need to have a long term vision and plan, but be able to change his day to day plans according to market needs. It is very easy to get distracted from core business metrics in such an atmosphere.
Management team is responsible for the success of any business. In case of small business, it could be just the owner of the business. By nature entrepreneurs are self-starters with strong egos and opinions. They deeply believe in their ideas to the point where they are often very intractable to objective opinions. This poses a problem to them while forming a team, because they refuse to share their dream, thus resulting in loss of prospective alliances. As important as it is to form a business, to further expand it, it is very imperative that the small business owner forms a team which will help him in progressing further.
Managing Cash Flow
Managing cash flow is very important for a small business. How well is the cash being managed, is the forecasting accurate, does the owner know when he will run out of money and is there a strategy in place to extend cash if needed? Smart owners always have a handle on these questions and know when to exactly increase or decrease the cash burn. Cash flow must be constantly matched with the strategic objective of the business. If there is a cash reserve enough for nine months but no strategy on utilizing it effectively, then it is a loss to the business. An owner must be clearly able to distinguish the objective of the business. Businesses can be established for the sole purpose of generating revenue or to make a profit. If profit making is an objective then cash generation should also be included in the business plan.
To be able to see if the business will fit into the world it is trying to penetrate, is very important for the success of small business. Market size helps the owner realize the potential sales volume. A sound pricing model along with the proper identification of audience will generate sales. While finding the audience is key , also knowing the audience is very important. To have a coffee shop in a heavily residential area dominated by young families might not be a good idea. The frequency of families visiting the coffee shop and spending quality time in their lounge is very less compared to the college kids in an university area. Identifying the gap in the market and creating a market for the product or service will help the sales of a business.
The above six were operational basics for small business and they were discussed in detail.
In our next article we will discuss about Pricing model, Endorsements, Branding, Location and Exit Strategy. These five elements will help contribute to move the small business from a revenue model to a profit generating business entity.
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