Recently on an episode of Shark Tank, four different start-ups were looking for investors and cash. One business made socks that do not easily fall off of children, and another company developed a high-quality charging pad. There was a business that made jewelry out of loved ones or even pets that passed away and another business that sold polo shirts that didn’t wrinkle, fade, or stain. Will all these businesses succeed? They all seemed like good ideas, but statistically, seven out to 10 businesses fail in 10 years. I found a site that listed 10 ‘Shark Tank’ failures. These failures ranged from legal issues, working relationship challenges with investors, and cash flow challenges.
What can we do to increase business success?
Even businesses that last more than ten years can declare bankruptcy or go out of business eventually. Remember brands like Toys R Us, Comp USA, Blockbuster, Borders, and Compaq? Check out this article for more brands.
I decided to do some research to figure out how to increase the success rate of businesses. Here are some ideas.
Top 10 Reasons for Business Success – First 3
It is hard to come up with only ten reasons for business success, but here is what I would consider the top 10.
1. Strategic Foresight
Steve Jobs said, “Marc if you want to be a great CEO, be mindful and project the future.”
We know that technology continues to change at a fast pace, and we have to be ready with the foresight to stay ahead of the competition. How do we do this? In Kelton Global’s “Strategic Foresight” e-book, they claim that “strategic foresight is about thinking creatively around what could happen tomorrow and take smarter steps today.” But then, you might ask, how do you do this? There are books and consulting companies that focus on this. The biggest takeaway is to ask the right questions of your business, customers, employees, and other important relationships. Some of my favorite questions from the article “10 Questions to Get Started with Strategic Foresight” are the following:
- How do we identify future market needs and potential solutions for them?
- What biases should we be aware of when practicing foresight?
- How do we use foresight to challenge choices and decisions?
- How do we create alternative views (e.g., scenarios) of the future?
2. Contingency Planning – Assess and Adjust
One of the most informative exercises of any business is building a contingency model so you can assess and adjust to changes in your business. I first develop a working forecast model with historical and projected financials. If you need help building a forecast model, check out my book, “Forecast Your Future,” or reach out to us at bendercfo.com.
With contingency planning, you can see a version of your financials if you lose a significant client, or maybe you can start to grow faster. How will these changes affect staffing, operating expenses, cash flow, inventory, marketing, and business development? The key to successful contingency planning is an assessment of how you are doing compared to planning at least monthly and making adjustments quickly. You might want to consider a key change in your revenue, staffing, and other large expenses quarterly.
3. Manage Cash Flow
With a good forecast model, you can use this to forecast and manage cash flow. Depending on your cash balance, you might even have to manage this weekly. If you are borrowing from a Line of Credit or have a seasonal and inconsistent revenue stream, this is more necessary. I tend to advise clients to develop a very conservative viewpoint of cash flow and see how low, or potentially negative the cash balance goes. For example, assume slow collections and see how this affects your cash balances over the next four to eight weeks and use your 12-24 month forecast model to do the rest.
The goal is to eventually get out of living month to month and build up some cash savings. You never know when there will be a downturn or unexpected crisis that you need to weather through. Also, if there is a recession, you will be more positioned to survive or maybe even acquire business from your competition.
Stay tuned as next week we will discuss three more reasons why businesses succeed.