Avoiding Critical Business Problems
There are certain critical business problems that must be avoided at all costs. This article identifies these problems and shows how to avoid or resolve them. This is especially important where the owner lacks business experience. (This is article #3 in a series on basic business information and insights).Owner is not qualified to run the businessIt can be difficult for the average person to plan, start, and operate a business. The business owner has to be a take-charge person. The owner has to be able to make decisions without having all the needed information. The owner has to face up to problems as they arise and resolve them. The owner has to know what he or she wants and take the needed steps to achieve these goals.When I think of the character traits needed by a business owner, I remember a scene in a Godfather movie. There was some kind of problem and his assistant had to report it to the Godfather immediately. You see, if there was a problem the Godfather wanted to know about it so he could correct it before things got worse. The Godfather might not be a likable person to most people, but he was certainly a take-charge person. Contrast that attitude with those people who prefer to ignore problems in the vain hope that the problems will simply disappear somehow.Therefore, to get qualified to run a business, you may have to develop empowering beliefs and gain the knowledge and experience needed to run whatever type of business you are starting.Faulty business conceptThe business concept is the basis for a proposed business venture. It’s a good idea to validate this concept before starting the business. This is especially true if a business failure might incur a large loss.You can validate a business concept using market research, financial projections, and a business plan. If you cannot validate the business concept on paper, it normally is best to either change the concept or abandon the proposed business.The business concept needs to make sense and be realistic. Many business concepts include certain implicit assumptions that may or may not be realized. It usually is a good idea to verify all important assumptions and estimates.Following are some possible problem areas that the business concept may not consider or handle properly:* Costs and expenses may be larger than expected* Intended customers may not want the product* Owner may have chosen an ineffective or overly expensive advertising method* Owner may not be able to get the resources needed to start the business venture* Sales volume may not grow as fast as expected* Sales price for product may be too high or too low(Strange as it may seem, prospective customers may ignore an item with a low price because they feel that it probably isn’t a quality product.)Inadequate advance preparationsAfter deciding on a suitable business concept, the business owner should complete any advance preparations needed before starting normal business operations.These advance preparations serve to validate many of the assumptions in the business concept. They also prepare the business venture for operations. If the assumptions prove to be faulty, or the business venture is not prepared for operations, then the venture may suffer or even fail.A large, risky, or complex business venture may require a certain amount of market research to validate the assumptions in the business concept. (For example, there is no point in starting a business venture if not enough customers want the product at its offering price.)The owner may require a certain amount of training or information to be able to run the business venture effectively and deliver a quality product. The time to get this training and information is before business operations begin. (Customers may become dissatisfied if the owner needs a lot of on-the-job training.)Before beginning operations, the owner should satisfy all startup requirements for the business venture. This include getting any required insurance, identifying and satisfying applicable government requirements, arranging for any required loans, contacting suppliers, and so on. (The government may penalize or even close down a business venture for failing to meet their requirements.)Failing to monitor business resultsIf your insights into your business results consist only of an annual financial statement, you may not have adequate control over your business. You may need reports that are timelier and that focus on all the important aspects of your business.Following are some reports that might provide this needed information:* Daily summary of cash receipts, cash disbursements, and ending cash balance* Weekly summary of new customers and how they were obtained* Monthly summary of sales and gross profits for each product line sold* Monthly financial statements showing results for month and year to date* Monthly comparison of projected to actual financial results* Annual financial statements showing results for year and several prior years* Occasional surveys to determine customer satisfaction with your products and business proceduresAfter discovering a problem using your reports, the next step is to do whatever is required to solve the problem.Unable (or unwilling) to deliver a quality productAs far as your customers are concerned, the essence of your business venture is the ability to deliver a quality product. For most customers a quality product is whatever satisfies their needs and desires at a price they can afford.Therefore, business owners must first determine the needs and desires of their likely customers. Then they must design a low-cost product that can satisfy these needs and desires. This usually requires that the business owners must be familiar with both their likely customers and the various ways available to produce and deliver their proposed product.I have noticed a deplorable tendency in some business owners who seem to think that whatever type of product they choose to supply to customers should be good enough. They tend toward a “take it or leave it” attitude. Unless there is no competition, this is not the way to run a sound business venture.
