You see it all the time. It’s puzzling. A video shop, a hardware store, a clothing retailer and a restaurant. Suddenly a business that you thought was doing well disappears and is gone forever.
It’s not just the mom-and-pop stores that you see in your local shopping centre that fail. You read about it all the time: smaller airlines have collapsed, information technology companies that have gone to the wall and even fruit and vegetable growers have collapsed.
The other day I saw that something like 4,000 companies face liquidation in South Africa each year.
What is going wrong with all of these businesses?
Is it because they lack leadership?
Have they failed to run their businesses profitably?
Is their business model outdated for today’s economy?
Has competition made their product redundant?
Do they neglect customers and lack understanding them to such a degree that they fail?
Is it that costs have rapidly overwhelmed the business, leading to its demise?
The simple answer could really be that many of these businesses that have been liquidated or are under liquidation have failed simply because they have not juggled the basic equation of increasing revenue and lowering or keeping costs down.
I know it’s easy to say this but in a changing market such as we presently have with tightening of consumer and business spending and an almost “perfect storm” of business costs rising, small business owners need to pay much more attention to their business operations than they may have done when the going was easy up until about 2009.
Yet how many of these businesses could be saved? The fact is that many businesses fail because their product or technology becomes obsolete, demand for their product changes, customer demographics and psychographics no longer match the product or service service offering and markets and regulatory conditions change.
Business consultants claim to have the answers. Leadership training, innovation programmes, customer service excellence and operational excellence. Are these the kind of programmes that could help the smaller or medium-sized business?
The problem is we don’t see courses on cash flow excellence, continuous innovation and value chain optimisation. Though these may seem deadly dull and boring these areas are where differences can count in a competitive market.
Take the value chain of any business whether large or small. It requires knowing the risks and opportunities starting with your inbound logistics such as the cost and quality of raw materials. Your production or operations leave many areas where money can be easily sucked out of your business and your product quality can fail to excite the customer. What about outbound logistics such as your fulfilment, delivery and frontline selling? How effective are all of these elements in a highly competitive and down market?
Many businesses don’t necessarily have long lifespans. Yet there are businesses, even in the conservative dirty industries such as cleaning, repairs and maintenance, that stay around for many years. Yet if you look deeply into these businesses you’ll probably find that they understand their revenue and cost relationship, they are obsessive about quality and customer care and they look for continuous improvement in all areas of their business, never slacking off.
They also know when to call in business adviser and other specialists – not when they are closing their business down but when they recognise serious problems and require an objective outside party to step in and help before it’s too late.