Some Background

My photo
National and Global, United States

Tuesday, August 25, 2009

Ten Reasons I Get Called...

Why Some Companies "GO SOUTH"

1. Poor Execution
When you're the boss, the only place you should point fingers is at the mirror. Most founders point it somewhere else.

What is needed here is crisp execution—rather than a clever idea— it is vital to the success of new businesses.Poor execution is the downfall of most startups that go belly-up. You need to know when to hand over the reigns to a professional manager who can take your business to the next level. Basic Training: A good hard kick in the ass.

2. No Viable Market
What if we launched a business and nobody showed up?

Each day, entrepreneurs from the "build it and they will come" school of business invest their money in a cool idea with the hopes that customers will magically appear once they open the doors. Think again.
It's imperative to research and validate the market before you launch your business. Find the customers first...and then address the solution.

3. Too Much Leverage
Give me a lever long enough and I will bankrupt my company.

Mature companies can predict revenues over the next few quarters with some degree of certainty. These businesses can make prudent use of leverage, both financial and operating to improve equity returns.

Revenues projections for early-stage companies, on the other hand, can be all over the map. In this environment, it can be dangerous to take on more than a modest amount of debt or other fixed obligations (rent, salaries, etc.). With little margin for error, if revenues take longer to ramp up than expected—as they nearly always do—you may find yourself handing the keys of your business over to your creditors.

Wait for the backlog. That is, the pipeline becomes reality.

4. Undercapitalizing the Business
Maybe you should've waited to order that Mercedes after all...

It's all too common for entrepreneurs to grossly underestimate the amount of time and capital necessary to reach cash flow breakeven, causing many promising ventures to shut down prematurely. Cash flow positive is the name of this tune.

5. Lack of Competitive Advantages
Never bring a knife to a gunfight!

Does your town really need another dry cleaner, pizzeria, or lawn care service? Entrepreneurs frequently start these me-too kind of businesses because of their simplicity and modest capital requirements. However, the lack of competitive barriers to entry render them extremely vulnerable to new entrants, who will gladly cut prices to the bone to steal customers from you.

If you want your startup to thrive, you need something that insulates it from competition..and that generally is not you.

6. Competing Head-to-Head with Industry Leaders
Better sharpen those elbows...

A sure sign of impending failure is an entrepreneur who plans to bootstrap his new business while competing directly against entrenched market leaders. Large businesses have enormous resources to deter competitors from entering their markets. You will be undercut in pricing, outspent on advertising, and choked off from suppliers and distributors. Have a nice day!

7. Picking a Niche That is too Small
Don't be a market of one! Yea, but I have a 99% share of it!

Most small businesses compete successfully against larger rivals by specializing in a niche market. However, you still need to do your homework to be sure that the niche is large enough to support your business and that customers are not too expensive to find and serve.

8. Breakup of the Founding Team
Breaking up is hard to do… "she said, he said"...

A startup can be a high-stress environment, especially when you are struggling before the lights go out. At moments like this, disagreements about the direction of the company or the division of profits among the owners can lead to a rift within the founding team. This makes it imperative to structure agreements so that the founders and key hires are treated fairly and that everyone's interests are closely aligned with the success of the new venture. Make selfishness a virture, not a vice.

9. Poor Pricing Strategy
The price ain’t right!

The most common method for setting prices is to start at the unit cost and then mark up the price to achieve a profit, so-called "cost-plus" pricing. Unfortunately, cost has little to do with how a product or service is valued by customers, which can lead to systematic underpricing.

Even worse, cost-based pricing can lead to prices that are greater than what the market will bear. Greed does not conquer all!

10. Growing Faster then the Cash
What goes up...

Growth is considered as an indication of business success, but uncontrolled growth will kill entrepreneurial companies for two primary reasons. The first is that businesses need systems and infrastructure to scale properly, but few invest the time and effort to lay the foundations for growth in those initial years.

The second reason is that top-line growth requires additional investments in fixed assets and working capital. At controlled rates of growth, companies are able to finance incremental sales through internal cash flow. Hypergrowth, on the other hand, can suck up large amounts of cash, forcing businesses deep into debt or bringing the whole enterprise to a quick halt.

1 comment:

  1. oh so very true....

    or as we like to say in London "Cruel but Fair" -I have seen so many of these excuses played out in healthcare..especially No 2- lets build something, anything, and it will fill with private payers ...ummm no it wont!

    well put.


Some Thinkers