While the most recent SME Confidence Report sees increased optimism over the Christmas period, growth in small to medium-sized enterprises (SMEs) can be hindered by three major factors: emotional decision making, lack of attention to detail, and the business-as-a-hobby mentality.
Emotional decision making
Emotional pricing can see proprietors, fingers-crossed, base their pricing and service structures on gut-feel. This is often done with minimal evidence rather than sound, objective analysis of their competitors or their own position in the marketplace.
Emotional decision making can also be a by-product of stress, when anger, frustration or fatigue, or even a breezy, she’ll-be-right attitude can derail long-term profitability and productivity.
Lack of attention to detail
Business owners, whether they want to or not, must sweat the small stuff. Working out the minutiae of how all variables impact on each other is vital to success.
A café trading for five extra hours a week, for example, must not only work out how many extra coffees it needs to sell to cover additional costs, but consider how weather might affect those sale. As well locality dynamics, such as the availability of parking or fluctuations in pedestrian numbers, can change on an almost hourly basis.
Not being 100 per cent committed to capitalising on the potential of all aspects of running a business is the business-as-a-hobby mentality. Instead of standing back and seeing the enterprise as an entity that must perform for profit, the shop, office or factory is run on bravado, out of habit, or to suit a lifestyle.
Friends and family are roped in, recruiting and training is poor, and compliance is negligible.
Good intentions don’t necessary mean good business.
Change is essential
In today’s fast-paced commercial environment, business can no longer rely on how things were done in the past. Ongoing change is essential for ongoing success.
Half the businesses that exist today weren’t even thought of five years ago. Some long-established organisations have failed to grow over the last years and went backwards, simply because they clung to outmoded notions of business planning.
Success is now based on objective day-to-day, real time analysis. Big business offers us models of how to crunch raw data to flag potential problems before it’s too late.
But interpreting pages of numbers, the intricacies of watching competitors, the limitations of tired tools from the 1970s such as SWOT analysis – Strengths, Weaknesses, Opportunities and Threats – as well as understanding the seeming fickleness of some markets, can be extremely time-consuming and mentally exhausting.
Being able to afford to pay a specialist to perform these tasks on a regular basis is not always an option for the business owner. The challenge for the SME is to find a way of having access to all of this information in a simple, easy-to-read chart that can help to drive good decisions instead of bad ones.
Never before has so much data been available, via the internet, about local and international business. Software is also now developed to synthesise and format this data into a dashboard so it can be readily tailored to individual businesses.
By being able to quickly predict break-even points, how long losses can be sustained or indeed avoided, how margins and markets can be expanded as well as having the ability to decipher emerging trends, can guide a business owner into developing more profitable and sustainable alternatives. This is a way to identify a niche or find innovative and more cost-effective ways of doing things differently.
For example, one business owner realised, thanks to such modelling, that it would be best to sell his online underwear business while we he was still ahead. The crunched numbers revealed the indisputable truth. With a new online competitor opening every few months, and the threat of Amazon coming into his space, there was no hope of survival. As there was little loyalty towards his product on the internet, he was able to determine what he would have to spend in business development and even if he had the budget, he was never going to make him a decent return on his investment.
Nothing can stop an owner from buying an imported designer desk, but a dashboard will unequivocally flag how many extra sales are needed or what has to be cut from the marketing or hiring budget to pay for it.
About the Author:
David Henderson is CEO of accounting firm ROCG Asia Pacific. He is also founder of CashMAXforecaster.com, an affordable online forecasting service for SMEs that distils big-business modelling into a real-time analysis.