Business Coaching

Small Business Success Forum - Now Launched

It is nearly nine months since I started this Business Coaching Blog and as you can see, it has already grown to a very significant size.

Inevitably I started to think "what comes next?" and I had been weighing up the pro's and con's of a forum or membership site but some technical issues with my blog have given me a few headaches so I decided to hold back.

But now I have been beaten to it by a friend of mine.

Rob Warlow has contributed articles to this blog and has his own excellent website called Small Business Success. Now Rob has just launched the Small Business Success Forum to provide a friendly place for people interested in small businesses to swap ideas and tips.

I have joined, answered one question and started a new topic and I would like you to come and join me and Rob.

The Small Business Success Forum only started on Sunday so it is all very new but there is a already a little community building up and one or two names that I recognise from contributions to this blog.

As always, the more you join in and contribute, the better it will be.

Update - 18 June 2008

Still unsure what you get from the Small Business Success Forum?

Then this is the latest information from Rob

"Linked to the launch of the Forum I also released a fresh new look for the site and added two new features:

Small Business Audios - a variety of MP3 downloads

http://www.smallbusinesssuccess.biz/small_business_audios.htm

Small Business E-Courses - 5 day mini-seminars delivered straight to your in-box at no cost:

http://www.smallbusinesssuccess.biz/small_business_e-courses.htm

I'll be adding new content to each of these sections and others on a regular basis so keep checking in."

So come over and join us. I will be popping in regularly and giving my thoughts on the questions or issues that intrigue me the most..

To Your Success

Your Profit Coach

Paul Simister

Business coaching for customer focused entrepreneurs

When Profit-Making Becomes Profiteering

A petrol station in Exeter in the South West of England has been accused of profiteering when it increased petrol and diesel prices from around the £1.30 per little to £1.99 per litre. The controversy has started me thinking about the question "When does profit-making become profiteering?"

The Situation

Shell tanker drivers are coming to the end of a four day strike which has stopped new supplies of petrol reaching garages although a second strike is scheduled to start at the weekend. This strike has caused some fuel service stations to run out of petrol and the situation is particularly bad in the South West of England in Devon and Cornwall which attracts many holiday-makers at this time of year.

Other local petrol stations ran dry so BWOC, the garage accused of profiteering was faced with a choice:

1. Continue to sell at the existing price and quickly sell out its remaining stock
    
2. Increase the price following the natural laws of supply and demand
    
3. Introduce some form of rationing

Controlling Demand

In an article about the Beer Game I explained how sudden  fluctuations in demand can cause massive consequences further along the supply.

The first thing that people hear when a product is short is "I had better buy some more. I don't want to run out."

People react selfishly to protect their own self interests.

In the petrol shortage, drivers want their fuel tanks to be full while during normal times, they may only buy half a tank's worth and effectively drive around about a quarter full.

But this selfish streak is no surprise. At the very heart of marketing is the basic question "What's in it for me? If I gain more than I lose, we may have a deal. If there is nothing in it for me, why should I bother?"

This idea of exchange - what you give me has more value than what I give you - is fundamental and nobody will pay more than the value they attribute to a product or service.

The Basic Laws Of Demand & Supply

Without going into a full economics lesson on supply and demand here are a few of the basic laws:

1. As price reduces, demand increases.
    
   People who wanted before but couldn't afford to buy, can do at a lower price and people who wanted to buy two rather than one will be more willing to do so. In terms of the value to price relationship, if the price is £10, then only those people who value it at £10 or more will be interested. If the price reduces to £8 then a new group of customers see the benefits of buying.
    
2. As price increases, supply increases.
    
   More people have an interest in supplying a product if prices are high and profits are good. This will attract opportunists into the market but also allow higher cost producers and suppliers to make money when they couldn't at lower prices. Take oil for example. It costs money to extract from the earth and each oil field will have different costs. Oil field one may cost $8 per barrel and is therefore always turned on. Oil field two costs $20 per barrel and is only operated when oil prices are above $20 per barrel on a sustainable basis.
    
   
3. The market sets a natural price where demand equals supply.
    
   
4. If the market is shocked out of equilibrium and supply rises above demand, prices are forced down.
    
   
5. If demand rises above supply, prices increase.
    
   This makes the product less desirable to some potential customers who decide they no longer want to buy and a new equilibrium price is set.

Returning to the petrol example, rising the price is a natural way to control demand.

Those who don't value the product at $1.99 per litre will not buy and those who have the time (and fuel) have the opportunity to drive outside of the local region and find new sources of supply.

But people are saying that this price rise isn't fair.

What Is Profiteering

My definition is:

Profiteering is taking unethical advantage of a supply shortage to make excessive profits.

It is a serious accusation and is particularly nasty in wartime where goods were diverted and sold on the black market.

But isn't the basic application of supply and demand applicable in just about any market.

My hero, Jay Abraham, has become famous for his $5,000, $20,000 and even $40,000 conferences. People went because they believed that they would receive more value from his advice than the price they paid.

But there is only one Jay Abraham so is Jay profiteering from making excess profits from the supply shortage?

The demand/supply basis is seen most clearly in auctions including eBay.

Item one is rare but few people want it so it is sold for a low price while item two is also rare but in high demand and sells for a much higher price.

Is the seller of item 2 profiteering?

Sugaring the Pill

To help compensate the drivers, the garage has been issuing discount vouchers worth £25 off an MOT (a compulsory safety test that all cars three years old or more have to pass each year to be considered roadworthy in the UK.)

This is a very interesting tactic, giving locals something of value and potentially cross-selling MOTs and vehicle services to people who haven't dealt with the garage before.

Would Rationing Have Worked Better?

Increasing the price gave drivers the free choice - buy the petrol at the high price or don't buy. Yes the garage gained but so did the customers who bought because they value the petrol higher than the price. The price rise meant that the petrol was saved for the people who had most value and reduced the desire for people to fill up their tanks "just in case."

The alternative would have been to ration supply.

Suppose the garage had imposed a £10 limit on supplies to make sure that everybody had a bit while stocks lasted.

People would still be eager to top up their tanks so many low mileage drivers would have petrol tanks full of fuel that wouldn't be used in the shortage.

People who need the extra fuel have a problem.

As it now takes over £50 to fill a car with petrol for even small family saloons, would these people be allowed to have five £10 transactions while waiting at the pump, going off and paying each time and causing greater transaction because of the increased time.

If not, would they be allowed to rejoin the back of the queue, again increasing congestion and providing further demonstration of the petrol shortages and increasing general panic buying?

Or will they be told that they can't buy any more fuel for two days regardless of their needs?

Conclusion

There are no easy answers when demand exceeds supply but the free market and the established laws of supply and demand provide a system that works.

It moves resources to those who are prepared to pay the most.

In some situations it's not ideal and that's why governments need to step in to make sure that human rights to food, water and health care are provided.

But for a petrol station in Exeter, increasing the price to control demand seems a reasonable action to me.

And besides, since when has making a profit been a bad thing?

To Your Success

Your Profit Coach

Paul Simister

Business coaching for customer focused entrepreneurs

Michael Gerber Awakening The Entrepreneur Within 2 Stars

I am a big fan of Michael Gerber and the ideas that have built E Myth Worldwide into one of the largest and most respecting business coaching firms in the world.

In March 2008 Michael Gerber released his new book, "Awakening The Entrepreneur Within: How Ordinary People Can Create Extraordinary Companies" and it is released in the UK in June.

I am very disappointed in "Awakening The Entrepreneur Within".

I expected a great book. I had attended a Dreaming Room back in October 2006 and expected the book to have a clear process for helping entrepreneurs to find and develop their dream. I also expected stories of success from the Dreaming Rooms.

Instead we had a few ideas that have been applied to the creation of E Myth Worldwide and a made up story of "Who Is Manny Espanosa?"

Find out why the book made me angry but I still think that you have to read it.

See my Awakening The Entrepreneur Within review

To Your Success

Paul Simister

Your Profit Coach, business coaching for the customer focused entrepreneur

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Entrepreneurs: Business Ideas To Make Your Fortune

In the recent post Entrepreneurs How Much Should You Earn I argued that the true premium for entrepreneurship was on the ability to find new ideas for creating customer value and having the courage to implement those ideas. Everything else can be outsourced or delegated to a team of employees.

Today I will share a way for entrepreneurs to find the business ideas to make their fortune based on "Creating New Market Space", a Harvard Business Review article by W. Chan Kim and Renee Maubourgne which was included in their excellent Blue Ocean Strategy book. This fits very nicely into my current thinking and campaign for customer focused entrepreneurs.

The Scenario For Blue Ocean Thinking

Competing head-to-head in existing markets is tough and the effort to return ratio is poor.

It would be much better if there was a systematic process for exploring opportunities and possibilities for creating new markets in uncontested areas.

The Routes To Find New Markets

1. Looking across substitute industries - how do customers make decisions and trade-offs between products which meet the same basic need but in a different way? Eg Home Depot was based on finding a new market between the professional contractors and the DIY hardware stores.
    
2. Looking across strategic groups within industries - a strategic group is the name for businesses who approach a market in the same way and are often concentrated around a price/value point. For example mid priced 4 door saloon cars could be considered a strategic group with offerings from Ford, Vauxhall (General Motors), BMW and Audi offering similar products around the £20k level. A value innovator would look at the factors which would encourage a customer to trade up or down between groups.
    
3. Looking across the chain of buyers - this recognises that for many purchases the person who chooses is different from the person who pays and the person who uses the product or service. Industry custom often focuses attention on one main buyer. The article gives the example of the Reuters online financial information service which was bought by IT departments and dominated the market until Bloomberg came along and gave the dealers a strong reason to prefer their solution based on ease of use and the ability to make better trading decisions.
    
4. Looking across complementary products - a product or service is rarely bought in isolation so what is bought before, during or after which can help redefine the market and open it up to people who previously felt constrained? For example, the difficulty of finding baby sitters restricts the opportunities for young parents to go out in the evenings.
    
5. Looking across functional or emotional appeal - some markets are dominated by emotional marketing messages while others stress the functional, practical benefits of the product but decisions are often made emotionally and justified logically so shaking up the marketing mix can create new opportunities. This is how Starbucks changed the idea of coffee from a low cost hot convenience drink to a fashionable and social drink. It worked in reverse for the Body Shop which took away the expensive frills from cosmetics and replaced it with an environmentally friendly message.
    
6. Looking across time - This route to new market space is based on anticipating trends and how customer values will change.

The article is excellent but so is the book. It provides a systematic approach to trying to look at new ways to focus on the customer, their experience and their benefits.

How Do You Exploit New Market Space?

Mentioned briefly in the "Creating New Market Space" article and covered more extensively in other W. Chan Kim and Renee Mauborgne articles and the book is the next stage - how you design your new value curve or customer value proposition.

First let me give you a quick resume of customer value.

Any product that is purchased has a number of attributes which have helped convince the customer to buy. Price is always a factor but we know that to get value for money, there are many of factors which create the benefit or reassurance the customer needs.

Generally speaking the higher the price, the more components of value there are and the better the performance.

So if we use a car as an easy example to understand, expensive cars are usually faster, more comfortable, have more clever extras and offer more status. The downside is that they cost more to buy and maintain.

Since the objective is not to design products that just move up the value curve and need to be premium priced to cover their costs, W. Chan Kim and Renee Mauborgne have created a four question framework to help you to reconfigure these factors of customer value:

1. What factors should be reduced to well below the industry standard?
    
2. What factors should be eliminated because they are taken for granted but not wanted?
    
3. What factors should be raised well above current industry standards?
    
4. What new factors should be introduced which have never been offered before?

Your Turn Now - Find Your Business Idea

This is a powerful process which can help you to find new opportunities but it does require inspiration.

I recommend that you get yourself a blank piece of paper and some quiet time and start listing the main reasons why people buy current products and work through the new market space framework.

If you want to know more, you can buy the Blue Ocean Strategy book

Or the article I have discussed (which I first read back in 1999 when it was published)

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2008 All Rights Reserved

Entrepreneurs: How Much Should You Earn?

Yesterday I started answering the question I am often asked "How much profit should I make from my business?" by looking at the issues surrounding profit expectations and I introduced you to the lower profit expectations trap in Business Owners & Managers - Profit Expectations.

Today I am going to consider what it is that an individual business owner or entrepreneur brings to a business.

Common Mistake Made By Entrepreneurs

Business owners think they have a job.

Michael Gerber covers this issue extensively in his book, the E Myth Revisited when he revealed that too often entrepreneurs create a job for themselves working IN the business rather than focusing on creating a profitable business which can be sold by working ON the business.

Michael Gerber went further by splitting the business owner into three different roles, the technician (who does the work of the business), the manager (who manages other people doing the work) and the entrepreneur (who builds the business).

What Does An Entrepreneur Bring To A Business?

Every business is different but there are at least five essential components to entrepreneurship:

1. Ideas - a clear vision of the future and ideas for turning the dream into reality
    
2. Management skills - the ideas need to be implemented effectively and efficiently
    
3. Time and commitment - the focused time the entrepreneur is prepared to invest in the business.
    
4. Money - it often requires an initial investment to build a business to a level where it can generate cash on an ongoing basis and the entrepreneur needs to be able to provide or raise the cash.
    
5. Relationships and reputation

You may be tired of hearing that 50% of small businesses fail within the first two years and 80% within five years (source Michael Gerber) but each of these factors play a role in contributing to the failure rates.

The Power Of Ideas

If the idea is not good the business will not get off the ground. In the UK, the BBC has a TV show called "The Apprentice" as a group of wannabees compete to have a £100k a year job with entrepreneur Sir Alan Sugar.

Last week's show featured a particularly bad idea. The two teams were asked to create a new celebration day for the greetings card industry and one team came up with the Environmental Awareness day when we were also supposed to send people we know a paper card encouraging them to conserve the world's natural resources.

The Apprentice team thought we should use resources to encourage people not to use resources!

Not exactly sensible and not fun either with the lecturing tone of the cards they designed.

But other ideas are great.

For example, who cannot admire the idea of Starbucks which totally changed the concept of coffee and has swept across the globe. I don't get the Starbucks concept myself but I admire the idea which has inspired so many people to spend a small fortune on coffee.

Management Skills

In Business Failure and Bad Management, I explained that insolvency experts believe the overwhelming cause for business failure is that the management team is just not up to the task. Too much talk, too little action. Too many bad decisions and not enough good ideas.

Management skills make a huge difference and that's why the business management support industry is thriving from the thousands of books through to extensive ongoing coaching and consultancy programs.

Time and Commitment

Many business owners I talk to are amazed just how much there is to do when you are starting a new business and how many hours it needs to do everything that must be done.

Better management skills and experience can make life easier (you waste less timing making mistakes and then having to recover) but clear goals, prioritisation and time management discipline are essential.

But you can outsource tasks which are outside your strengths and you should delegate to any staff you have so that your hours are kept within reasonable limits.

Money

It seems that you need money to make money and it is certainly much easier to spend than it is to earn.

Many businesses make a loss in their first year although it is a concept I am not keen to encourage. If you plan for a loss, it creates a ready-made reason for you to lose money.

More justifiable is that a growing business usually needs cash to finance the business. You may need to buy equipment and stock and your customers are probably going to expect to pay you after your suppliers expect to be paid. The bigger your business gets, the more "working capital" is needed and that's why fast growing businesses are often profitable but need to keep raising extra finance. (See Secrets Of Getting Your Bank Manager To Say Yes if you need a bank loan)

Relationships and Reputation

I thought about separating out relationships and reputation but your reputation is at the very centre of your ability to build strong relationships with customers, suppliers and other people who can help you to build your business.

Both Jay Abraham and Jay Conrad Levinson (Guerrilla Marketing) emphasise the importance of working with other people.

Competitor Performance - Public Benchmarking Unavailable

The best way to look at business in terms of likely potential would be to be able to compare your key performance measures to your main competitors.

Imagine learning that an average competitor makes £100k profit per year before owners remuneration but your business only makes £30k. Imagine the power of knowing that the best competitors have sales of £150k per employee while your business generates £65k per employee.

That would make you think hard about your business and the methods you use in your business wouldn't it?

Unfortunately this information isn't publicly available in the UK which I regard as a disgrace. I don't agree with the abbreviated accounts that can be put on public record because it means that one business can't find out how another business is performing. Some people regard this confidentiality as a benefit but I see it as a curse.

Sometimes a trade association will carry out a benchmarking study and I urge you to take part.

The Principles Of Opportunity Cost and Alternative Cost

My views on how much you should earn from your business are based on the cost of opportunities and alternatives.

The opportunity cost of doing A is usually defined as the gain you have foregone from the next best alternative.

The alternative cost is the cost of providing the same product or service from a different source.

So how does this work?

Well if you are working 60 hours a week on your business but you could go out and get a job which would pay you £60k per year then if you follow the opportunity cost principle, you need to be thinking of your business generating more than £60k.

Even if you appreciate the fringe benefits of "being your own boss" you should start putting values on how much you are "prepared to pay.

Next is the alternative cost approach and the acceptance of the 80/20 rule. In virtually all situations 80% of the results come from 20% of the efforts.

Entrepreneurs should focus on what they are good at and do more of that and delegate/outsource the routine tasks that clutter up the day.

So if you are doing your own invoicing and book-keeping but it's taking 10 hours of those 60 hours per week you work then you have a choice.

You can spend about £8k per year and release those 10 hours, either to give you a better work life balance or reinvest them in your sales and marketing.

Or if you keep doing those 10 hours of book-keeping, you have to accept that you don't deserve to be paid any more than the £8k alternative cost.

These principles ripple through the other areas as well.

In the money section, you can use your own money, borrow from a bank or if the business is seen as too risky, raise it through a business angel. But these alternative sources give you an alternative cost to include in your own expectations.

You can hire a manager to build the business but you have to be prepared to pay for the right quality, you can hire a business coach and commit the personal time to develop your business building skills or you can accept that your business will be limited by your own management skills.

In essence you need to be setting the target of earnings based on:

1. A return as an employee for the technical tasks that you haven't out sourced or delegated
    
2. A return as a manager for the time spent managing your team and the business
    
3. A return on the money invested and the risk you have taken based on what it would cost you to raise that finance elsewhere
    
4. Your entrepreneurial premium or discount

And bounded by your own opportunity cost of what you can earn elsewhere.

The challenge then is whether you have a business which can meet these earnings targets, how you are going to improve the business so that it does and what you will do if the business is unlikely to meet the target.

It could be that you have to accept that your current business is wrong for you.

There Is No Substitute For Good Ideas

The true making of an entrepreneur and the element that is difficult to put a value on is the premium for seeing the good idea and having the courage to take advantage of the opportunity.

It doesn't take a great idea to build a reasonable business. There are many "me too" businesses that have little differentiation from their competitors but are just that little bit better in the important areas. A little better at building relationships and closing sales. A little bit more efficient. A little but ahead of the main market in anticipating new trends.

But it takes a great idea to build a great business. It is the ability to come up with ideas which create new areas of customer value and commit to their implementation which turns entrepreneurs into millionaires and billionaires

Everything else can be bought in but there is no substitute for the ideas. Tomorrow I will look at how you can find ideas to create a business that is differentiated.

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2008 All Rights Reserved

Business Owners & Managers - Profit Expectations

A question I am often asked is "How much profit should a business owner-manager make from their business?"

There are no hard fast answers but there are a few guidelines which I use to help people base their expectations for profit.

Why Are Profit Expectations Important?

The simple answer is feedback.

Having a clear expectation of how much profit you expect to make from a business gives you as the owner-manager the opportunity to answer the following question:

"How am I doing? Am I performing up to standard?

There are two vital reasons why every business owner should ask themselves this question:

1. By being brutally honest with yourself it forces you to address your strengths and weaknesses.
   
   Can you make better use of your strengths and make them even stronger?
   
   Can you find a way around your weaknesses (delegation or outsourcing) or can you correct a fundamental weakness?
   
   It can even make you question whether a "strength" is really a competitive strength. You may believe you are a good sales person and rate selling skills as a key strength but are you better than your competitors?
   
   You may be good but if they are better, good is not good enough. It is only through reflection that you recognise that a personal strength is a competitive weakness.
    
2. The question breaks the lower profit expectations trap.
   
   You are told to set goals by guru after guru and while some emphasise that they should be achievable, the general view is that they should stretch you rather than be easy to achieve.
   
   This sets you up to accept goal failure as the normal way of life.
   
   It does make sense although it may sound crazy.
   
   Let us assume that you are about to launch a new product on the Internet. You are pretty certain that you can sell 100 in the first year. You calculate that if you can get 500 leads and convert 20%, then that would give you your 100 sales.
   
   So you could set 100 as your goal and just do what you are planning to do.
   
   Or you could set 120 as a little more demanding goal. It puts you under a bit more pressure but you believe that with a fair wind it is achievable.
   
   It would only take 600 leads instead of 500 or a conversion rate of 24% rather than 20%.
   
   So at the end of year 1 if you sell 114 you can look back and think "That's not bad at all. I didn't make my goal but I sold more than I thought I would. It's time for a celebration."
   
   I can't criticise this performance. You deserve to celebrate but you haven't "maxed out" and perhaps you should be critical of yourself.
   
   Now suppose you set a goal of 250 sales in the first year.
   
   You look at it and you know that there is no way you can possibly achieve 250 sales with the plans that you have.
   
   So you start thinking about other ways that you can generate extra leads. Perhaps you start a pay per click campaign on the Internet. Perhaps you create an affiliate program to reward other people for selling your service.
   
   But then you also start thinking that if you are improving your lead generation, you could also improve your lead conversion.
   
   So you buy a book on copywriting and you learn how important the headline is, how you need to talk to one person at a time about their issues and solutions and how you need make a compelling offer and reduce the risk of the purchase.
   
   After reading the book, you know much more about good copywriting and you now have the confidence to hire a copywriter and make it clear what you expect.
   
   With these improvements in place, you are sure that the 500 leads originally expected is much lower than it could be so you set your target at 1,000. Since your sales letter is much more compelling you raise your lead conversion forecast to 25%.
   
   Now you set the goal of selling 250 and believe this is achievable.
   
   At the end of the year, you find that you have sold 235 copies. Still below your new goal of 250 but a whopping 135% above your original goal because you have stretched your expectations and opened your mind to other ways of working.
   
   Unfortunately many small business owners don't thing like this.
   
   They don't identify the drivers of their performance (in this case leads and conversion rates). Many owners of small businesses focus more on problems than opportunities and possibilities but this creates lower profit expectations.
   
   I hear things like "It's been tough this year and next year will be even worse. [insert reason for lower expectations]. Hopefully we can make the same profit."
   
   The reasons for the lower expectations can vary.
   
   Now the easy excuse is "It's the economy. I think we're heading for a recession." but it could just as easily be "XYZ competitor has brought out a new product" or "Andy our best salesperson has left and it's going to take the new guy Steve some months to get up to speed."
   
   At the end of the year, it's no surprise but the "goal" of matching the current performance hasn't been met. It may have only been missed by 10% but these 10% compound over the years.
   
   In Year 0 profit = 100%
   In Year 1 profit = 90%
   In year 2 profit = 81%
   In year 3 profit = 72%...
   
   It is these lower expectations (the profit expectations trap) which condemn many small business owners to working at near to subsistence levels. Because they don't aim higher, they don't open up their minds to new ways of working.

So What Can Be Done About Changing Expectations?

I will be looking at this in tomorrow's article Entrepreneurs How Much Should You Earn [someone told me that my postings were much too long so I'm not trying to find convenient break points].

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2008 All Rights Reserved

Business Problems: A Business Health Check Is Your Early Warning System

I have just reviewed Carol O'Connor's book "Business Health Check" and while it has some good points, I believe that the concept has been under-developed.

I remain convinced that the business health check process is a great way for looking at business problems and identifying the underlying causes. In fact I believe that every entrepreneur should health check their business every year if performance is not up to standard and every two years if the business is progressing well.

A business health check can identify current business problems which are adversely affecting performance and also act as an early warning system about future business problems.

Is A Business Health Check Seen As A Cynical Way To Sell Business Consultancy?

I have a business health check, in fact I would go further than that, I have a great business health check and I'll explain the underlying logic later.

It is my preferred diagnostic tool when I first get involved with a business and certainly with a business of ten or more employees. It provides structure to the review process and my business health check is linked to a semi-automatic report generator.

But unfortunately I meet some resistance from prospective clients and it hasn't been the effective lead generator I expected.

I now believe that a business health check offered by a business coach or consultant is viewed suspiciously by an entrepreneur as a cynical way to sell consultancy services rather than a problem identifier.

I can understand that.

Holding your hand up and admitting that X, Y and Z are problems is admitting that you do need to do something.

But whatever a free business health check says about your business problems, it doesn't mean that you have to do something about it or that you have to buy from the business coach or consultant providing the health check.

Just as you take a medical health check and you may be advised to take more exercise, eat more fruit, lose weight, stop smoking and cut back on the booze, it doesn't mean that you will follow the advice.

On my last health check I was told that I needed to lose about a stone in weight but I didn't do much about it. Now I need to lose about two stone! Ignore a problem and it tends to get worse.

You are an entrepreneur because you are a natural decision maker and want to be in control. I recommend that you see the business health check as an input into how you run your business. It will confirm some of the things that you already knew but it may tell you about other issues that you hadn't appreciated but which are easily cured.

Do you agree? Do you reject offers of a business health check from a business coach or consultant because you don't want to be "sold"?

What To Look For In A Business Health Check?

If you are to take advantage of a "no obligation" business health check from your local friendly business coach, then you need to make sure that it is worth your time and effort to complete it.

It is often said that the majority of small business owners and entrepreneurs are focused on tactical business decisions rather than the strategic business issues so I would encourage you to look for a business health check that combines a strategic approach of looking at your industry or market and your competitors together with the tactical and practical issues that you do or don't do.

My Business Health Check

At the moment my business health check is only available to clients and prospective clients for one-to-one coaching which restricts it to businesses in the UK but I will explain how I believe a business health check should be put together.

The business health check should be intellectually sound and comprehensive rather than a random set of questions.

My business health check is based on work of two American academics, Moulton and Thomas who were studying business failure and identified four pathways to decline but then didn't really advance the idea. I believe this was a missed opportunity which I seized upon as soon as I read their academic paper.

There have been many studies into the causes of business decline and failure but much of it has identified individual factors where there is considerable confusion about cause and effect. It's like saying that someone died because their heart stopped beating when the cause was the bullet in the brain.

Mouton and Thomas hit on the ingenious idea that some business problems and causes of decline are external to the business and some internal. Nothing too complex there but they started looking at the way their sample companies reacted to the external environment.

Basically they identified whether the market which the businesses they were studying was growing or contracting and that the sales of the businesses are growing or contracting as well.

This gave mutually exclusive four categories which are easy to understand:

1. Market contracting, business contracting - this is the classic situation where a business is struggling because its market has been lost, probably because of the advantages of new technologies and substitute products. Think of the music industry and the move from long player vinyl to cassettes to Cd's to mp3 recordings.
    
2. Market contracting, business expanding - the market is in disarray but one business is growing sales but not profits because it has been sucked into a mutually destructive competitive war, usually on price while trying to maintain or increase sales volumes. It is winning the battle but losing the war because of the big losses incurred and the devaluing of the product to a commodity to be purchased on price alone.
    
3. Market growing, business contracting - despite the easy competitive conditions which growth markets often provide, the business has lost its competitive advantage. Prospective customers find it easy to find a reason not to buy from the business and buy from a competitor instead.
    
4. Marketing growing, business growing - this should be the route to profit but poor management policies and habits are causing the business to miss out on opportunities available.

Moulton and Thomas discovered that the largest category they were studying was the last - the companies who were growing in a growing market but were effectively spurning the profit they could be making.

My business health check is based on this typology with the four pathways to business success or failure:

1. Market attractiveness - growing or declining
    
2. Market competitiveness - growing or declining
    
3. Competitive advantage - increasing or decreasing
    
4. Management control - effective or ineffective

While the Moulton and Thomas categorisation is mutually exclusive, the underlying causes of business decline are not and a firm may suffer from one, two, three or all four problems.

In 2003 I did a study into the causes of financial distress with the help of 58 firms of accountants in the UK. Each accountant was asked to select one of their clients with ten or more employees who they considered to be in a distressed condition and completed a questionnaire:

1. 69% were suffering because their market was in decline
    
2. 55% had seen prices depressed as competitors competed primarily on price
    
3. 53% had seen their competitive advantage erode
    
4. 62% had weak management controls

In only one case were the business problems considered to be caused by something outside of these categories and often two or more of the issues were seen as major problems for the poor performance.

This validated the use of the four pathways approach and my business health check was then developed to pick up on the factors which were likely to contribute to these factors.

Since then the business health check has been used and developed and the semi-automatic reporting function added providing standard advice if particular questions were flagged as issues but leaving the overall review and main points to be brought together through a review of the information and my judgement.

The two external factors, the market growth and competitive nature of the industry fall back on the strategic management concepts of Michael Porter's Five forces model, the product life cycle and various other strategic models.

The assessment of competitive advantage is very much based on the potential sources of cost advantage (or disadvantage) and the ability to offer differentiated customer value which is meaningful to particular groups of customers.

The assessment of the management style, planning and control is much more focused on the internal actions which happen every day, week or month and include whether the business knows how it is performing on a regular basis, whether it has a business plan, whether goals are cascaded down the business in a meaningful way and a host of other issues.

The health check is offered to UK companies (ideally between ten and 100 employees) on a no obligation basis so if you would like a copy please email me at paul@plancs.co.uk with a few details about your company - name, website, number of employees, type of business, location and I will send you the business health check.

For companies who meet certain criteria, I will also offer the free business health check diagnostic report. Even if you don't qualify, you will find that working through the business health check and answering the questions honestly will make you think about your business in a different way and that can lead you to taking action to correct a potential business problem before it becomes serious.

Business Development Questionnaire

While I am not offering everybody my business health check, I can offer a 33 page Business Development Questionnaire PDF to allow you to assess your business.

In the report there are sections on:

1. What should the business do for you?
    
2. Management issues
    
3. Team members
    
4. Organisation structure
    
5. Team member review
    
6. Team member job evaluation
    
7. Your organisation's commitment to customers
    
8. Products and services
      
9. Customers
    
10. Customer segmentation
     
11. Competitors
     
12. Competitive analysis
     
13. Suppliers
     
14. Financial systems
     
15. Environmental trends, opportunities and threats.

This is ideal if you want to be your own business coach or consultant but I must warn you, at 33 pages it is not for the faint hearted and it will ask questions that you don't know the answers to.

You can get this free Business Development Questionnaire by entering your name and email address below. This will then send you an email asking you to confirm that it really was you who wanted the information.

Name:

Email:

 

Your email details are kept confidential. I hate spam as much as you do. Every email you receive from me includes an option to unsubscribe if you ever believe that I am not giving you value for your attention.

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Business coaching in a recession

Business failure & the role of management

Preparing for a recession Changing customer demands

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If you wish to know more about the original Moulton and Thomas academic work rather than my interpretation and use of their four pathways, the details are:

Moulton, W. N.; Thomas, H. (1996) Business failure pathways: Environmental stress and organisational response, Journal of Management, 22 (4) 571-595

Business Failure And The Role Of Management

Ask an insolvency specialist the causes of business failure and the common answer I hear "It's the management. It's nearly always the fault of management doing too little too late."

Plain and simple - bad management is considered to be the number one cause of business failure by the insolvency professionals but the good news is that bad management can be fixed.

Limited Management Skills And Abilities

Unfortunately few people are skilled in every facet of managing a business and that's before personal preferences enter into the situation.

Even as a business coach offering multi-disciplinary services, I know that my strengths lie in the finance - strategy - marketing areas because that's why my interests lie. It's the work I enjoy and it's where the bulk of my professional training and reading is spent. I have forced myself to learn about sales, managing people, organisational behaviour and personal development but I would be quick to bring in other specialists in these areas.

As a business owner, you have to be the generalist. You are responsible for everything that happens in your business and you need to be able to manage your team to perform at the right level.

But as good trading is replaced by tough times, the pressure on your skills increase. What was OK performance in the good times is now a potential source of weakness.

If your business comes in financial distress, you need to act and you need to act quickly

Turning Your Business Around

On my Business Books blog I have reviewed "Turning Your Business Around" by Mark Blayney which is highly recommended for anybody who is managing a small business in financial distress.

Mark Blayney argues that functional skills are an issue when a business is in difficulty. There is very little general management training and you don't need any qualifications to start a new business. During prosperous times, small business owners can manage by the seat of their pants and muddle through.

Tough times are less forgiving.

But what really causes the problems for businesses which have previously been successful is situational skills. A business in trouble with severe cash constraints is a very different beast to one which is growing easily and business is fun.

In a situation of financial distress, three weaknesses can be fatal and quickly lead to business failure:

1. A lack of specific situational skills - how to make staff layoffs and maintain morale, how to maximise cash, how to manage the bank duding the difficult times and how to protect your own personal position from the risks of wrongful trading.
    
2. A failure to manage the crisis - some people rise to the challenge, others are paralysed by fear, uncertainty and doubt.
    
3. A refusal to seek help from the specialist. As Mark Blayney says, if you house is on fire you call the fire brigade.

The Causes of Business Failure

There are many lists of the causes of business failure although some focus more on the symptoms that the root problems.

Staying with Mark Blayney's book as the base, he identifies five key areas responsible for business failure:

1. The business management structure - the management team may be unbalanced and dominated by an autocratic CEO. Internal promotions while your business has been growing may mean that managers have been promoted beyond their skill levels or their may be an issue about management succession .
    
2. The strategy challenges which must be managed - the business may have slowly lost its competitiveness as customer needs changed or competitors innovated. Alternatively the entire industry may be in decline. I will talk about the four pathways to business success or failure which is the basis for my business health check at a later date.
    
3. The lack of financial control - your performance measures and cash are important at any stage but when your business is in trouble, they are critical. You have to know how you are performing and you must manage your cash flows over the next three to six months.
    
4. The lack of operational control - your cost competitiveness comes from how well your operations have been designed to serve their purpose and how tightly managed the operations are.
    
5. One off projects or special circumstances - management can become distracted by a big project and particularly one that turns their focus inwards to the company rather than out towards the market. A new computer project, an acquisition or relocation can all increase workloads and something has to give.

These five causes of business failure are all related to management and the role of management in causing the business to be in financial distress.

The strategic challenges may seem unfair but even if the industry is in decline, it could have been predicted and the business may have had opportunities to diversify into other markets.

The Early Signs Of Financial Distress

So what warning signs should you look out for:

1. A decline in the general economy. In my posting about the beer game, I explained how small changes can cause the system to become unstable.
    
2. Industry growth has stopped and substitute products and services are increasingly attractive to customers.
    
3. Pressure on sales prices has increased while your factors of differentiation have eroded.
    
4. The management team is jaded and seems tired.
    
5. Financial management and performance measurement is weak. You are unsure how the business is really performing.
    
6. A small number of customers represent an increasing proportion of your sales.
    
7. Cash is always tight as you operate on your overdraft limit at all times of the month.

Conclusion

As an entrepreneur you are responsible for everything that happens in your business but the great thing is that you accept that responsibility. The natural entrepreneur is someone who believes they can make things happen because they are not victims of circumstances.

I recommend that you use my Eight Pillars of Business Prosperity to review your business before the going gets tough and that you start identifying the problem areas and taking actions to cure the biggest constraints which are holding you back.

If business failure is caused by bad management, then good management can save a business.

You may be interested in top author and marketer, Mark Joyner and his 7 Day Business Turnaround Kit. I haven't tried it but Mark Joyner has a great reputation and reading the sales letter, you only pay at the end if you believe your business is back on track. (Update 10th May I am currently evaluating this turnaround program so expect to see reviews shortly. Early impression is that it is excellent.)

That sounds a great offer to me but if your business problems are very serious, I recommend that you urgently seek professional advice.

I have looked in more detail at the issues involved in managing a company in financial difficulty and whether business coaching is the appropriate solution - Business Coaching In A Recession

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Business Problems Try A Business Health Check

Preparing for a recession Changing customer demands

Business coaching in a recession

Entrepreneurs: If You Are Good Enough You're Old Enough

Recently I have found myself thinking about "what is the right age to start a business?" I've come to the conclusion that if you are good enough, you are old enough.

Starting a business in your late teens or early twenties

You have bags of energy and enthusiasm but you are short of experience of working for other people. You may not have seen how established businesses handle various issues and you may not have much team management experience.

Finance may be very tight at this age unless you have benefited from an inheritance or you are able to borrow money from wealthy family members prepared to take a risk in your success.

Is this the time to become an entrepreneur and start a new business?

Starting a business in your thirties

You have years of experience and have moved up the management ladder with your employer. You have developed some of the business and management skills needed to succeed in business.

But you now have responsibilities - perhaps a spouse, children, a huge mortgage on your house.

Is this the time to become an entrepreneur and start a new business?

Starting a business in your late forties or early fifties

The kids have now left home, your mortgage payments are a much smaller proportion of your salary and you have some money put to one side.

You have thirty years of work experience, much of it in management but your job is well paid, you enjoy it and if your new business fails you doubt whether you could get another job that paid 70% of your currently salary. Everything is so comfortable but you still yearn to be your own boss.

Is this the time to become an entrepreneur and start a new business?

Starting a business in retirement

You've been employed all your working life but you still want to prove to yourself that you have what it takes to make it on your own.

Is this the time to become an entrepreneur and start a new business?

What Actually Happens - How Old Are Entrepreneurs When They Start A Business

A search on the Internet has failed to come up with definitive answers or a reliable source across different countries (but if you know of one, please let me know).

I have seen various statistics quoted - 36, 42 or 26 to 35

I also found one interesting article but my computer crashed so I lost it and my first version of this posting that talked about the fact the two types of people start their own businesses:

• The people with a brilliant idea who just have to do it
• The people who find it difficult to get or keep a job

This suggests that it is the people with average ability who are employed but the entrepreneurs are likely to be both sides of average. You can see it in some famous entrepreneurs like Bill Gates, Steve Jobs and Richard Branson but you can't dismiss the management greats like Jack Welch as average.

You can also see that sometimes necessity is the driver of entrepreneurship. If you can't find a job, you only have two choices - start your own business or become a burden on the state and that's where pride kicks in.

My Own Story

I started my own business when I was 35 when I was just so sick of being employed after working for six different chief executives in six years in the same company.

I've never regretted it for a moment and certainly never applied for a job in the last thirteen years since I made the decision.

If You Are Good Enough You Are Old Enough

It was Robert Kiyosaki in the Rich Dad Poor Dad books which showed how the traditional advice given to children is "work hard at school, go to university and get a good degree, get a good job and work your way up the career ladder" but that's the story of the Poor Dad.

The Rich Dad knows there is a better way and that is to start a successful business.

But here's the kicker.

Many small businesses start and fail.

People don't have what it takes to be successful or they fail to identify an idea which really provides an opportunity for profit.

Full marks to the people behind Starbucks but you wouldn't start up a rival firm now would you?

I stand by the "if you are good enough, you are old enough" but hwo do you make sure that you have the skills that you need to succeed?

There is my blog of course and a wide range of business books. Some of you may even become clients.

Training For Young Entrepreneurs

In recent weeks I have learnt of two schemes in the UK to help young people learn how to be entrepreneurs.

Michael Gerber, DreamStart and Pracademic Degree

World famous small business guru and author of the E Myth books, Michael Gerber has combined with DreamStart and Huddersfield University have created a uniquely practical degree.

It is my understanding that students will be taught how to create and management a business and do it in the real world so that when they receive their degree, they also have a flourishing business.

You can read more about the Pracademic Degree

Michael Gerber is making one of his rare trips to the UK in June at the DreamStart Conference at the Royal Armouries in Leeds on 24 June 2008.

I have negotiated a special price for the readers of my blog and email newsletter. The normal price is £99 per ticket which looks a great deal anyway to feel the special aura around a business guru like Michael Gerber. The special Your Profit Coach price is just £75 per ticket. I don't know how long this special offer will last so take this opportunity to book because I am sure the event will be a sell out.

To take advantage of this special deal, all you have to do is book the Dream Start tickets through this link and enter Your Profit Coach as the booking reference in the space provided. You will then be invoiced at the lower price.

Peter Jones & the National Enterprise Academy

Serial entrepreneur Peter Jones, famous from his appearances on Dragons Den and Tycoon television programmes, launched the Nati