Succeeding in a small business

Introduction

Figure 1  Charting success

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The graphic shows a bar graph of different sizes. Above this is an arrow which follows closely the height of the different bars.

Figure 1  Charting success

Welcome to the Starting your small business course where you will look at what it takes to make a business succeed. This section will take approximately three hours to complete.

Once completed you will have the opportunity to obtain the ‘Succeeding in a small business’ badge. In this section, you will:

• look at what success means
• look at why businesses fail
• explore some common things in successful businesses
• apply these ideas to real life situations
• establish some ideas that can help your business succeed.

To help you along the way, there are a number of activities where you reflect on what you have been learning within this section, and how you can apply these new skills and knowledge in practice.

Learning outcomes

By completing this section and the associated quiz, you will be able to:

• describe common reasons small businesses fail

• identify areas of risk for a given business.

1 What is success?

Figure 2  Success word cloud

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The image shows a cloud made out of different coloured words. Words which are displayed largest are ‘charity’, ‘profit’ and ‘work life’. Other large words include ‘enjoyment, ‘autonomy’, ‘fulfilment’, and ‘freedom’.

Figure 2  Success word cloud

As a small business owner, you start your business for it to be successful, but what do we mean by ‘successful’? In this activity we will explore definitions of ‘success’.

According to Oxford Dictionaries, ‘success’ is:

• the accomplishment of an aim or purpose
• the attainment of fame, wealth or social status.

Figure 3  Clinging on as profits fall

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The image shows a downward arrow. At the lower end, a person is graphically presented as hanging on to the arrow.

Figure 3  Clinging on as profits fall

So are we saying that you should not focus on profit? Not at all, for most businesses there will be a need to generate a certain level of income, but the success or the feeling of success may not be entirely focused on that.

Success could be defined as ‘meeting the objectives of the business’, these could be financial, ethical, lifestyle or philanthropic.

2 Why do small businesses fail?

Figure 4  SWOT analysis – strengths, weaknesses, opportunities and threats

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The graphic shows four jigsaw pieces linked together. On each piece is a different word: ‘strengths’, ‘weaknesses’, ‘threats’ and ‘opportunities’.

Figure 4  SWOT analysis – strengths, weaknesses, opportunities and threats

David Mellor presented a number of reasons and ‘top tips’ to prevent business failure.

Using some ideas from David Mellor of the Guardian (2015) and Patricia Schaefer of Business-know-how (2001), we came up with ten reasons why small businesses fail:

1. Not fully understanding what they are letting themselves in for
2. Getting paid and bad debts/lack of capital/lack of liquidity
3. Choosing the wrong business partner(s) to help grow the business
4. Starting a business for the wrong reasons
5. Poor management
6. Insufficient capital
7. Location
8. Lack of planning
9. Overexpansion
10. Lack of website.

Let’s look at the ten reasons why small businesses fail in a little more detail.

2.1 Lack of preparation

Starting a business for the wrong reasons

Figure 5  The danger of chasing money

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The graphic shows a mouse trap with a dollar sign on it. Underneath the trap is the graphic representation of a person in a suit.

Figure 5  The danger of chasing money

In Section 1 we talked about the things that can be gained from running your own business; independence, time with the family, reward for your effort. These are true, but these are considerations when running a business, not the main reason. The combination of a good business idea, the suitable market and the skills to run the business should be the reasons.

2.2 Lack of business skill

Getting paid and bad debts/lack of capital/lack of liquidity

Figure 6  Chained to debt

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The graphic shows a ball and chain. Written on the ball is the word ‘debt’.

Figure 6  Chained to debt

Getting the work is one thing, getting paid for it at a suitable rate for the time spent is another. The ability to negotiate a contract and then collect the money owed is an essential business skill. Not balancing the payments and income correctly could lead to cash flow problems. Insufficient cash to pay debts is the main reason small businesses fail.

Poor management

Figure 7  Poor managers rule by fear

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The graphic shows two people in suits arguing. The person on the right is grabbing the tie of the person on the left and gesturing with his index finger.

Figure 7  Poor managers rule by fear

Even in a micro business with no employees there needs to be a level of management, planning and reviewing of the business strategy. Setting unrealistic goals or plans falls into this category.

2.3 Poor choices

Location

Figure 8  The perfect location

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The graphic shows a smartphone with a map on the front. A red pin has been dropped onto a particular location.

Figure 8  The perfect location

A great idea started in the wrong place is destined to fail.

The wrong place could be:

• too close to the competition
• too far from the customers
• too expensive.

Lack of website

Figure 9  You are not accessible without a website

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The image shows a laptop which has been bounded by yellow warning tape. Written on the tape are the words: ‘!! No website !!’.

Figure 9  You are not accessible without a website

Simply put, if you have a business today, you need a website. Unless totally reliant on local customers found through word of mouth, every business should have a professional looking website that enables potential customers to find out about their products and services. The majority of customers use the internet as a key part of their search for services. By not having a website, the business is excluding itself from potential customers.

2.4 Applying this to Bike-a-lot

3 Risk assessment

We always like to think that things are going to go well, but we need to accept that that is not always the case. A risk assessment should be one of the activities carried out right at the start of the business planning process.

Maximise

Figure 10  Are you an optimist or a pessimist?

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The graphic is a comic strip. Two men are chatting at an office cubicle, one standing one sitting. The sitting man says ‘Our town hasn’t had a murder in 5 years'. The man is defined as an optimist by thinking ‘I feel really safe living here’. However the standing man is defined as a pessimist by thinking ‘we’re about due’.

Figure 10  Are you an optimist or a pessimist?

Risk assessment is a term we often associate with health and safety, but the same principles can be applied to running a small business. There are many project management courses which focus on risk assessment and risk management.

The basic principles of risk assessment are:

• a hazard – something that could cause problems of some sort
• potential for harm – what would be the consequences if this happened
• likelihood – how likely is it that this would happen.

Or, put simply: ‘What is the worst that could happen? What are the chances?’.

3.1 Measuring the risk

Figure 11  Measuring the risk

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The graphic presents a person standing by a set of bricks which vertically spell out the word ‘Risk’. The person is measuring the height of the bricks.

Figure 11  Measuring the risk

To carry out a simple business risk assessment we will use these options:

Potential for harm

• Serious – could shut the business down or prevent it starting up.
• Problematic – could restrict activities or profit to a significant degree.
• Inconvenient – only a minor impact, more of an inconvenience.

Likelihood

• Very likely – almost certain to happen.
• Likely – fairly likely to happen, the business would be considered fairly lucky if this did not happen.
• Unlikely – not really expected to happen, the business would be considered unlucky if this happened.

Conventionally this presented as a 3×3 matrix that allows for the highest risks to be identified (Figure 12).

Figure 12  Risk assessment table

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The graphic is a cross tabulation which compares the likelihood with potential for harm. At high risk are combinations which are very likely-serious, very likely-problematic and likely-serious. At medium risk are combinations which are very likely-inconvenient, likely-problematic, and unlikely-serious. At low risk are combinations which are likely-inconvenient, unlikely-problematic and unlikely-inconvenient.

Figure 12  Risk assessment table

The business owner should identify the various hazards and then decide on the relative potential for harm and likelihood for each. The matrix can be used to identify the risk. All hazards that come out as ‘high risk’ or ‘medium risk’ should have something put in place for when/if they happen.

We are keeping our definitions simple using just high risk, medium risk and low risk, in some instances these categories are broken down much further.

3.2 Risk management in practice

Now let’s look at this in practice using Mucky Pets. (To open the case study in a new tab on a PC, hold down the Ctrl key when clicking.) There are five steps to follow – you can tackle the first four in Activity 4.

3.3 Manage the high risks

The final step is to put something in place to deal with the high and medium risks. This is having a ‘plan B’ and enables a reaction to things going wrong to be planned and considered rather than a knee jerk reaction.

4 Tips for success

So what can be done to not only avoid failure, but improve the chances of success? Watch this short video (3:26) from the TED Talks series, where Richard St. John talks about the ‘8 secrets of success’.

Download this video clip.Video player: 540_nnco_smb_1_vwr001.mp4

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Transcript

[MUSIC PLAYING]

[CLAPPING]

RICHARD ST. JOHN:

This is really a two-hour presentation I give to high school students cut down to three minutes. And it all started one day on a plane on my way to TED, seven years ago. And in the seat next to me was a high school student - a teenager. And she came from a really poor family. And she wanted to make something of her life. And she asked me a simple little question. She said, what leads to success? And I felt really badly because I couldn't give her a good answer.

So I get off the plane, and I come to Ted. And I think, jeez, I'm in the middle of a room of successful people. So why don't I ask them what helped them succeed and pass it on to kids. So here we are, seven years, 500 interviews later. And I'm going to tell you what really leads to success and makes TEDsters tick.

And the first thing is passion. Freeman Thomas says, I'm driven by my passion. TEDsters do it for love. They don't do it for money. Carol Coletta says, I would pay someone to do what I do. And the interesting thing is if you do it for love, the money comes anyway.

Work - Rupert Murdoch said to me, it's all hard work. Nothing comes easily. But I have a lot of fun. Did he say, fun? Rupert? Yes. TEDsters do have fun working, and they work hard. I figure they're not workaholics, they're workafrolics. Good.

Alex Garden says, to be successful, put your nose down in something and get damn good at it. There's no magic. It's practise, practise, practise. And it's focus.

Norman Jewison said to me, I think it all has to do with focusing yourself on one thing and push. David Gallo says, push yourself - physically, mentally - you've got to push, push, push. You've got to push through shyness and self-doubt.

Goldie Hawn says, I always had self-doubts. I wasn't good enough. I wasn't smart enough. I didn't think I'd make it. Now, it's not always easy to push yourself, and that's why they invented mothers.

[LAUGHTER]

Frank Gehry - Frank Gehry said to me, my mother pushed me. Serve. Sherwin Nuland says, it was a privilege to serve as a doctor. Now, a lot of kids tell me they want to be millionaires. And the first thing I say to them is, OK, well, you can't serve yourself. You got to serve others something of value, because that's the way people really get rich.

Ideas - TEDster, Bill Gates, says, I had an idea, founding the first micro-computer software company. I'd say it was a pretty good idea. And there's no magic to creativity in coming up with ideas. It's just doing some very simple things. And I give lots of evidence.

Persist. Joe Kraus says persistence is the number one reason for our success. You've got to persist through failure. You've got to persist through crap, which, of course, means criticism, rejection, assholes, and pressure.

[LAUGHTER]

The answer to this question is simple. Pay $4,000 and come to TED. Or failing that, do the eight things - and trust me - these are the big eight things that lead to success.

Thank you, TEDsters, for all your [INAUDIBLE].

[APPLAUSE]

[MUSIC PLAYING]

End transcript

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St. John bases his eight suggestions on interviews with successful business people.

Figure 13  Richard St. John’s 8 secrets of success

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The graphic displays eight jigsaw pieces which have been slotted together. On each piece is a different set of words: passion, hard work, focus, persistence, great ideas, being good, serve, and push yourself.

Figure 13  Richard St. John’s 8 secrets of success

David Mellor, a business mentor, has five top tips for success – these are summarised in Table 1.

5 Your business

Figure 14  Applying your learning

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The image shows a graphic of a person sitting on a bench, and writing on a piece of paper. Their left hand is pointing to the sky, where a flashing lightbulb is floating above.

Figure 14  Applying your learning

You may now like to take the ideas discussed so far and link them to your own business idea. You can do this through two activities:

• Activity 6: Create your own business case study in a similar format to the example case studies.
• Activity 7: Answer the questions for the case study you created.

To get the most out of this course we encourage you to keep notes on the ideas you have and the activities you complete. These notes could be very useful as you move your business idea along.

This particular activity is also used in the other sections of this course and may have already been completed. It is suggested that you use the same ideas for each section, though you may wish to change or develop your ideas as you go through the different sections.

6 Personal reflection

Having completed this first section we suggest you take a few minutes to reflect on what you have learned so far. You may want to save your answers in this activity (and others in this section) in a separate document for use after the course.

7 What you have learned in this section

• Success means different things to different people.
• There are lots of reasons why small businesses fail, and a lot of them are predictable.
• Through risk assessment it is possible to identify the medium and high risk aspects of a business and to make plans for if and when they occur.
• Six common success indicators.
• Five tops tips for making a success of your small business.

Section 4 quiz

Well done, you have now reached the end of Section 4 of Starting your small business, and it is time to attempt the assessment questions. This is designed to be a fun activity to help consolidate your learning.

There are only five questions, and if you get at least four correct answers you will be able to download your badge for the ‘Succeeding in a small business’ section (plus you get more than one try!).

• I would like to try the Section 4 quiz to get my badge.

If you are studying this course using one of the alternative formats, please note that you will need to go online to take this quiz.

References

Acknowledgements

Except for third party materials and otherwise stated in the acknowledgements section, this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 Licence.

The material acknowledged below is Proprietary and used under licence (not subject to Creative Commons Licence). Grateful acknowledgement is made to the following sources for permission to reproduce material in this unit:

Figures

Figures 1–14: courtesy Moore Effective Solutions Ltd.

Tables

Table 1: adapted from Mellor, D. (2014) ‘The top reasons why small businesses fail, and what you can do about it’, The Guardian, 28 August [Online]. Available at: http://www.theguardian.com/ small-business-network/ 2014/ oct/ 28/ top-reasons-small-businesses-fail.

AV material

Section 4: TED Talk by Richard St. John and transcript © TED Talks LLC. https://creativecommons.org/ licenses/ by-nc-nd/ 3.0/

Every effort has been made to contact copyright owners. If any have been inadvertently overlooked, the publishers will be pleased to make the necessary arrangements at the first opportunity.

Glossary

cash flow

This is the actual movement of cash into and out of a business. It does not include money owed, only money paid.

lack of liquidity

This exists when a business has insufficient liquid assets (cash or stock) to meet its immediate obligations.

liquidity

Accounting liquidity measures the ease with which a business can meet its financial obligations with the liquid assets available to them.

philanthropic

Charitable giving to human causes on a large scale. Philanthropy must be more than just a charitable donation; it is an effort undertaken by an individual or organisation based on an altruistic desire to improve human welfare. Wealthy individuals sometimes establish foundations to facilitate their philanthropic efforts.