How Small Businesses Can Achieve Greater Success In 2011

The challenge to small business now is maintaining a customer-centered mindset with an eye on the competition. Keep current, consider consequences of any action and exercise caution with …

The challenge to small business now is maintaining a customer-centered mindset with an eye on the competition. Keep current, consider consequences of any action and exercise caution with cash flow and operating capital, but be bold enough to go beyond your comfort zone. See the following article from The Street for more on this.

With a new year comes new opportunities to identify how you can achieve greater success in your business. Economic conditions may hold you back, but success is ultimately dependent upon your people, processes and the value of your product and services to the customer.

Remember, the customer will vote with their purchases. It was the customer that decided the marketplace battle between VCR technologies — Betamax, viewed by experts as the “superior” product, versus the “inferior” VHS, which became the standard. Don’t forget about the ongoing competition of computer operating systems; the flawed but convenient Microsoft(MSFT_) Windows versus Linux (Red Hat(RHT_) and Ubuntu) and Mac-based programs (Apple(AAPL_)).

To stay ahead, we must be aware of the competition, yet focus on what we do — or, more importantly, what we’re not doing. Success means staying realistic and critical of our own operations.

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Here are five things to keep you focused on the customer:

Stay current on trends, events and changes in your industry, related industries and the world in general.

This is important to enable you to find new ways and opportunities to do business. For example, you can read about best practices in online retailing (e.g., Amazon(AMZN_), Overstock.com(OSTK_), Zappos) and apply some of these lessons to your business.

Monitor the competition, but don’t try to be them.

It’s easy to look at competitors and decide to copy what they do. This can be seen in the automotive industry. GM(GM_), Chrysler, Ford(F_), Honda and just about every other automaker have a sticker price and then a “real” price that depends upon how well buyers could haggle. This leads customers to find alternatives to buying new vehicles (Cars.com, for example). It’s crucial to avoid becoming so focused on keeping up with the competition that you forget the customer’s needs.

Know the impact on your business before you make a move.

Failure to understand your own business processes and finances can lead to unintended consequences. For instance, you really want to grow your business, so you decide to set a revenue goal to increase annual sales by 10%. Your sales force does “whatever it takes” to hit that higher goal. But “whatever it takes” turns out to be longer credit terms, discounts on volume purchases, lower prices, rebates and every other incentive they can think of. At year’s end you sit down with your accountant and discover you have more sales but fewer profits. How could that be? Think about the goal you set: an annual sales increase of 10% … but you didn’t say anything about profits. And worse still, you’ve had to borrow money to finance the growth, so profits and cash flow have both suffered.

Be careful of your cash flow.

Growth is funded by cash. You have to pay employees, buy equipment and so on. You have to have cash to pay the bills. But sales and profits do not always equate to immediate cash in hand (or in the bank). For example: You make a sale to a customer of a product you must manufacture. You ordered the materials two months ago. It took you a month to make the product, and you had to pay your employees. You sold the product to the customer on 45-day terms. If you paid for your materials on 30-day terms and you don’t collect from the customer for an additional 45 days, you are taking at least 75 days to convert your material purchase into cash in the bank. The longer the time between outlay of funds to be able to deliver “product” to the customer and the time you get paid, the more cash you will need to maintain operations. So where does the cash come from?

Rely more on operational funding and less on other sources of funds.

Growing the business based on funds generated from successful operation (with a little float from short-term borrowing) is often the most sustainable and least vulnerable way for your business to grow. Short-term borrowing to address small differences in timing caused by delays in inflow of funds is healthy for a business. Relying on borrowed capital including credit cards and vendor terms as a matter of course, though, sets your business up to be vulnerable in tough economic times. We have only to look at the current credit crisis to understand how imperiled a business can be if it relies on debt to maintain operations.

Successful businesses are cognizant of all aspects of their environment. They engage the competition on their own terms and, while mindful of what the competition is doing, set their own path and find innovative ways to grow profitably. To survive and even thrive in today’s world, you must be willing to step out of your comfort zone and look to customers for answers. Only then will you be able to build the capability to fulfill that need.

This article has been republished from The Street. You can also view this article at
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