Small Business

What Not to Do in 2007


By knowing what to avoid and what to plan for during this year's business cycle, your firm will survive and possibly thrive

Mistakes. Everyone makes them, but businesses run a lot smoother if entrepreneurs avoid as many as possible. Before the 2007 business cycle swings into high gear, here's some "what-not-to-do" advice that we hope will help your business steer clear of myriad blunders this year. Small-business consultant Dave Skibinski, president and chief executive officer of Los Angeles-based marketing firm Quantum Method, offered his expertise recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow:

Your firm assists a lot of small and midsize businesses with their marketing strategies and business planning. What should small firms plan to avoid like crazy when it comes to 2007 marketing strategy?

They should not leave their marketing plan in a drawer and ignore changes in market conditions. Every entrepreneur needs to regularly analyze the health and direction of her business and study both her marketing mix and how the competitive landscape is shaping up all around her (see BusinessWeek.com, 12/13/06, "Harnessing the Power of Marketing").

The other, related no-no applies to business startups that neglect thorough market research before they put together their business plans and start pouring money into what they think is a great idea. I call this the "My customer who?" mentality. No one should forget to research the market to check that there is demand at a level that would lead to a sustainable business and that people are prepared to pay the price required for you to make a decent profit.

Also in conjunction with startup businesses, you warn against something else: overspending on overhead.

Right. We find that most new companies start out with insufficient capital anyway because they haven't done thorough, realistic planning. But when companies are starting up, it's easy to devote capital to fixtures and fittings, machinery and stock. What many new business owners forget about is the cash needed to fund day-to-day requirements, like cash for paying expenses before your customers pay you.

Talking about being realistic, another problem startup companies have is believing in their own hype. Too much hype and the overuse of superlatives can be the downfall of an otherwise sound business plan. Entrepreneurs need to wow investors and potential partners with a sound business idea, not hype or buzzwords.

Yet on the other end of the spectrum, you often see companies undervaluing themselves, right?

Yes. No company can afford to give its work away, but it happens all the time. I'm talking primarily about underpricing products or services, and pricing based on cost instead of pricing to what the market will support. The other, related "not to do" here is not to fall into the trap of focusing more on sales than on profits. Companies that do that can work their way right into bankruptcy (see BusinessWeek.com, 11/6/06, "The Secrets to Price-Setting").

I would imagine that entrepreneurs who do that are probably not paying a lot of attention to their finances.

That's right. Never, ever decide that you can let your records keep themselves. If you're not carefully tracking your company's performance, you're going to get into trouble quickly. But there are far too many business owners who ignore their cash positions, don't take the time to forecast cash flow adequately, gloss over monthly profit and loss statements, lose track of their inventory levels, and—probably worst of all—forget to stay on top of collections.

Finally, you tell entrepreneurs never to give up.

That's because if people are sincere about making their companies work, there are probably no fatal mistakes, only lessons. Successful people make mistakes all the time. But most of those mistakes go unnoticed because those entrepreneurs don't give up. They fix the mistakes and keep on going.

In fact, I tell clients that if they haven't made any mistakes for a while, they may be playing it too close to their comfort zones and not stretching themselves far or fast enough to achieve high-level goals. To aim high, you have to accept some of the risks that go along with stretching yourself.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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