What’s the best advice you received as a business start-up?
I can think of two pieces of advice that I’ve cherished throughout my career.
The first I learned in accounts class when doing a postgrad in marketing while working full-time as a PR. Of all the topics I was due to study as a mature student, accounting was the one I was least looking forward to. I did economics for my first degree and most of my peers went on to become accountants. The fact that I didn’t, tells you all you need to know about my enthusiasm for figures.
The lecturer was in full flow. As she was want to remind us, she was teaching in 8 weekly, modules what she’d normally teach in one year! Then she said, “Of course, 90% of businesses that fail are inherently profitable . .” I’m not sure what she said next, but I quickly shot up my hand and asked her to repeat what she’d just said and maybe expand her explanation.
90% of businesses that fail are inherently profitable
Focus On Income
She looked mildly annoyed. Then she said, “Most businesses that fail are, or were, profitable. But they get themselves into financial difficulties because of their inability to manage the money supply. In layman’s terms, they’ve overreached themselves, they have paid out more than they’ve brought in.”
Then, warming to her subject,
“In the short term they can get by because of the natural business cycle, when sales pick up, for example. But often what happens, particularly at a time of rapid expansion, is that they lose focus on accounts paid. You generate sales but you don’t make money until you actually receive income. Perhaps they borrow to bridge the gap, paying back on a high interest loan which further erodes profitability.”
“More often they misread what is really happening and can compound the situation by assuming that expansion equals profitability. This can lead to bad decision making based on poor forecasting. Businesses often hire in expectation that growth will increase profitability. Unfortunately, too late they learn that they’ve only succeeded in making a bad financial situation worse.”
Businesses often hire in expectation that growth will increase profitability
When I started my first business, in marketing & PR, back in 1996, I was armed with this piece of advice. Consequently, I paid particular attention to income receipt from my customers, managing creditor payments and profit followed.
Sell more to your existing customers
The second piece of advice I received was from Frank Dologhan, of Mentor consultants, Newry. Just over a year into my first venture I was frustrated that my business, while steady, had not grown as rapidly as I’d hoped. I picked up the phone and asked Frank for a meeting. Frank listened patiently. He asked me a few pointed questions about my business, the services I was selling and who exactly my customers were. He had a look at my balance sheet and the forecast figures in my business plan.
“Well, it seems to me that you have a profitable business which, one year in, is better than most start-ups. Looking at your figures you’re running about 4 months behind your forecast which is not unusual. Most entrepreneurs underestimate how long it takes to generate income as opposed to sales.” I smiled and recalled my accounting lecturer.
Most entrepreneurs underestimate how long it takes to generate income as opposed to sales.
Then he asked,
“Would I be right in thinking that your initial customers knew you before you were a private business?” I nodded.
“So do they know you for one thing or are they aware of all the other services you can deliver?” I looked a little nonplussed. “Do you have a service portfolio capability statement?” When again I looked somewhat vacant he opened a drawer in his desk and handed me a document.
Serice portfolio capability statement
“Come on Fergus, you’re the one who’s supposed to be the marketing guy. This is our portfolio statement outlining all the services we can provide. You must know that it’s easier to grow your business by selling more to your existing customers than it is to find new ones.” I flicked through his company portfolio statement and I was both enlightened and embarrassed.
It’s easier to grow your business by selling more to existing customers than it is to find new ones
I thanked Frank for his help. Three days later I had a 7 page service portfolio capability statement listing 6 defined separate but related services. I also used the opportunity to price the services differently. Within a week I had placed the portfolio statement in the hands of all my existing customers and almost universally heard them each say, “Oh, I didn’t know you did this . .”
By the end of my second year I had tripled my turnover.