How can you boost the likelihood of small business success? Several attributes, including an entrepreneurial mindset, a focus on cash flow, and an emphasis on your customers, are key to positioning your business for sustained growth and success. Here are five things that are likely to contribute to small business success.
An entrepreneurial mindset
This refers to “the inclination to discover, evaluate, and exploit opportunities,” said Stephanie Fernhaber, Ph.D., and Professor of Entrepreneurship and Innovation at Butler University. While an entrepreneurial approach is, of course, critical when starting out, it’s also important to sustaining a business, as it will prompt a business owner to take advantage of opportunities when an economy is booming. It also can help business owners adapt and identify changing opportunities during times of uncertainty, she said.
A focus on cash flow
The top reason businesses fail? Running out of cash, reports SCORE, a resource partner of the SBA.
“Cash flow is the essence of your business,” said Gary Minkoff, Assistant Professor of Professional Practice at Rutgers University. Along with tracking revenue and expenses, business owners need to monitor the timing of cash receipts and payments, to ensure they have enough money to cover payroll and other upcoming bills.
Also important is knowing what it costs the business to offer its products and services, and then effectively managing those costs, Minkoff said. For product-driven businesses, this often means leveraging a solid inventory management system and identifying which products are selling, and why, he said. Service businesses need to pay the appropriate amount for the talent and technology that can offer them a competitive advantage, he added.
A willingness to recognize, reward, and delegate to talented employees, while keeping a lean workforce
Business owners often try to do everything themselves, said Brad Sprong, National Tax Leader of Private Enterprise with KPMG US. “This is a recipe for sleepless nights, things not getting done, and a lack of diversity in thought [needed] to move the business forward,” he said. Instead, business owners are better served by hiring strong employees and then delegating appropriately.
At the same time, businesses need to remain as efficient as possible, said Tuan Nguyen, U.S. Economist with RSM US LLP. This means keeping the employee roster lean, as layoffs and rehiring following busts and booms are often costlier than maintaining a stable workforce, he noted.
Staying lean also often requires a certain level of outsourcing. By exporting some tasks to a third party, businesses can more easily trim costs when the economy is tight, while staying atop trends during expansionary times, Nguyen added.
A rigorous process for measuring performance
One key to sustained, profitable growth is sales efficiency and marketing effectiveness, said Jay Jung, Founder and Managing Partner at Embarc Advisors, which offers investment banking and management consulting services. Yet many companies focus on revenue and fail to consider the need to grow profitably, which requires looking at sales efficiency.
For instance, is the company setting and meeting sales quotas? What is the level of customer retention? How are salespeople approaching cross-sell and upsell opportunities? Few companies assess these metrics, Jung said, even though this information is a critical starting point to improvement. It shows where to focus and can guide a more systematic approach to building the business, he added.
An emphasis on the customer
For a business to succeed, it has to identify a group of customers that has an unmet need for the products or services it’s offering, Minkoff said. This group also has to be large enough to sustain the company.
Having identified its customer base, the business needs to satisfy them. Customer satisfaction should start with the initial contact, and then continue during the purchase process and even through the duration of product ownership and use, Minkoff said.
By remaining close to their customers, many small businesses can differentiate themselves, Minkoff said. This may mean, for instance, offering niche or specialty products that larger companies find difficult to replicate, or faster response times than bigger firms can provide.
Businesses also need to invest in customer capital, or the value of the business’s relationship with its customers, Nguyen said. This often is represented through brand loyalty or long-term demand. “Strong customer capital will enhance the long-term revenue stream, which can keep the business afloat in difficult times,” he added.
In good times, customer capital is also key, as it can shield businesses from potential competition, Nguyen said. That’s particularly important for small businesses, which often face fierce competition from more established firms with deeper pockets, he adds.
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