"Whenever you make a mistake or get knocked down by life, don't look back at it too long.
Mistakes are life's way of teaching you. Your capacity for occasional blunders is
Inseparable from your capacity to reach your goals." - Og Mandino
Why All the Red Ink?
The goal of this blog series is to share 26 tips from the lessons learned about those whose business plans went off track. These tips will help you beat the odds and avoid the 'red ink'.
Experienced entrepreneurs know that it is easier to start a business than it is to avoid losing the business because of financial loses (aka – the 'red ink') and having to shut it down. And while we always hear much about successful business owners or ideas we hear little about the mistakes, blunders or oversights. But as the quote above implies, mistakes can provide powerful teaching tips.
As seen in Chart 1, the odds are that any new business, no matter what industry, has about a 42% chance of surviving within 5 years of starting. In other words, of the approximately 500,000 new businesses that start in North America during 2013, only 210,000 will still be doing business in 2018, while 290,000 (58%) will have closed.
Chart 1: Five-Year Survival Rates of SMEs
What Can We Learn from Red Ink Experiences?
In sports and in the military, learning from what went wrong, and why, is as crucial as understanding what went right. As can be deduced from the chart above, certain businesses have a better survival rate. For example, construction businesses have the worst survival rate at 36.4%, finance, insurance and real estate (FIRE) and retailing both have about 40% who survive; services have about 48%, with mining the highest at 51.3%.
Sadly, the staggering numbers who experience closure or insolvency continues because we don't learn from their mistakes. One entrepreneur who was going through a bankruptcy proposal told me -
" …my biggest lesson was to expect the unexpected…always have backup (especially cash or debt reserves) to help with unexpected surprises like I had… a new competitor, staff who quit and one who stole, customers who didn't pay, a $6,000 marketing campaign that fell flat. One year into the new business I knew I was over my head, but it took me another 15 months to call it quits. The chart on my wall here (diagram below) tells my story." – Auto Parts Wholesaler, 2012
Tip 1: Get Your Pillar of Support - The Advisory Buddy or Board
Bankers, accountants, and Trustees in Bankruptcy agree that the number-one cause of business failure is 'management incompetency or lack of experience'. As in the story (above) from the Auto Wholesaler, the owner or managers lacked support and expertise related to marketing, sales, operations, human resources, social media, negotiations, and/or financing.
How Can You Quickly Get More Support and Experience?
The solution is simple. Get an advisory buddy or board ASAP! This is the easiest and least expensive solution. We can all benefit from having a mentor or two if you are a small firm, or an advisory board of 4 to 5 if you are a larger firm. These are professionals who have done what you intend to do. They also like you! They have opened, operated and/or sold successful businesses and help you see what you're missing. They also add credibility to your business when they are listed on your website.
A benchmark example of doing this can be found at http://www.gshiftlabs.com/company/advisory-board/ . This is the third successful venture of co-founders Krista Lariviere and Chris Adams, from Barrie, Ontario.
In Krista's own words –
The CEO/Founder needs to determine the role they want their Advisory Board to play. In the instance of our company, gShift, it was important for me to select people who could validate our business. They are essentially saying, "we believe Krista has recognized a market opportunity and we belief she can pull it off. We'll be here to help if she needs us." I don't meet with my Advisory Board as a group, but rather just call them and do one-on ones.
Chris states that -
Advisory boards allow for more casual talks about risk…they are typically mentoring and have been in similar situations. We don't pay them…They are like volunteers…They bring new ideas that can help….They have time to roll up the sleeves and contribute…typically they want you to know that you know what you are doing…entrepreneurs should set up an advisory board to "Mimic" a real board… to be "accountable".
Building Your Pillar of Support
A good advisory buddy or board has 6 characteristics -
- They know the business you are in (e.g., the challenges, the distribution, the trends, sales processes, technologies, key players, best sources of financing);
- They know and like you and what you are trying to do;
- They have the time to contribute as needed;
- They are interested in being a mentor;
- They have skills you don't;
- They are well-connected!
Where to Start?
If you are serious about avoiding the red ink, start NOW to get some names of potential advisors. Ask your accountant; ask the head of your Chamber of Commerce; search through your Linkedin.com connections; ask your lawyer and banker. Note: The quality of first person you get as an advisor will help brand you, your business, and make it easier to get others!
In sports, the better the team, the better the results. The same applies to your advisory team. Go get'em!
Want More Info?
- Web Link – http://www.americanbusinessmag.com/2012/11/why-your-small-business-should-have-an-advisory-board/
- Book – http://www.boardmybiz.com/blog/2011/09/how-to-build-an-advisory-board-to-grow-your-business-and-increase-your-profits/
- Video - https://www.youtube.com/watch?v=UB67ZO9-G7c
- Slide Deck - http://www.slideshare.net/AndyForbes/building-a-board-of-advisors
Coming Soon:: Tip 2 - Lagniappe or Lose Them…The #1 Secret to Building Customer Loyalty