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The ONE reason that 96% of all small business owners fail fast or struggle for years
By: KC Truby
I buy distressed companies. I look for good ideas run by inept small business owners. If I want to buy a business for LESS than it is really worth, I look for the owner that is focused on the wrong thing. They waste their precious time and money where they do not get the highest ROI. (Return on investment)
If you cannot pin point the ONE most important thing you should do today – you will fail the test, and I will be waiting to pick up the pieces of your business at bargain prices.
We call this the ‘sin of the inaccurate assumption.’ No one does it on purpose, it happens because we don’t know exactly what is working in our business or what we should be working on.
OK, so here are the two things you can do right now to fix the sin. This advice is based on the 4,000 small companies we looked at or worked for since 1969 in accounting, M&A and marketing consulting.
First Major Mistake: To focus all efforts on producing the best product possible and forgetting to actually go out and sell it. Build a MVP (minimum viable product) and get customers. Build the really cool version later after you have money coming in the door.
Second Major Mistake: Do everything yourself. The real error here is skimping on financial controls and reports by trying to save money. If you skip basic bookkeeping or get incompetent help (like our spouse) it will lead to guess work about where your money is coming and going.
As Isaac Asimovsaid “Everything is an equation, all secrets of the universe are buried in mathematics” If you want to know who your best customers are (by profit of course) it is in your books, if you want to know what products, marketing campaigns, employees or locations are working – it is in your books. But only if you have accurate daily books.
Foot Note: Always focus on what works and do more of it. What fails should be left to fail and forgotten.
Summary: Hire a good bookkeeper from day one. Get a good accountant as soon as you cross $20,000 a month in sales. Get meaningful reports EVERY day and spend five minutes looking at KPI or key performance indicators. By measuring what you are doing you will manage it. Manage your business by the numbers and you will not make the ‘sin of the inaccurate assumption’ and I will not be at your door with a great big smile and a very small check.
96 out of 100 startup entrepreneurs are either focused on building a better product and forget to sell it. Or they make the exact opposite mistake, by trying to do everything themselves in order to save money – so they have no time to sell the product.
% of the small owners fail or struggle because they buy into the ‘get customers and everything else will work’ philosophy. I totally disagree, based on decades of real life experience, with clients and potential acquisitions that believed in the mantra of marketing first.
Here is why…
The vast majority of small owners go into business with a few customers already lined up. They do a great job for those first few customers so by referral they get more clients right away.
Yet, no controls have been installed on the business as it grows (read controls as bookkeeping) This starts a cycle of declining profits, excess hours of work and poor customer retention. The 96% fail to install employee control systems, production reports and daily review of the profit and loss. This leads to the ultimate sin in business of the ‘inaccurate assumption’
Every failed business we’ve looked at over the last 4 decades made inaccurate assumptions almost always based on the idea of more sales will solve our problems. The exact opposite is true.