John Grisham once revealed in a Newsweek interview that the big difference between his first novel and his second was stumbling upon a set of rules for writing suspense novels. He went from literally giving away his first book to earning $10 million for his second. Same guy, same ideas, same knowledge base, same skill with words. Every year since he has published a novel using the same set of rules; his annual income is now around $18 million and his net worth estimated at $600 million. And he loves what he is doing!
Grisham’s business is writing novels and he found a framework to help him achieve consistent success. This was his secret skeleton in the closet. Can you too take a set of rules and change your great passion into a wildly successful revenue stream?
The Extent of Small Business Failure
If you don’t have a set of rules to follow, a framework or skeleton to build your business on, then you’re most likely to be part of the 45% of small businesses that fail in the first two years, growing to 55% after 4 years. It gets worse. Canadian statistics show that 80% of all non-franchised businesses fail (franchised businesses by definition must have a framework.) And US research indicates 90% of small businesses fail in the first 10 years of existence. Is it likely to be any different here? How many people in Bali do you know who have started and then left a business?
And what these statistics don’t report are the number of surviving businesses where the owners are not having fun, but working longer and longer hours as the business grows, seeing more and more mistakes in product and service delivery; basically slaves to their crumbling dream.
Causes of Business Failure
Dun and Bradstreet’s research cites the main causes of businesses failure as:
- 82% Poor cash flow management skills
- 79% Starting out with too little money
- 78% Lack of a well-developed business plan, including insufficient research on the business before starting it
- 77% Not costing and pricing properly – failure to include all necessary items when setting prices
- 73% Being overly optimistic about achievable sales, money required and about what needs to be done to be successful
- 70% Not recognizing, or ignoring, what they don’t do well and not seeking help from those who can
- 64% Minimizing the importance of promoting the business properly
- 63% Insufficient relevant and applicable business experience
- 58% Inability to delegate properly – micro-managing work given to others or over delegating and abdicating important management responsibilities
- 56% Hiring the wrong people – clones of themselves and not people with complementary skills or hiring friends and relatives
- 55% Not understanding who your competition is or ignoring the competition
- 47% Too much focus and reliance on one customer/client
Putting these top 3 causes together are:
- Incompetence – 46%
- Unbalanced management experience – 30%
- Lack of technical experience – 11%
In comparison, when companies do use a framework you get results like this:
- 88% report improvements in operating performance
- 66% also achieve the increase in profits.
So yes, it’s critical to look for a framework. It’s like having a skeleton for the body of your business, to stop it falling into a heap.
I’ve spent a lot of time with small business in Bali and see how incredibly hard some people have worked to build their dream. And over a business lifetime of 40 plus years, I’ve had the opportunity to watch, work in, help and/or mentor a vast range of businesses, from tiny seeds to saplings to kings and queens of the forest. I’ve worked with one business owner who started manufacturing in his garage and retired early 70 million dollars from the sale of his business. I’ve known other business owners at the other extreme who thought just setting up the business and putting people there to run it without any further effort was all they needed to do – and they were amazed when it all fell apart.
From all of this come very clear and simple guidelines that I want to share with you. I don’t say implementing them is simple or always easy, but they are things that must be done. Do them, and it will change your business and likely change your life and give you a better opportunity to enjoy this beautiful island. But how does your business base measure up right now?
There’s a simple, free checklist to help you check out your current situation to see if you are heading for trouble. Email me for it, address below.
How does your business measure up right now?
Business Success Drivers
In any small business, there are three key drivers of success:
- Vision – your dream, where you want to be in 5-10 years.
- Resources – cash, people, tools.
- Organization – how effectively and efficiently you use your resources to create capabilities that help you achieve your vision.
The first “must have” is a vision for your business, where you want to go with it. This is you as the leader. You have a plan and you have to sell it to the stakeholders in your business – your customers, your staff, your suppliers and your bank. Your vision and how well you and your people understand it and are committed to it should be the key driver of how you use your resources.
Cash, people, business tools, networks: these are the tools you need to accomplish your vision.
Hopefully, the resources you have invested in are focused on meeting your vision’s goals.
The organization is about how well you use the resources you have. Any organization consists of stocks and flows. You have stocks of money, people and their various skills, products, information. Then you have flows of money, information, products. A well-organized business has these flows coordinated.
How is your cash flow organized? Are you making the best possible use of your funds? How are your people organized? Are their individual and team efforts focused on delivering value? How are your processes organized? Are they standardized, measured, effective?
Resources plus organization combined provide your business with a set of capabilities. Great combinations provide can competitive advantage. Poor combinations waste resources, eat your profits and lose your customers. The business framework gives you a structure and a path to follow, to best mobilize your capabilities to achieve your vision and build your business.
Are you brilliantly inspired but seeking know-how? Will all your hard efforts result in Grisham’s first novel or his second?