Ask SCORE: Persistent myths in small business
Persistent myths in small business
Are any of these myths holding you back?
By Richard Walton, Assistant District Director for SCORE
Myth Buster Tools, a New Concept in Small Business
Myth No. 1-If we can get the money we need, everything will be fine.
We often hear this lament both from start up businesses and also existing businesses that have fallen on hard times due to the recession. The problem with this thinking is that lenders and other investors want to be sure that they will be paid back, and in order to make this assurance, you need to be operating profitably. You can ensure profitable operations using three tools: 1) breakeven analysis which shows costs and profit margins for each product or service sold, 2) ratio budgeting which enables the firm to maintain the relationship of costs to revenue regardless of business conditions, and finally, 3) cash flow planning and monitoring, which enables the firm to meet its obligations, both short term, and long term (such as bank loans). These three tools, when utilized properly can help any organization improve its profitability and thereby qualify for loans.
Myth No. 2-We need to make more sales calls in order to get increase our revenue.
Here is another recession induced myth that explains a shortfall in sales by a lack of sufficient sales effort. The reality is that business managers need to hear from their customers in tough times, not continue to push products that may or may not meet current customer needs. Once again, we suggest three tools to address the situation. They are: 1) CRM (Customer Relationship Management) software which enables the firm to learn what its customers want and need, 2) simultaneous product differentiation-market segmentation strategies which enable the firm to tailor its product offerings to specific market needs, and 3) new product and market penetration strategies based on research and project management techniques. These three tools can provide business managers a new perspective on business development and revenue growth.
Myth No. 3-Costs go up because of inflation and therefore prices must be increased in order to maintain profitability.
Costs do not have to go up because of inflation. They have to go down because of good control and process improvement strategies, thereby providing increased profits from increased value, not higher prices. Once again, we provide three tools to accomplish the task of reducing costs and increasing value. They are 1) Process mapping, which enables managers to see the process flow from the beginning to completion of customer orders, and help pin point any redundancies and excess steps that can be eliminated, 2) continuous process improvement, which looks at each process element and focuses on how to accomplish the task with less effort and great throughput and higher quality, simultaneously, and 3) Output and Quality Maximization, which enables the firm to grow its business through more effective utilization of all of its resources, human, technical and physical. These three tools will enable the business to simultaneously increase the value of its products and services and reduce costs.
Myth No. 4-Innovation and new product development can only be done by large businesses.
Innovation can and must be done by every business. Innovation should not be focused only on products, but also on processes. And every business can do it. There are three tools that can enable the firm to innovate successfully. They are 1) Process and Product Development Checklist, which is a structured assessment of the areas where the firm can successfully concentrate its development efforts, 2) benchmarking key innovation needs, by measuring the performance of the top firms in the industry against your own firm, and developing a goal of meeting or exceeding their performance, and 3) Managerial Innovation, by which the processes of managerial planning and control are reviewed and examined for areas of improvement. This last tool can conceivably yield the best results, simply because it is an uncommonly utilized area of exploration, can be the source of major innovation. These three tools can provide the means for a liftoff of the firm for reaching new markets with improved products and services.
Four myths and four tool sets (3 for each myth representing the basic intermediate and advanced steps) toward effectively overcoming the inertia of long held suppositions that can and do negatively impact business operations. And the tools can be utilized by every business, whether large of small.
Contact SCORE or the author for further information.
Mr. Walton teaches Entrepreneurship and Quality Management at Frostburg State University. He is also Assistant District Director for SCORE, Western Maryland, and the President of ERMACORP, a Hagerstown based Management Consulting Firm. He may be reached at 301-462-9850, or by email to Richard@ermacorp.com.