Problems faced by new small businesses- and how to tackle them

Problems faced by new small businesses- and how to tackle them

1.       Poor market research:

You have been looking for a job for donkey years and decided to jump into business out of frustration. You see your neigbour’s sachet water business flourishing and you decide to eat your own national cake by opening a sachet water business. Your best friend and family give you the thumbs up but wait! Not so fast dear. Before you invest every single penny you have into this sachet water business or any business idea for that matter you need to conduct a good market research

You need to answer questions like: who are my potential customers? Who are my potential competitors? How much do I need as initial or setup capital? What running costs is my business likely to incur? ( for example a business that requires constant electricity requires a generator and those machines don’t run on sawdust you know) how do I reach my target market? Etc

A common problem for new businesses is that they overestimate the size of their potential market. All products and services have one or more target demographics. A Christian Louboutin shoe wouldn’t sell well in low-income areas. Another costly mistake is to underestimate the competition.

2.       Bad business plan

     Your business plan should touch the following areas:

1.       Problem statement

2.       Business Description

3.       Resume of business accomplishments

4.       Marketing plan

5.       Financial projections

6.       Personnel plan

7.       Specific business goals

8.       Plan summary

Too many entrepreneurs subscribe to the "paper napkin" fantasy; all you need is an ingenious idea scribbled on a napkin, and the millions start rolling in. The truth is that no new business has ever succeeded without a detailed and thorough business plan

Writing a business plan will help you focus the mission and scope of your business, figure out exactly how the business will run and realistically project how much money the business will make

A common problem for new businesses is that they rush a product or service to market without a clear focus. The result is that the business owner ends up chasing too many potential markets and new products thereby investing a lot of money and getting little returns. For example you plan to and open a boutique for working class females, then suddenly add a few more casual student pieces because a few students tickled in, then add a few male pieces because you think male wears are good money spinners. Before long you have a wild variety in male, working female, students and granny wears but they lack taste and focus that’s why customers come in and go out without picking anything or finding a single thing they like.

At the beginning, it's much more important to have a single focus with a proven client base. If your boutique is for the working class female, stick with that and get lovely pieces. Build a reputation in that niche so everyone knows that the one place to get killer working outfits for females is at your boutique. Then after building a strong reputation and customer base expand into relating niches/areas like accessories, casual wears for a working woman, and corporate wears for the working man.

All good business plans should include honest sales projections based on solid market research and competitive analysis. If there's another assorted meals fastfood joint in town, don't expect your sales to be much higher. In fact, they'll probably be significantly lower at the beginning.

Think of your business plan as an investment in your future. If you consider every detail now, there will be fewer surprises later.

3.       Not enough start-up capital

The entepeurers of 19 out of 25 failed businesses cite too little capital as the major cause of their failure. A common and deadly mistake is to assume instant profitability. I spoke to a young man whose sachet water business capsized a few months after startup and he said that he had spent a most of his money procuring machines and didnt plan for consistent running costs like generator fueling costs, transportation costs, security costs but instead looked forward to instant sales and hot profits. Problem is he had very few sales as most retailers already had sachet water distributors and definitely no profits till his business went under.

 The experts recommend planning for the worst, meaning at least two years before turning a profit. In your business plan, write up a detailed budget that will sustain you through those lean times. Once you've figured out how much startup captital you'll need in the bank, add 50 percent just to be safe.

4.       Charging too little 

Now unless you are Shoprite, this doesn’t work for a brand new business. Why? Larger, more established companies save money by purchasing on scale. They've learned how to cut costs through longstanding relationships with suppliers and through careful logistical planning. Shoprite, for example, can offer low prices because it has exclusive contracts with suppliers. Suppliers give Shoprite rock-bottom wholesale rates because they know the store giant is going to buy 100 million units.
You on the other hand probably can’t buy 100 million units yet. So instead of trying to beat the competition with rock-bottom prices that won’t earn you any profits, try to price your goods or services at a fair market value and beat the competition on high quality, customer service and your "unique selling proposition," also known as marketing

5.       Poor marketing strategy

One of the most important determiners of a successful business is its marketing strategy. Once you have a clearly defined target customer, you need to design a marketing campaign that turns him or her into a paying customer.

A common problem for new businesses is to rush into newspaper ads, glossy brochures, billboards and radio commercials. The first consideration should be the budget. You need to figure out how much each type of advertising costs and how many of your potential customers it will reach. Opt for the marketing strategy that gives you the most bang for your money.

I would advice promoting your business freely on facebook, twitter, linkedIn, youtube and using email marketing at first as extremely cost-effective and productive ventures. Companies like collectibles, namywedding have used social media extensively to boost their customer base. Progress to newspapers, billboards and radio as your capital base increases and you now desire to create a household image/ brand name of your business.

6.       Trying to do too much by yourself

You are the manager, the accountant, legal advisor, business development executive, customer relationship officer and the cleaner. This "one-man band" strategy might be a great way to keep costs low at first, but it's not the smartest way to ensure long-term success.

As your business grows you might need a sales girl, a dedicated customer care officer, one or two artisans or technicians etc. be sure to employ only exactly what you need and not more. In fact employ people that can multitask due to the number of skills they possess. Example, a friend of mine that has been running an IT firm has a junior staff that does customer care, attends to most technical issues like fueling and servicing the generator and still does some IT duties. Good employees are one of the most important investments you can make in your business.

Another mistake is to employ relatives. That is a big no-no. Sentiments should always be separated from business. Its hard enough to query, sanction or fire a stranger let alone your favorite aunt’s daughter or your own brother. Though there are exceptions to this rule, its better not to hire relatives while still a startup.

7.       Starting big?

    We all want our businesses to have office complexes in high-income area, official cars, uniformed drivers, in fact the works. But in reality, only established businesses can afford these luxuries. Not all startup businesses need an office to begin with. Most can take off from the home. Example a dry cleaning service, boutiques, a plumbing service etc. minimize your start-up costs and use your residential house till you are buoyant and established enough to expand to an office space. I know a furniture maker that started his workshop at his backyard. There he built even his showroom and his business is really growing to a point that he is beginning to think of expanding and having showrooms in another city. But he first started small- at his backyard.

8.       Spending too much time prospecting/ not enough time in a day.

This is common among many small scale businesspeople. You want to do this and that, you prospect and groan that there is not enough time to carry out all your business plans. Why not start with something- one thing and dedicate time to that one thing. it might take lots of time and effort but a dedicated time of like 8 hrs each day to a single prospect will reap results over time ( in as short as 3 months in fact)

Then as you see success in one venture, move on to another prospect. It’s a gradual process. You cant do twenty things at the same time. You will find that you will be confused and reap discouraging results.

9.       Most callers are price shoppers

That’s normal. But at least your phone is ringing off the hook. Your email is jammed full of questions about your product/services from people. These people are potential customers. Your manner of response to them and your prompt response to their mails determine if you can turn them to paying customers.

Build credibility with these leads by giving compelling reviews of your product/services, tell them why you are better than the competition, and be courteous and nice even if you receive rude comments from a very grumpy customer. You want to swindle the money in his pocket off him and not win a law suit on fairness and how people should talk to others.

10.   Off-season periods

Most small businesses go through dry spells called off-season periods. A way to tackle this is to advertise heavily on facebook, twitter and use email marketing to let people know about products you can sell during off-peak periods. For example, you are an exclusive school outfits tailor. During peak season let parents know of our 30% discount on church wears, party wears for kids you intend to start sewing during off-peak periods like March, April or August. You will definitely be busy during that period.

So that’s it. If you have any problems as a business start-up let us know by sending an email to inspiredtosuccess@gmail.com. It will be our joy to help you on the path to financial success by solving little challenges you encounter today.