Learning from our Failures Michael Collins President’s Column March 2003
I believe that George Washington once said, "He who forgets his past is doomed to repeat it.” I've always felt that I learned more from my failures than from my successes. I'm a firm believer in "human error." It's one of the building blocks of civilization as we know it. Without it, things might run smoothly with the exception of natural disasters and the occasional pet stain. And how boring would that be? You think I'm kidding, but I'm not. What're more, good things can come out of mistakes, such as Chocolate chip cookies and the Post-It Note to name a couple.
Unfortunately, some mistakes can kill your business. Even the smartest small-business owner can do dumb things now and then. I'm therefore going to share the following with you in the spirit of supporting your business ventures, and in the hope that you will avoid making the same mistakes. These mistakes may be common, but they can be potentially deadly to your business. Try not to make the same ones.
1. Underestimating the importance of cash-flow management. I talked about this in detail last month. Let me give you a common-sense example. Suppose 2 contractors had a thriving business building kitchen cabinets for new homes. They did beautiful work, and the home builders were pleased, but it often took the home builders 60 or even 90 days to pay the bill. Until the money rolled in, the cabinet makers couldn't start on the next job because they couldn't buy materials. They lost jobs because other customers were in a hurry. You can be making plenty of money, but if cash isn't arriving in time to meet payroll and buy inventory when it's needed, you can quickly be out of business.
2. Ignoring inventory. The owner of an electronic store bought an overabundance of Satellite Systems in preparation for a huge promotion he was planning. Three years later, he and his employees were still stepping around the boxes to get into the storage room. If you end up with stale inventory, discount it and get it out of there. Otherwise, you're just tying up money and taking up storage space.
3. Neglecting collections. An internet service provider had dozens of outstanding bills for routine internet service and other special work he had performed for many of his clients. Some of these outstanding bills were approaching 180 days old because neither he nor his assistant liked to make collection calls. Nobody likes to dun people, but unless you have a systematic collection plan and make sure it's carried out, some people just won't pay.
4. Getting sloppy with recordkeeping. The owner of a computer store was haphazard about recordkeeping. If he had kept better track of the computers he sold and serviced, he would have known when they were becoming obsolete and could have developed an aggressive marketing plan to replace those computers for his clients. Instead, it came as a very unpleasant surprise when he found out that they bought their replacement systems from a competitor. Good records are a key decision-making tool. If you're not keeping good track of your business, you are denying yourself the tools to make good business decisions.
5. Letting costs get out of control. The owner of a computer service shop was having such a great year that he bought a new vehicle that wasn't within his budget. He also hired a couple of additional employees because he knew that they needed a job, even though there wasn't quite enough work to keep them busy. In the final analysis, revenue went up significantly, but costs skyrocketed. If you're not careful, you'll spend up all the profits.
6. Spreading marketing dollars too thin. The owner of a new Paintball shop in a part of the country where there was not exactly a hotbed of customers to support it had an obvious need to advertise. And he did. He bought one cable TV ad, one radio spot, and a small coupon in the local weekly newspaper. Although he spent plenty -- several thousand dollars altogether -- his efforts didn't add up to a marketing campaign. Failure to spend wisely on an integrated and continuing marketing plan is an expensive mistake.
7. Offering something the customer doesn't want. A computer software vendor spent all his time and money feeding his own personal taste in software for his inventory. The trouble was nobody bought anything but Greeting Card Software, inexpensive games, and Anti-Virus software. Ultimately, his inventory turned obsolete when new versions were published, and his profits never materialized. Market research is vital. Talk to potential customers, talk to current customers, and respond to what they tell you.
When you work for a large corporation, the mistakes you make won't necessarily affect the company's bottom line. When you work for yourself, any mistake you make whether large or small can potentially cost you your business. Making mistakes in business is easy. After all, it takes little effort to do something the wrong way. The hard part is being aware of your mistakes and more importantly, learning from our failures.
Respectfully,
Michael Collins President, 29 Palms Chamber of Commerce
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