By: Prof. Eric Soriano
FAILURE happens all the time especially for entrepreneurs who are naturally risk takers. In a recent interview initiated by ICON Executive Search related to business failures, I was asked a question that entrepreneurs must take to heart.
“Professor, in your more 10 years of coaching business leaders and turning around companies in the ASEAN region. What do you think are the biggest blunders a typical entrepreneur makes?
Sometimes you win and sometimes you learn! For business owners, losing is not an option, learning is. It’s all part of an expensive tuition fee. But as an entrepreneur you have responsibilities to your customers and to your employees so you have to do everything you can to guard against any possible red flags.
I am sharing a portion of my interview as a key take away for business owners so they can navigate their way on crucial minefields that will surely cause irreversible damage to the business. This is also part of a continuing series related to Business Failures:
- Inexperienced Management Team
One of the major reasons that a business fail is its management. Top management is the backbone of a strong business, decisions and strategies made by management can decide the fate of a business well before it gets off the ground. Many decision makers, especially the startups are often not aware of the business capabilities and importance of creating long term strategies. I understand where they are coming from. The cost of having a good team is high but the dangers of having an inexperienced team can inflict irreversible damage to the business.
No business can survive and prosper without competent people. The latter creates the energy and the drive toward greater productivity and increased profit. Compensate them well, train them and they will deliver. A high turnover rate means constantly hiring and re-training personnel. Simply put, hiring incompetent people is an additional operational expense. Additionally, if you have bad eggs in the team, they must also be weeded out fast lest they become a liability.
- Differentiate or Die!
I also overhear entrepreneurs say, “we are cheaper than anyone else!” Being cheaper is not something to be proud of. It is tempting but dangerous. You are falling into a commodity trap where the end game is a bruising price war. In the end, if your organization is not calibrated to sustain cost leadership, you will surely fail. Being cheap is not a badge of honor, it is just a matter of time when a competitor will come along sooner or later who will be cheaper than you. Pushing for a cheaper product without the backbone is a death wish.
- Mismanaging inventory and Overhead Costs. Keep a firm grasp of inventories to avoid burdensome financing costs on excess inventory and to maintain liquidity. This means rationalizing costs whether they are for inventory or addressing routine expenses. The key is “spending smarter” – tightening up and examining the costs and options of things that are usually taken for granted (representation, transportation, etc.).
- Poor Accounts Payable Management. For clarity, accounts receivable are the amounts owed to a company by its customers, while accounts payable are the amounts that a company owes to its suppliers. In your accounting books, receivables are classified as a current asset, while payables are classified as a current liability. No matter what size your business is, paying bills will always be part of it. By implementing “best business practices” you can streamline your accounts payable process and be prepared for future growth. Keeping current on your payables is essential to retaining good credit status. However, you have to set priorities. Study who must be paid first to keep things running, followed by primary suppliers and so on.
Prof Enrique Soriano is a World Bank/IFC Governance Consultant, Senior Advisor of Post and Powell Singapore and the Executive Director of Wong + Bernstein, a research and consulting firm in Asia that serves family businesses and family foundations. He was formerly Chair of the Marketing Cluster at the ATENEO Graduate School of Business in Manila, and is currently a visiting Senior Fellow of the IPMI International School in Jakarta.
He is an associate member of the Singapore Institute of Directors (SID) and an advisor to business families worldwide, a sought after governance speaker, book author and have written more than 200 articles and publications, including two best-selling Family Business books (Ensuring Your Family Business Legacy 2013 and 2015). You can read Prof Soriano’s business articles for free at www.Faminbusiness.com