Monday, May 30, 2011

Starting a Business is Flat-Out Hard

Hats off to the entrepreneurs of the world. Starting a business is just flat-out hard work, full of adversity, anxiety, ego, regulation, and so much more.

To do a start-up right, it is hard. There is no easy way, shortcut, or silver bullet to starting and building a successful company. And, when I say start-up, please note that I am speaking specifically about getting paying customers, not about creating a legal entity.

If you've ever started a business from scratch, you know what I'm talking about. If you haven't, please don't discount my words until you try it for yourself. You'll be glad you did, but you'll probably end up agreeing with me.

Almost everything and everyone you encounter will try to bring you down. They may not mean to, but they will likely be counter-productive to what you want to accomplish. Yet you have to keep pushing forward, finding value where you can along the way.

KEY TAKE-AWAYS: Be ready for lots of hard work, build a resilient, positive attitude, and do everything you can to help others trying to forge the same start-up path.

Thursday, May 19, 2011

What is Your Business Worth

Do you know the value of your business? More importantly, do you know how to maximize its value?

Here is the bottom-line when it comes to caclulating the worth of almost any business--how much cash flow can your business generate in the future, and how much risk is associated with it's ability to generate that cash.

In my recent article on American Express OPEN Forum, I list the three main ways a business is valued. Interestingly, the two that are weighted much heavier than the third have to do with cash flow generation and an assignment of risk through a discount rate or a multiple (please read the article for more information on how discount rates and multiples work).

So, if cash flow and risk are the drivers for valuation, then the best way to maximize the worth of a business is to build it into an optimal cash flow machine with as little risk as possible associated with those cash flows. Based on your industry and business model, there is likely something you can be doing today to improve the value of your business.

Thursday, May 5, 2011

Why Businesses Fail

I have recently done some research on what makes businesses fail. There are a lot of books, articles, and even academic research on the subject. And there are also lots of blog posts with catchy titles like "Top 5 Reasons Businesses Fail." It's a popular topic, but I have to admit most of the information I've found focuses more on symptoms than on root causes.

I think business failure boils down to one root cause: POOR DECISIONS.

Here are some of the common reasons business fail, selected from a variety of sources:

  • Not taking care of customers: is really just a series of bad decisions
  • Running out of money: another set of poor decisions
  • Not pivoting properly: bad decisions written all over that
  • Poor planning: bad decisions to not plan is the real culprit
  • Inadequate financial management: more bad decisions to neglect
  • Failure to innovate: decisions were made to not innovate
  • Customer concentration: this was a series of conscious decisions
  • Natural disaster: we can't even pass all of the blame on this one, especially since some decisions can be made to minimize the impact a natural disaster can have on a business
  • Recession: if we stop and think about this one, we'll realize we could have done a lot to minimize the impact of the recession on our businesses.

So, if poor decisions is the root cause of business failure, how can decision-making be improved? In my recent article on American Express OPEN Forum, I explain how the Proper Use of Numbers Can Improve Decision-Making and give businesses the best chance for success.

Key Take-Aways
1. Take responsibility for your failures and successes, don't point fingers of blame.

2. Evaluate your decision-making process and find ways to make it as successful as possible with the right numbers in the right format in the right context at the right time in the hands of the right people.