Growing your small business in 2016
Many entrepreneurs are looking forward to 2016 with great hope and optimism for improved performance and results. One reason is that, by their very nature, entrepreneurs tend to be positive people, constantly looking for opportunity and possibilities for impact and profit where the average person sees mainly risks, roadblocks or rot. For us, the New Year typically means a fresh chance to wheel and come again, with bigger goals and more energy, no matter how challenging the year before might have been. But it's not simply blind optimism that's fueling entrepreneurs, company owners and business leaders at this time, but more fundamentally, significant improvements in Jamaica's fiscal and macroeconomic situation, which have signaled brighter days ahead for enterprise.
However, even as the business environment continues to improve, there are some entities which may never benefit and will continue to struggle for one main reason - their business model is flawed and is not amenable to growth. It's why I recommend that small businesses take some time, as soon as possible, to review and revamp what value they deliver, the products and services they offer, who they serve, how they serve, their customer channels, cost structure and revenue streams.
In my interactions with hundreds of entrepreneurs across the country and Latin America and the Caribbean region generally, I've found very few among them who are able to express their business model or know what elements are critical to its viability. So here are some key questions small business owners and their team can consider in revamping their business model for growth in 2016:
1. What makes our value proposition unique and worthwhile?
Is the value that we promise to customers important to them? Assuming it is, are we currently the best at what we do and how we serve them? These are a few of the questions to ask when assessing the real value you are offering to customers. Say, for example, you operate a clothing store, restaurant, consulting business, barber shop or salon, what do you offer that no one else does? What would make customers come back again and again and want to stay loyal to you? Are you the best choice on the market today?
2. How viable are our target markets?
Carefully scrutinise your target market(s) and ask yourself whether it can support your growth and profitability. In other words, is the financial position of your target customers improving or worsening? Is the market expanding or shrinking? Can you sell more, add new products and services, or is it time to look for new more lucrative markets? Often, it may be better to sell products or services that have mass appeal, to widen the target market and offer more diverse customer segments.
3. How likely are we to get repeat business?
It's usually more desirable to be in a business where you have a steady flow of repeat customers. One of the best models, for example, is weekly or monthly subscriptions where customers pay religiously and automatically during a specified period. Another good model is one where people buy habitually and often - such as with some food, personal care, household and cosmetics, to name a few.
4. Are there opportunities for upsell and vertical integration?
Great business models are one where you can sell more products and services to the same customer consistently. Let's take the automobile industry for example - a lucrative model is one where you sell vehicles, trade in vehicles, sell parts, and offer diagnostics and general service. You could stretch even further to providing financing and insurance. Though vertical integration has several risks, the probable reward of multiple and diverse income streams can provide huge pay offs.
5. Will we generate positive cash flows?
Cash flow is the lifeline of a business. Savvy investors will tell you of their preference for businesses with large volumes of cash going through their bank accounts consistently. It doesn't matter how profitable a business is on paper, if you have many outstanding receivables and little cash in hand, you can't pay the bills and keep the doors open.
6. Are there barriers to entry?
Low barriers to entry in an industry can spell danger. Hustlers love quick, easy money and will enter and exit industries with minimal barriers for fast profits. It's why we've seen a proliferation of 'same day loans' companies saturating the market with very high interest consumer loans. In some cases, however, it may be possible to create market entry barriers so it's harder for a flood of persons to enter and compete.
7. Is the return on capital and assets worthwhile?
Finally, there is the critical issue of returns on what you invest. Simply put, is this business giving you the best bang for your buck, or is it better to invest elsewhere. It's usually the hardest question because often, the most honest answer is hard to swallow.
In the end, getting ready to grow is as much about your internal readiness as it is the external business environment.
n Yaneek Page is an entrepreneur and trainer in entrepreneurship and workforce innovation.