Getting To The Next Level
Fifteen Tips To Keep Your Company Growing
Maureen Farrell and Mary Crane 08.08.08, 9:00 AM ET
Every successful company needs a good idea, good people and a good plan. Keeping a company growing, however, is harder still, mainly because the game changes the bigger it gets. A small business with $500,000 in revenue trying to get to $5 million has different operational, financial and human resources challenges than a company with $25 million stretching to hit $100 million. With that in mind, here are 15 tips to help you navigate growth at three different stages in your company's development cycle.
Tip No. 1: Getting From $500,000 To $5 Million In Revenues
Chart a (realistic) financial course. The thrill of your first sale has past, now it's time to get out the Microsoft Excel spreadsheet. But before you fall in love with those pretty five-year financial projections, mind your cash. Unless you socked away a pile from a previous life, one wrong move and you won't be able to cover next month's inventory or interest payments.
Tip No. 2: $500,000 To $5 million
Focus your energies. At this stage, nearly every ounce of investment (in cash and time) should go toward perfecting your product and building a solid reputation with customers. "Don't think about public relations or broad-based marketing," says Paul Maeder, founder of Highland Capital Partners, a Lexington, Mass.-based venture capital outfit. "The only people you talk to at this stage are customers and potential customers."
Tip No. 3: $500,000 To $5 million
Craft your story. You've had some success with your product, and you are still able to manage day-to-day operations. But can you convince deep-pocketed investors to help you get to the next level? If not, find that charismatic someone who can weave a compelling story.
Tip No. 4: $500,000 To $5 million
Build an advisory board. Advisors are critical to growth not only for their business acumen but for their contacts with other companies, vendors, clients and industry professionals. Advisors also add a whiff of legitimacy. "Most investors will say they will invest in a B-class idea with an A-class team over an A-idea with a B-team," says Partrick Ennis, managing director at early-stage investing firm ARCH Venture Partners. (For more on how to build an advisory board, see "How To Set Up An Advisory Board.")
Tip No. 5: $500,000 To $5 Million
Befriend bankers. Even if your capital needs are modest, now's the time to start courting future financiers. Those relationships come in handy when credit gets tight. David Guernsey, CEO of Guernsey Office Products in Chantilly, Va., and vice chairman of Virginia Commerce Bank, says bankers look for the three C's: collateral, competence and character. In this environment, spreadsheets alone don't cut it. "Bankers can't [measure] competence or character if they don't know you," he says. For more on working with banks, check out "How To Tap Lenders When Credit Is Tight."
Tip No. 6: Getting From $5 Million To $25 Million In Revenues
Set up critical systems: hiring. If you want to keep growing, hire six to 12 months ahead of the sales curve. Adding quality people at a decent clip means defining requirements and establishing efficient processes. Also think about adding a benefits package (preferably one you can afford). For more on hiring, check out "How To Hire Outside The Box."
Tip No. 7: $5 Million To $25 Million
Set up critical systems: Create an employee handbook. With size comes entropy. Tame it by spelling out how to deal with everything from vacation time to general intransigence. "The first day an employee walks into the organization, this should be part of their indoctrination," says Maria Pinelli, Americas Director of Strategic Growth Markets at Ernst & Young. Have all strictures reviewed and approved by your attorneys.
Tip No. 8: $5 Million To $25 Million
Set up critical systems: sales. To ramp up sales, standardize operations so you can effectively track orders and stay close to customers. If you don't know who is buying and why, your growth story will have short legs. Better yet, bother to figure out what your best salesperson does and make sure others follow suit. (For more on improving sales, see "How To Break The 80/20 Rule.")
Tip No. 9: $5 Million To $25 Million
Set up critical systems: the back office. Intuit's QuickBooks can only get you so far these days. A growing firm needs a scalable accounting system that can also spit out detailed financial reports to keep you on plan.
Tip No. 10: $5 Million To $25 Million
Get out of the way. If you haven't thought about hiring professional management, now's the time. This includes a chief executive, head bean counter and perhaps even a human relations manager and full-time legal counsel. Oh, yeah: This also means stepping aside so these folks can do their jobs.
Tip No. 11: Getting From $25 Million To $100 Million In Revenues
Embrace the identity crisis. Chances are you've already experimented with multiple product lines, price points and the like. But getting to $100 million means really having to think broadly about what businesses you're in--and be willing to cut loose underperforming lines and reinvest in stronger ones. "That's a big switch from early-stage companies, where it was about laser, single-minded focus," says Highland Capital's Maeder.
Tip No. 12: $25 Million To $100 Million
Ante up. Old-fashioned economies of scale (and lots of hard work) may have been enough to hoist you to double-digit revenues. To hit triple digits, chances are you're going to have to risk some serious capital--on equipment, real estate, marketing, whatever it takes. When Guernsey made the leap, he cringed at borrowing up to $8 million for extra storage space, delivery vans, tractor trailers and other distribution capabilities. "What I borrowed far exceeded my net worth," he admits. "It was scary, but we needed a new level of sophistication to serve larger customers in order to grow." Note: Scaring up that capital means having a clear vision for how you plan to put it to use; without that, don't bother asking. For more advice on how to communicate with investors, check out the 2008 Forbes.com Boost Your Business Contest.
Tip No. 13: $25 Million To $100 Million
Go public. The investment to get to $100 million in sales may be far greater than either the cash generated by your business or what your lenders are willing to put on the line. One solution: selling shares to the public. Such financing comes at a price, however, so think long and hard before you decide. For more on public offerings, see "Walk, Don't Run, To The Equity Markets", "Are You Ready To Go Public?" and "Financing A Small Business: Equity or Debt."
Tip No. 14: $25 Million To $100 Million
Get global. Few will argue that being able to compete these days requires an international strategy--and not just because of cheap labor in places like China, India and Vietnam. Emerging markets are also a wellspring of consumer demand. For more on the global economy, check out "Twenty Emerging Markets To Watch" and "How The World Spends Its Money."
Tip No.15: $25 Million To $100 Million
Take a hard look at management--again. Some people are start-up managers, others are later-stage managers and still others have the ability to think globally. By the time your company has reached $25 million in sales, it may be time to reevaluate the team. (That goes for your advisory board, too.)
http://www.forbes.com/2007/05/02/caliper-intuit-microsoft-ent-manage-cx_mc_0503growthtips.html
Showing posts with label growth of businesses. Show all posts
Showing posts with label growth of businesses. Show all posts
Monday, 7 September 2009
****Growth Can Kill: 7 Growth Traps
Underestimating The Cash-Burn Rate
Here’s an all too familiar scenario: Projected revenues start taking off in year five, but it’s only year three, the company is still losing money and it only has 12 months worth of cash in the kitty. Remember: Growth is great, but only if you can survive long enough to watch it kick in. Until then, keep your belt tightened, temper those sales forecasts and make sure customers pay on time.
Misallocating Capital
Once you’ve raised some cash, spending it is all too easy. Too many growing companies end up investing in nonproductive assets, from costly marketing campaigns to fancy new office furniture, while the software they’re selling is still infested with bugs. Best bet: Put a formal system in place whereby any expenditure over a certain amount (say, $100) requires clearance by at least two key people
Going On An Acquisition Spree
Market share is a good thing, and making an acquisition (or perhaps even forming an alliance or joint venture) can be a way of grabbing it. Shooting stars Cisco Systems and Google successfully inhaled scads of targets in the last decade. But then, those behemoths also used their richly priced shares as currency, making the prices they paid seem a lot more attractive. Sadly, mergers and acquisitions on the whole tend to destroy value, be it because the buyer overpaid or the integration flopped. Tread cautiously.
Forgetting The Rules Of Good Customer Service
The first rule is obvious: Don’t be so fixated on winning the next customer that you forget about the ones who already paid and, with any luck, will put in the good word with their friends. But there’s another, less intuitive rule: Don’t be afraid to fire bad customers. These scourges demand lots of service but spend little--or worse, end up not paying at all. (For more on this topic, check out “Should I Fire My Client?”, “Dealing With Deadbeat Customers” and “When Receivables Grow Moss”.)
Refusing To Delegate Authority
Sooner than later, a company will grow beyond the core management team’s ability to micromanage it. But learning to let go is harder than it sounds. “There are lots of people that start companies and do very well,” says Paul Marshall, professor of management at Harvard Business School. “But they haven’t had to share decision-making authority and responsibility, and they find that hard to do.”
Relinquishing Too Much Equity Too Soon
True, most small businesses fail because they are undercapitalized. But selling off a healthy chunk of ownership and control--either to a venture capital firm or in a public offering--isn’t always the answer to fast cash. (For more on this topic, see “The True Cost Of Venture Capital”, “Walk, Don’t Run, To The Equity Markets” and “How To Bag That Bank Loan”.)
Pocketing A Few Perks
It’s tough running a business, and no one works harder than you. Still, you have to battle the urge to put precious growth capital toward that new boat. Investors won’t like it--and employees may doubt your commitment to making their financial dreams (read: stock options) come true.
http://www.forbes.com/2007/05/02/ups-starbucks-walmart-ent-mange-cx_ll_0503growthtraps.html
Here’s an all too familiar scenario: Projected revenues start taking off in year five, but it’s only year three, the company is still losing money and it only has 12 months worth of cash in the kitty. Remember: Growth is great, but only if you can survive long enough to watch it kick in. Until then, keep your belt tightened, temper those sales forecasts and make sure customers pay on time.
Misallocating Capital
Once you’ve raised some cash, spending it is all too easy. Too many growing companies end up investing in nonproductive assets, from costly marketing campaigns to fancy new office furniture, while the software they’re selling is still infested with bugs. Best bet: Put a formal system in place whereby any expenditure over a certain amount (say, $100) requires clearance by at least two key people
Going On An Acquisition Spree
Market share is a good thing, and making an acquisition (or perhaps even forming an alliance or joint venture) can be a way of grabbing it. Shooting stars Cisco Systems and Google successfully inhaled scads of targets in the last decade. But then, those behemoths also used their richly priced shares as currency, making the prices they paid seem a lot more attractive. Sadly, mergers and acquisitions on the whole tend to destroy value, be it because the buyer overpaid or the integration flopped. Tread cautiously.
Forgetting The Rules Of Good Customer Service
The first rule is obvious: Don’t be so fixated on winning the next customer that you forget about the ones who already paid and, with any luck, will put in the good word with their friends. But there’s another, less intuitive rule: Don’t be afraid to fire bad customers. These scourges demand lots of service but spend little--or worse, end up not paying at all. (For more on this topic, check out “Should I Fire My Client?”, “Dealing With Deadbeat Customers” and “When Receivables Grow Moss”.)
Refusing To Delegate Authority
Sooner than later, a company will grow beyond the core management team’s ability to micromanage it. But learning to let go is harder than it sounds. “There are lots of people that start companies and do very well,” says Paul Marshall, professor of management at Harvard Business School. “But they haven’t had to share decision-making authority and responsibility, and they find that hard to do.”
Relinquishing Too Much Equity Too Soon
True, most small businesses fail because they are undercapitalized. But selling off a healthy chunk of ownership and control--either to a venture capital firm or in a public offering--isn’t always the answer to fast cash. (For more on this topic, see “The True Cost Of Venture Capital”, “Walk, Don’t Run, To The Equity Markets” and “How To Bag That Bank Loan”.)
Pocketing A Few Perks
It’s tough running a business, and no one works harder than you. Still, you have to battle the urge to put precious growth capital toward that new boat. Investors won’t like it--and employees may doubt your commitment to making their financial dreams (read: stock options) come true.
http://www.forbes.com/2007/05/02/ups-starbucks-walmart-ent-mange-cx_ll_0503growthtraps.html
Fifteen Tips To Keep Your Company Growing
Getting To The Next Level
Fifteen Tips To Keep Your Company Growing
http://www.forbes.com/2007/05/02/caliper-intuit-microsoft-ent-manage-cx_mc_0503growthtips.html
Fifteen Tips To Keep Your Company Growing
http://www.forbes.com/2007/05/02/caliper-intuit-microsoft-ent-manage-cx_mc_0503growthtips.html
You can’t beat arithmetic!
You can’t beat arithmetic!
23 February 2009
There is some simple arithmetic of which people running a business (including big businesses) ought to be aware if they want to survive.
What is compelling about arithmetic is its inescapable logic. Two plus two always equals four. There are motivational people who try to convince us that two plus two can equal five, but arithmetically, that is not possible. The consequences of accurate addition and subtraction are inescapably determined by the rules.
When things get tough (and they can get tough in good times as well as bad) many think of phoning the bank or cutting costs. They might be appropriate strategies. However, there is often a tendency to accept as inevitable that sales are slowing. Particularly when the economy is in a downdraft, it is a convenient way of skating over underlying problems by saying "hell, it is the economy, we can't do anything about that, we will simply have to cut costs".
Now, supermarkets often say that they operate on a 1% to 2% margin (whether this is the case or not I am far from certain when I visit the local store and buy milk for $4.16 a litre and the supermarket has the same milk for $4.55 a litre; but that is another story). The immediate reaction to this low margin is "how can they turn in the amazing profits they chalk up on such low margins?" Let us do some arithmetic.
Let us say a supermarket sells a tin of soup for say $1.02 and the margin is 2%, while a shop down the street sells the same product for $1.20. The supermarket turns over, say, one hundred tins of soup a day and let us say the supermarket is open for 360 days. They make 2c x 100 a day x 360. The sum looks like this: 0.2 X 100 X 360 = $7200.
Then of course, there might be say 100 stores across the country, so you multiply the $7200 by another 100 and you get (arithmetic is compelling) $720,000.
The shop down the street sells five cans a day if it is lucky, which amounts to a profit of $1. Multiply this by 360 and there you have it; a massive profit after charging a margin of 20% of $360.
One summary of this phenomenon is "the higher the volume, the lower we can fix our margin" but that would be erroneous because volume sales follow price rather than the other way around. The more accurate summary of this little exercise is "the lower the margin, the higher the volume of sales".
Nor should we overlook that merely on a margin of 2% a supermarket is making a massive profit, which means that the lower the margin, the higher the volume of sales and the better the profit.
Now that is fairly simplistic, but nevertheless is the theoretical basis of how businesses work and it is called the "cash business cycle".
There are many factors at play in determining the ultimate profit. However, the aim of business ought to be to maintain their cost base while increasing their sales base. I have found that this is a counter-intuitive argument and people really get upset when you suggest that they ought to look at lowering their price. "We will go out of business if we lower our prices."
So I then suggest another exercise in arithmetic. Suppose a business is selling a product or service (and this applies to people in the service industry such as lawyers, as we shall shortly see) for $100. The question is "do you have to increase your cost base to sell another one product?" The answer is inevitably and emphatically "NO".
It is then easy to demonstrate that if you sell the next product for $1 you will increase your profit because your sales have increased by $1 but your costs haven't increased.
When sales are going south and if this has not been associated with "downsizing" (or, to use the politically incorrect crude word "sackings") then it is obvious that the business has capacity to increase sales without increasing costs.
How do we use up that capacity to increase sales? One way is to lower the margins; or to "bundle" products like "buy two and get the third free" (I note that this is commonly used but I am unsure of its effectiveness in relation to the straight margin reduction).
On the other hand, if we reduce costs, it may seriously damage the ability to increase sales. That is not to say that we ignore costs. The point is that if we do our arithmetic before giving everyone the pink slip, we might find ways of actually protecting our market segment, and if this is done say, in a downturn, then it will not cost a sheep station to win those customers back when the economy turns again.
I mentioned the service industry and particularly lawyers who tend to work on an hourly rate. Let us take a simple conveyancing transaction.
A person engages a lawyer when they buy a house. The lawyer charges a flat fee. They see the lawyer down the street charging a lot less and they convince themselves that the lawyer down the street will go out of business.
You ask the question, is your conveyancing section capable of handling more transactions? If the answer is "Yes" then it is obvious that if you do the next conveyancing transaction for $1 you will increase your profit by $1. The law firm down the street had done its arithmetic.
"But this doesn't apply to me, my work is so complex and the outcome can't be predicted and so I have to charge an hourly rate." That firm is locking itself into a prison cell. In good times, the cell may not look like a prison cell, with the Bollinger champagne in the fridge and the chef in the kitchen putting on 24/7 salmon and turkey sandwiches, but that is just an illusion.
Do the sums. If a lawyer charges an hourly rate of $500 (my goodness, some people don't get that in a week) and, without cheating, the lawyer can bill say eight hours work in a day, then the lawyer will be able to bill $4000 per day for say 44 weeks in a year, which totals $880,000. Sounds great!
It doesn't matter how efficient that lawyer is, her billing ability is limited by the amount of hours she can stay awake and her charge our rate (which has certain competitive constraints).
Suppose that thIS lawyer puts through 50 cases a year when her competitor puts through 40 cases a year, but charges the same hourly rate and stays awake for the same number of hours. They both make the same total amount of billings.
However suppose the first lawyer charges a fixed fee for each case, scraps the time sheets (which take an inordinate amount of time and creates a lot of unhappiness with their customers) and puts through 60 cases a year at a guaranteed fee of $20,000 a pop ($2000 less than on an hourly rate); that lawyer is generating $1.2 million a year with very happy customers because they know precisely what they are up for before they start.
The lawyer is happy because he or she doesn't have to waste a lot of time filling in time sheets and keeping the managing partner happy, and the Courts are happy because a lot more cases get settled.
In good times, there is a tendency for everyone to get busy, money is flying around like blossoms in late spring and the response often is "we can increase our margins". This rarely results in dramatically increased sales.
However, there is often a fear that to increase sales it will be necessary to increase costs. This frightens a lot of people because they have not done their sums.
Strangely enough, you can increase your costs and reduce your margins and make more money.
Of equal importance, the business can extend its market share. However, in the good times, it is often feasible to contain cost while lowering margin. The difficulty in good times is that management often feels that the easiest thing to do is just throw money at a problem rather than revisit systems.
The real value of a business is in repeat customers. Accordingly, in good times, instead of taking the easy route to profits by increasing margins; a business can increase its competitive price position by rejecting the temptation to increase price. As a result, sales increase as does the market share and the longevity of customer loyalty. That is not to mention the profit and the return on investment.
I have seen some dumb things done by people who do not understand the arithmetic of business and I have seen businesses actually go belly up by pricing themselves out of existence. IBM was one company that came perilously close to death for this reason. Fortunately, they got a guy called Louis Gestner, who could add up and subtract.
Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.
To read more Louis Coutts blogs, click here .
http://www.smartcompany.com.au/the-growth-doctor/you-cana-t-beat-arithmetic.html
The Growth Doctor
How doth your business grow? This blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Lead writer Lou Coutts left law and became a successful entrepreneur. He has qualifications in Advanced Management from Stanford; turnarounds and strategic alliances from Colombia; International Marketing from the University of California and Changing Strategic Direction from the Kellogg Graduate School of Management in Chicago.
23 February 2009
There is some simple arithmetic of which people running a business (including big businesses) ought to be aware if they want to survive.
What is compelling about arithmetic is its inescapable logic. Two plus two always equals four. There are motivational people who try to convince us that two plus two can equal five, but arithmetically, that is not possible. The consequences of accurate addition and subtraction are inescapably determined by the rules.
When things get tough (and they can get tough in good times as well as bad) many think of phoning the bank or cutting costs. They might be appropriate strategies. However, there is often a tendency to accept as inevitable that sales are slowing. Particularly when the economy is in a downdraft, it is a convenient way of skating over underlying problems by saying "hell, it is the economy, we can't do anything about that, we will simply have to cut costs".
Now, supermarkets often say that they operate on a 1% to 2% margin (whether this is the case or not I am far from certain when I visit the local store and buy milk for $4.16 a litre and the supermarket has the same milk for $4.55 a litre; but that is another story). The immediate reaction to this low margin is "how can they turn in the amazing profits they chalk up on such low margins?" Let us do some arithmetic.
Let us say a supermarket sells a tin of soup for say $1.02 and the margin is 2%, while a shop down the street sells the same product for $1.20. The supermarket turns over, say, one hundred tins of soup a day and let us say the supermarket is open for 360 days. They make 2c x 100 a day x 360. The sum looks like this: 0.2 X 100 X 360 = $7200.
Then of course, there might be say 100 stores across the country, so you multiply the $7200 by another 100 and you get (arithmetic is compelling) $720,000.
The shop down the street sells five cans a day if it is lucky, which amounts to a profit of $1. Multiply this by 360 and there you have it; a massive profit after charging a margin of 20% of $360.
One summary of this phenomenon is "the higher the volume, the lower we can fix our margin" but that would be erroneous because volume sales follow price rather than the other way around. The more accurate summary of this little exercise is "the lower the margin, the higher the volume of sales".
Nor should we overlook that merely on a margin of 2% a supermarket is making a massive profit, which means that the lower the margin, the higher the volume of sales and the better the profit.
Now that is fairly simplistic, but nevertheless is the theoretical basis of how businesses work and it is called the "cash business cycle".
There are many factors at play in determining the ultimate profit. However, the aim of business ought to be to maintain their cost base while increasing their sales base. I have found that this is a counter-intuitive argument and people really get upset when you suggest that they ought to look at lowering their price. "We will go out of business if we lower our prices."
So I then suggest another exercise in arithmetic. Suppose a business is selling a product or service (and this applies to people in the service industry such as lawyers, as we shall shortly see) for $100. The question is "do you have to increase your cost base to sell another one product?" The answer is inevitably and emphatically "NO".
It is then easy to demonstrate that if you sell the next product for $1 you will increase your profit because your sales have increased by $1 but your costs haven't increased.
When sales are going south and if this has not been associated with "downsizing" (or, to use the politically incorrect crude word "sackings") then it is obvious that the business has capacity to increase sales without increasing costs.
How do we use up that capacity to increase sales? One way is to lower the margins; or to "bundle" products like "buy two and get the third free" (I note that this is commonly used but I am unsure of its effectiveness in relation to the straight margin reduction).
On the other hand, if we reduce costs, it may seriously damage the ability to increase sales. That is not to say that we ignore costs. The point is that if we do our arithmetic before giving everyone the pink slip, we might find ways of actually protecting our market segment, and if this is done say, in a downturn, then it will not cost a sheep station to win those customers back when the economy turns again.
I mentioned the service industry and particularly lawyers who tend to work on an hourly rate. Let us take a simple conveyancing transaction.
A person engages a lawyer when they buy a house. The lawyer charges a flat fee. They see the lawyer down the street charging a lot less and they convince themselves that the lawyer down the street will go out of business.
You ask the question, is your conveyancing section capable of handling more transactions? If the answer is "Yes" then it is obvious that if you do the next conveyancing transaction for $1 you will increase your profit by $1. The law firm down the street had done its arithmetic.
"But this doesn't apply to me, my work is so complex and the outcome can't be predicted and so I have to charge an hourly rate." That firm is locking itself into a prison cell. In good times, the cell may not look like a prison cell, with the Bollinger champagne in the fridge and the chef in the kitchen putting on 24/7 salmon and turkey sandwiches, but that is just an illusion.
Do the sums. If a lawyer charges an hourly rate of $500 (my goodness, some people don't get that in a week) and, without cheating, the lawyer can bill say eight hours work in a day, then the lawyer will be able to bill $4000 per day for say 44 weeks in a year, which totals $880,000. Sounds great!
It doesn't matter how efficient that lawyer is, her billing ability is limited by the amount of hours she can stay awake and her charge our rate (which has certain competitive constraints).
Suppose that thIS lawyer puts through 50 cases a year when her competitor puts through 40 cases a year, but charges the same hourly rate and stays awake for the same number of hours. They both make the same total amount of billings.
However suppose the first lawyer charges a fixed fee for each case, scraps the time sheets (which take an inordinate amount of time and creates a lot of unhappiness with their customers) and puts through 60 cases a year at a guaranteed fee of $20,000 a pop ($2000 less than on an hourly rate); that lawyer is generating $1.2 million a year with very happy customers because they know precisely what they are up for before they start.
The lawyer is happy because he or she doesn't have to waste a lot of time filling in time sheets and keeping the managing partner happy, and the Courts are happy because a lot more cases get settled.
In good times, there is a tendency for everyone to get busy, money is flying around like blossoms in late spring and the response often is "we can increase our margins". This rarely results in dramatically increased sales.
However, there is often a fear that to increase sales it will be necessary to increase costs. This frightens a lot of people because they have not done their sums.
Strangely enough, you can increase your costs and reduce your margins and make more money.
Of equal importance, the business can extend its market share. However, in the good times, it is often feasible to contain cost while lowering margin. The difficulty in good times is that management often feels that the easiest thing to do is just throw money at a problem rather than revisit systems.
The real value of a business is in repeat customers. Accordingly, in good times, instead of taking the easy route to profits by increasing margins; a business can increase its competitive price position by rejecting the temptation to increase price. As a result, sales increase as does the market share and the longevity of customer loyalty. That is not to mention the profit and the return on investment.
I have seen some dumb things done by people who do not understand the arithmetic of business and I have seen businesses actually go belly up by pricing themselves out of existence. IBM was one company that came perilously close to death for this reason. Fortunately, they got a guy called Louis Gestner, who could add up and subtract.
Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.
To read more Louis Coutts blogs, click here .
http://www.smartcompany.com.au/the-growth-doctor/you-cana-t-beat-arithmetic.html
The Growth Doctor
How doth your business grow? This blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Lead writer Lou Coutts left law and became a successful entrepreneur. He has qualifications in Advanced Management from Stanford; turnarounds and strategic alliances from Colombia; International Marketing from the University of California and Changing Strategic Direction from the Kellogg Graduate School of Management in Chicago.
Growth-focused businesses continue to invest in IT to improve ‘customer care’
Growth-focused businesses continue to invest in IT to improve ‘customer care’
Despite tight economic times, IDC says New Zealand firms are still using technology to ‘keep customers happy’...
--------------------------------------------------------------------------------
August 27, 2009 – Analyst firm IDC’s Asia/Pacific Advanced Customer Care and Retention 2009 poll of New Zealand companies has found that although most are reducing or freezing their investments in IT during this economic downturn, 37% will still invest in technology solutions that can help them increase earnings or save costs.
IDC says companies that are focusing on growth are significantly more likely to explore the more advanced areas of “customer care”.
Nearly half of the respondents saw the main value of customer care as being a way to generate revenue, and many are ready to go beyond traditional customer relationship management.
“NZ companies see customer care as essential to keeping customers happy, drive top line revenue and giving them a competitive advantage over their competition in times like these,” says Linus Lai, associate research director for IDC.
“New advanced customer care tools such as customer analytics, customer database management and new web-based tools, are much more on the agenda for these types of companies. They tend to appreciate the value of customer targeting and engagement more than companies with a more reactive approach,” Lai says.
“These solutions can make a huge difference to how companies position themselves for the future and may be the most important IT investment a company can make in today's economic climate.”
Despite the impact of the economic downturn, IDC’s poll showed that the top business priority of more than half the companies surveyed was to increase earnings over cost control.
As organisations move out from the downturn they shift their focus from cost reduction to earnings capability.
At the same time, nine out of 10 companies said they had increased their focus on the customer because of the economic downturn.
http://www.istart.co.nz/index/HM20/AL210753/AR212432
Despite tight economic times, IDC says New Zealand firms are still using technology to ‘keep customers happy’...
--------------------------------------------------------------------------------
August 27, 2009 – Analyst firm IDC’s Asia/Pacific Advanced Customer Care and Retention 2009 poll of New Zealand companies has found that although most are reducing or freezing their investments in IT during this economic downturn, 37% will still invest in technology solutions that can help them increase earnings or save costs.
IDC says companies that are focusing on growth are significantly more likely to explore the more advanced areas of “customer care”.
Nearly half of the respondents saw the main value of customer care as being a way to generate revenue, and many are ready to go beyond traditional customer relationship management.
“NZ companies see customer care as essential to keeping customers happy, drive top line revenue and giving them a competitive advantage over their competition in times like these,” says Linus Lai, associate research director for IDC.
“New advanced customer care tools such as customer analytics, customer database management and new web-based tools, are much more on the agenda for these types of companies. They tend to appreciate the value of customer targeting and engagement more than companies with a more reactive approach,” Lai says.
“These solutions can make a huge difference to how companies position themselves for the future and may be the most important IT investment a company can make in today's economic climate.”
Despite the impact of the economic downturn, IDC’s poll showed that the top business priority of more than half the companies surveyed was to increase earnings over cost control.
As organisations move out from the downturn they shift their focus from cost reduction to earnings capability.
At the same time, nine out of 10 companies said they had increased their focus on the customer because of the economic downturn.
http://www.istart.co.nz/index/HM20/AL210753/AR212432
The Top 10 Mistakes People Make When Starting A Business
The Top 10 Mistakes People Make When Starting A Business
Posted on 06 February 2008
What are the common mistakes that new entrepreneurs make and how can you avoid making them yourself? Here is our top 10 list of mistakes people make when starting a business:
1) Not enough money.
The most common reason why new businesses shut down is that the owner runs out of money. Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you. Cash is king in a startup venture and you need to prepare for it.
One option is to make sure you have enough startup capital from your own investments or outsiders (bank loan, private investors, etc). A second option is to ease into the business so that you start doing it on a part-time basis until you know that it will make enough money to support you.
2) Not thinking survival.
Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?
At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.
3) Losing momentum.
Many new entrepreneurs have ambitions to start a business so they create a website, try to make a few sales, go all out for a few months and then stop completely. Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.
It takes time to develop a new company and for people to react to what you have to offer. Never lose the momentum and even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.
4) Doing it all alone.
Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. If, for example, you are very strong at inventing but don’t want to sell then you need to find a salesperson to help you.
You won’t succeed by forcing yourself to do things that you truly don’t enjoy and will never be good at. Know where you stand and what value you can offer. By getting people around you who complement your skills, you will be able to achieve your goals and have a lot more fun along the way!
5) Not hiring right away.
You should begin looking at who can be brought on board to help you from the first day of starting your company. There will be tasks in any business that you, as the owner, should not be focusing on if you hope to build any sort of sizable organization. Why are you doing admin work when you should be out closing customers, talking to the media, and landing new partnerships?
But I’m broke! How can I hire someone? Even if you have a $0 budget you can find people to work for you through high school and foreign student internship programs. Once you have a budget, you can bring people on board for as little as one hour a day (what I first did) and then increase their hours when you can afford it. You need to be spending your time working on the business and not in the business.
6. Doing it just for the money.
If you don’t truly love your business then you won’t be successful. If you read the stories of famous entrepreneurs and how they built their organizations you will find that it all comes down to the root of loving what you are doing.
Money is definitely important, as most companies are for-profit enterprises, but it will often take a long time to come and if you don’t truly enjoy your work then you won’t be able to convince yourself to keep going. You can only do something that you don’t really love for so long before you give up.
7. Getting to year 1, past year 2.
Many entrepreneurs have a hard time getting to the end of year one. Typically it’s because they started the business on a whim and got excited about an opportunity but didn’t do the proper research. These entrepreneurs usually run out of money and close down after a few months.
A second challenge is getting through year two. It usually takes three years of hard work to make a business. Year one is all about the excitement of getting started. You’re high on energy and ready to take on the world. In year two entrepreneurs often find themselves still not making much money and the startup excitement has faded. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.
8. Don’t build around a customer.
The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Most entrepreneurs take the opposite mentality of “if I build it, then will come” only to realize that they’ve built it and nobody is coming. Instead of talking to customers as to why they’re not coming they decided to continue building and building. Soon they find out that they’ve invested years of work and nobody is interested in buying from them.
The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product / service around them.
9. Don’t seek mentors.
A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. Find mentors who have knowledge of your industry and will give you time out of their day to help you.
You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.
10. Don’t get involved in the community.
Tied in with not seeking mentors is not getting involved in the small business community. Countless opportunities are generated by connecting with other young entrepreneurs and finding out what they are up to and how you can help. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).
A great community to be involved in, needless to say, is the Young Entrepreneur Forums, where there are over 32,500 entrepreneurs waiting to meet you and help you grow your business!
http://www.youngentrepreneur.com/blog/2008/02/the-top-10-mistakes-people-make-when-starting-a-business
Posted on 06 February 2008
What are the common mistakes that new entrepreneurs make and how can you avoid making them yourself? Here is our top 10 list of mistakes people make when starting a business:
1) Not enough money.
The most common reason why new businesses shut down is that the owner runs out of money. Cash flow is critical to a startup business. You could be profitable and still have to close your doors because your customers are taking too long to pay you. Cash is king in a startup venture and you need to prepare for it.
One option is to make sure you have enough startup capital from your own investments or outsiders (bank loan, private investors, etc). A second option is to ease into the business so that you start doing it on a part-time basis until you know that it will make enough money to support you.
2) Not thinking survival.
Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?
At the beginning stages of a business this may mean doing work that might not be completely what you want to do but it helps pay the bills. You need to do whatever it takes to survive and get through until the business can fully support yourself.
3) Losing momentum.
Many new entrepreneurs have ambitions to start a business so they create a website, try to make a few sales, go all out for a few months and then stop completely. Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.
It takes time to develop a new company and for people to react to what you have to offer. Never lose the momentum and even if your business is only a part time initiative for you at the moment, make sure that every day you are making progress of some sort to move your company forward.
4) Doing it all alone.
Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. If, for example, you are very strong at inventing but don’t want to sell then you need to find a salesperson to help you.
You won’t succeed by forcing yourself to do things that you truly don’t enjoy and will never be good at. Know where you stand and what value you can offer. By getting people around you who complement your skills, you will be able to achieve your goals and have a lot more fun along the way!
5) Not hiring right away.
You should begin looking at who can be brought on board to help you from the first day of starting your company. There will be tasks in any business that you, as the owner, should not be focusing on if you hope to build any sort of sizable organization. Why are you doing admin work when you should be out closing customers, talking to the media, and landing new partnerships?
But I’m broke! How can I hire someone? Even if you have a $0 budget you can find people to work for you through high school and foreign student internship programs. Once you have a budget, you can bring people on board for as little as one hour a day (what I first did) and then increase their hours when you can afford it. You need to be spending your time working on the business and not in the business.
6. Doing it just for the money.
If you don’t truly love your business then you won’t be successful. If you read the stories of famous entrepreneurs and how they built their organizations you will find that it all comes down to the root of loving what you are doing.
Money is definitely important, as most companies are for-profit enterprises, but it will often take a long time to come and if you don’t truly enjoy your work then you won’t be able to convince yourself to keep going. You can only do something that you don’t really love for so long before you give up.
7. Getting to year 1, past year 2.
Many entrepreneurs have a hard time getting to the end of year one. Typically it’s because they started the business on a whim and got excited about an opportunity but didn’t do the proper research. These entrepreneurs usually run out of money and close down after a few months.
A second challenge is getting through year two. It usually takes three years of hard work to make a business. Year one is all about the excitement of getting started. You’re high on energy and ready to take on the world. In year two entrepreneurs often find themselves still not making much money and the startup excitement has faded. You’ll need to work your way through the downturn and know that the money is coming if you keep at it.
8. Don’t build around a customer.
The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it - and then you go out and build the solution. Most entrepreneurs take the opposite mentality of “if I build it, then will come” only to realize that they’ve built it and nobody is coming. Instead of talking to customers as to why they’re not coming they decided to continue building and building. Soon they find out that they’ve invested years of work and nobody is interested in buying from them.
The companies with the highest failure rates are restaurants because they are usually built around an owner’s personal tastes. Meanwhile, the entrepreneurs with the lowest failure rates are lawyers and accountants because they are based around a service that we all need (whether we like it or not!) Talk to potential customers, see what they are interested in, identify who has money and what their pains are and then create your product / service around them.
9. Don’t seek mentors.
A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. Find mentors who have knowledge of your industry and will give you time out of their day to help you.
You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.
10. Don’t get involved in the community.
Tied in with not seeking mentors is not getting involved in the small business community. Countless opportunities are generated by connecting with other young entrepreneurs and finding out what they are up to and how you can help. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).
A great community to be involved in, needless to say, is the Young Entrepreneur Forums, where there are over 32,500 entrepreneurs waiting to meet you and help you grow your business!
http://www.youngentrepreneur.com/blog/2008/02/the-top-10-mistakes-people-make-when-starting-a-business
World of Malaysian SMEs
10 June 2009
Encouraging growth of businesses
HERE we look at the business environment in the country and how policies and procedures encourage the growth of business.
It also looks at the various sectors that have boomed due to governmental initiative and support.
There are several key economic policies that enable businesses in the country to form and flourish, helping the country become a dynamic player in the global economy.
Through Vision 2020, the government has set nine strategic challenges, which includes establishing a prosperous society with an economy that is fully competitive, dynamic, robust and resilient.
In 1983, the Malaysia Incorporated Policy was announced, to bring forth a new way of approaching the task of national development that would impact both public and private sectors.
The policy encourages a mindset that the nation is a business entity jointly owned by both public and private sectors working together in building the nation.
The policy saw to the deregulation of bureaucratic rules and regulations, improving the delivery system and institutionalising the consultative machinery between the private and public sectors. The policy also encourages smart partnerships and privatisation.
As a result, privatisation projects were successfully executed, affecting major industries and services.
The government, in identifying human resources as one of the country's most valuable assets, continuously works toward creating a supply of highly skilled and knowledgeable workers and entrepreneurs.
The education system is formulated to keep up with the needs of the market. Beyond schools and universities, the government also promotes lifelong learning to enhance employability and productivity of the labour force.
Responding to the needs of the people in rural areas, the government rolls out development programmes to promote advancement and create business opportunities.
Besides improving infrastructure and access to the targeted areas, initiatives are undertaken to introduce various cottage and craft industries as well as improve existing farming practices.
Flexible financial support and technological facilities are put in place to help speed up the progress of the rural areas, in particular in the areas of agriculture-related trade, services and ecotourism.
With agriculture evolving into a sector that is increasing in its importance and in view of international trade liberalisation, the National Agriculture Policy III was launched in 1998 to increase competitiveness and ensure a dynamic growth for players within the sector.
Realising that a comprehensive range of infrastructural facilities and amenities is also a boon for economic growth, the government undertakes long-term integrated planning and coordinated implementation of projects affecting roads, bridges, urban transport and rail, ports, airports, communications and water and sewerage.
The National Energy Policy was also formulated to ensure adequate, secure and cost-effective supply of energy.
The policy additionally promotes efficient utilisation of energy and focuses on environment protection in the production and utilisation of energy.
Through the next phase of the Ninth Malaysia Plan (2006 - 2010), the government has outlined critical missions to keep pace with the constantly evolving local and global socio-economic landscape.
One of the key missions is to move the economy up the value chain by increasing productivity and competitiveness.
To achieve this, a key strategy set by the government is to give a lead role to the private sector and increase private sector investment.
The government facilitates small and medium enterprise (SME) development as well as increase public-private partnerships as part of the package towards entrepreneurial development.
Towards creating a conducive business environment, the Economic Planning Unit (EPU) plays a vital role in facilitating the nation's socio-economic development, strengthening internal resilience and international competitiveness as well as promoting optimum utilisation of available resources.
The EPU executes development programmes and initiates economic research for the benefit of the people and businesses alike.
Through the effort of the government linked agencies, businesses in Malaysia are given ample opportunities to flourish.
With the strategies set in accordance to the key policies, the government is taking Malaysia closer towards becoming a developed nation.
Posted by alanb@bloggerspere at 4:50 PM
http://smeblog.nst.com.my/2009/06/encouraging-growth-of-businesses.html
Encouraging growth of businesses
HERE we look at the business environment in the country and how policies and procedures encourage the growth of business.
It also looks at the various sectors that have boomed due to governmental initiative and support.
There are several key economic policies that enable businesses in the country to form and flourish, helping the country become a dynamic player in the global economy.
Through Vision 2020, the government has set nine strategic challenges, which includes establishing a prosperous society with an economy that is fully competitive, dynamic, robust and resilient.
In 1983, the Malaysia Incorporated Policy was announced, to bring forth a new way of approaching the task of national development that would impact both public and private sectors.
The policy encourages a mindset that the nation is a business entity jointly owned by both public and private sectors working together in building the nation.
The policy saw to the deregulation of bureaucratic rules and regulations, improving the delivery system and institutionalising the consultative machinery between the private and public sectors. The policy also encourages smart partnerships and privatisation.
As a result, privatisation projects were successfully executed, affecting major industries and services.
The government, in identifying human resources as one of the country's most valuable assets, continuously works toward creating a supply of highly skilled and knowledgeable workers and entrepreneurs.
The education system is formulated to keep up with the needs of the market. Beyond schools and universities, the government also promotes lifelong learning to enhance employability and productivity of the labour force.
Responding to the needs of the people in rural areas, the government rolls out development programmes to promote advancement and create business opportunities.
Besides improving infrastructure and access to the targeted areas, initiatives are undertaken to introduce various cottage and craft industries as well as improve existing farming practices.
Flexible financial support and technological facilities are put in place to help speed up the progress of the rural areas, in particular in the areas of agriculture-related trade, services and ecotourism.
With agriculture evolving into a sector that is increasing in its importance and in view of international trade liberalisation, the National Agriculture Policy III was launched in 1998 to increase competitiveness and ensure a dynamic growth for players within the sector.
Realising that a comprehensive range of infrastructural facilities and amenities is also a boon for economic growth, the government undertakes long-term integrated planning and coordinated implementation of projects affecting roads, bridges, urban transport and rail, ports, airports, communications and water and sewerage.
The National Energy Policy was also formulated to ensure adequate, secure and cost-effective supply of energy.
The policy additionally promotes efficient utilisation of energy and focuses on environment protection in the production and utilisation of energy.
Through the next phase of the Ninth Malaysia Plan (2006 - 2010), the government has outlined critical missions to keep pace with the constantly evolving local and global socio-economic landscape.
One of the key missions is to move the economy up the value chain by increasing productivity and competitiveness.
To achieve this, a key strategy set by the government is to give a lead role to the private sector and increase private sector investment.
The government facilitates small and medium enterprise (SME) development as well as increase public-private partnerships as part of the package towards entrepreneurial development.
Towards creating a conducive business environment, the Economic Planning Unit (EPU) plays a vital role in facilitating the nation's socio-economic development, strengthening internal resilience and international competitiveness as well as promoting optimum utilisation of available resources.
The EPU executes development programmes and initiates economic research for the benefit of the people and businesses alike.
Through the effort of the government linked agencies, businesses in Malaysia are given ample opportunities to flourish.
With the strategies set in accordance to the key policies, the government is taking Malaysia closer towards becoming a developed nation.
Posted by alanb@bloggerspere at 4:50 PM
http://smeblog.nst.com.my/2009/06/encouraging-growth-of-businesses.html
Assess your options for growth
Setting a vision for growth
Assess your options for growth
Planning growth strategies including finance options, diversification, new product development and consolidation
Strategic planning
How to formulate and implement a clear strategy to drive the growth of your business
Prepare a business plan for growth
Planning after start-up - monitoring progress, reviewing plans, setting targets and allocating resources
Create a growth action plan
Use our interactive tool to find your strengths and identify the areas you need to work on if you want your business to grow
The challenges of growing a business - and how to meet them
Growing businesses face a range of challenges - but recognising common mistakes can help avoid them
Importance of knowledge to a growing business
How best to gather, share and exploit knowledge in your business
Best practice
How best practice can improve your business
Make best use of standards
What standards are, the business benefits they offer and how to go about using them in your business
Quality management standards
How to improve your performance using quality standards and information on the ISO 9000 series
Corporate social responsibility
Corporate social responsibility and how your business can benefit
Get the right advisers for growth
How advisers can help your business, and how to find and manage them
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1074446322
Assess your options for growth
Planning growth strategies including finance options, diversification, new product development and consolidation
Strategic planning
How to formulate and implement a clear strategy to drive the growth of your business
Prepare a business plan for growth
Planning after start-up - monitoring progress, reviewing plans, setting targets and allocating resources
Create a growth action plan
Use our interactive tool to find your strengths and identify the areas you need to work on if you want your business to grow
The challenges of growing a business - and how to meet them
Growing businesses face a range of challenges - but recognising common mistakes can help avoid them
Importance of knowledge to a growing business
How best to gather, share and exploit knowledge in your business
Best practice
How best practice can improve your business
Make best use of standards
What standards are, the business benefits they offer and how to go about using them in your business
Quality management standards
How to improve your performance using quality standards and information on the ISO 9000 series
Corporate social responsibility
Corporate social responsibility and how your business can benefit
Get the right advisers for growth
How advisers can help your business, and how to find and manage them
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1074446322
Growth of Businesses - Integration
There are several ways in which businesses can join together...
--------------------------------------------------------------------------------
HORIZONTAL INTEGRATION
Two businesses at the same stage of production
e.g. 2 tablemakers join together
FORWARD VERTICAL INTEGRATION
A business takes over or merges with a businesses at the next stage of production
e.g. table maker joins with a shop
BACKWARD VERTICAL INTEGRATION
A business takes over or merges with a business at the previous stage of production
e.g. a table maker joins with a tree cutter
ACTION
Which type of integration are each of the following examples:
a Lloyds TSB and Halifax bank merge
b A brewer takes over an off license
c A brewer takes over a hop grower
SMART THINKING
D Why might a table maker join with a) another table maker b) a shop c) a tree cutter?
http://tutor2u.net/economics/gcse/revision_notes/firms_integration.htm
--------------------------------------------------------------------------------
HORIZONTAL INTEGRATION
Two businesses at the same stage of production
e.g. 2 tablemakers join together
FORWARD VERTICAL INTEGRATION
A business takes over or merges with a businesses at the next stage of production
e.g. table maker joins with a shop
BACKWARD VERTICAL INTEGRATION
A business takes over or merges with a business at the previous stage of production
e.g. a table maker joins with a tree cutter
ACTION
Which type of integration are each of the following examples:
a Lloyds TSB and Halifax bank merge
b A brewer takes over an off license
c A brewer takes over a hop grower
SMART THINKING
D Why might a table maker join with a) another table maker b) a shop c) a tree cutter?
http://tutor2u.net/economics/gcse/revision_notes/firms_integration.htm
Growth of Businesses - Business Objectives
An objective is a target that a business sets itself. The target may be short term (one year) or long term (five years). It is important that the targets are regularly reviewed, this helps the business to measure its progress..
--------------------------------------------------------------------------------
EXAMPLES
- To survive in the market
- To break even (cover costs)
- To improve its image
- To have high motivation amongst employees
- To maximise profits
- To increase market share
- To grow in size (e.g. saales, number of customers, number of employees
- To Sell abroad
- To diversify and sell different products
- To make returns to shareholders if a limited company (dividends)
Effective Business Objectives:
Objectives need to be SMART eg increase Sony wants to achieve a market share for PlayStation2 of 55% within two years of launch. SMART stands for:
- Specific: ie one named person is responsible for delivering the objective
- Measurable: ie set in terms of a number value eg sales, market share etc
- Achievable: ie the target can be met
- Realistic: the target must be achievable in terms of financial and human resources available.
- Timed: ie within a given period of time eg 12 months
ACTION
a. How do the examples change as you work through the list?
b. What would be the objectives for
a) a new small sandwich shop
b) an established sandwich shop
c) Virgin?
c. Why do you think that they are different?
d. How may the objectives differ for a sole trader and a public limited company?
SMART THINKING
e. Why might there sometimes be a conflict in objectives e.g. between shareholders, employees and managers?
http://tutor2u.net/economics/gcse/revision_notes/firms_objectives.htm
--------------------------------------------------------------------------------
EXAMPLES
- To survive in the market
- To break even (cover costs)
- To improve its image
- To have high motivation amongst employees
- To maximise profits
- To increase market share
- To grow in size (e.g. saales, number of customers, number of employees
- To Sell abroad
- To diversify and sell different products
- To make returns to shareholders if a limited company (dividends)
Effective Business Objectives:
Objectives need to be SMART eg increase Sony wants to achieve a market share for PlayStation2 of 55% within two years of launch. SMART stands for:
- Specific: ie one named person is responsible for delivering the objective
- Measurable: ie set in terms of a number value eg sales, market share etc
- Achievable: ie the target can be met
- Realistic: the target must be achievable in terms of financial and human resources available.
- Timed: ie within a given period of time eg 12 months
ACTION
a. How do the examples change as you work through the list?
b. What would be the objectives for
a) a new small sandwich shop
b) an established sandwich shop
c) Virgin?
c. Why do you think that they are different?
d. How may the objectives differ for a sole trader and a public limited company?
SMART THINKING
e. Why might there sometimes be a conflict in objectives e.g. between shareholders, employees and managers?
http://tutor2u.net/economics/gcse/revision_notes/firms_objectives.htm
Growth of Businesses - Monopoly
Monopoly is a situation in which the market is dominated by one seller or producer. By law a monopoly occurs if a firm has a market share of 25%.
--------------------------------------------------------------------------------
PROBLEMS OF MONOPOLY
• Consumers may pay higher prices due to the lack of competition
• Consumers may have less choice
• Firms may not be very efficient with their resources because there is no need to reduce costs
• Less innovation (new products)
BENEFITS OF MONOPOLY
• The firm should make higher profits
• The firm may use these to invest in new products or improve existing products.
HOWEVER firms can only increase their prices up to a point ***************
HOW DO FIRMS KEEP THEIR MONOPOLY?
Imagine that Stagecoach has a 95% market share in local area. This means that 95% of buses are operated by Stagecoach. How could they keep this power?
* Cost Barriers
It is expensive for other companies to set up
* Advertising
They may spend lots of money building up a reputation.
* Economies of scale
Larger firms generally have lower costs per unit. They can cut their prices to force out competition
CARTELS
A cartel causes similar problems to a monopoly. 3 or 4 firms may dominate an industry, in this case they could agree to keep the price at a high level in order to each make a healthy profit. They may eventually be investigated and punished by the OFFICE OF FAIR TRADING.
ACTION
a. If you travel from Derby to London you must go by Midland Mainline. What are the possible problems for you?
b. What prevents new firms competing in the chemical industry?
SMART THINKING
c What is meant by barriers to entry in an industry?
d In what ways could a monopoly be (a) more efficient (b) less efficient than several firms competing against each other.
http://tutor2u.net/economics/gcse/revision_notes/firms_monopoly.htm
--------------------------------------------------------------------------------
PROBLEMS OF MONOPOLY
• Consumers may pay higher prices due to the lack of competition
• Consumers may have less choice
• Firms may not be very efficient with their resources because there is no need to reduce costs
• Less innovation (new products)
BENEFITS OF MONOPOLY
• The firm should make higher profits
• The firm may use these to invest in new products or improve existing products.
HOWEVER firms can only increase their prices up to a point ***************
HOW DO FIRMS KEEP THEIR MONOPOLY?
Imagine that Stagecoach has a 95% market share in local area. This means that 95% of buses are operated by Stagecoach. How could they keep this power?
* Cost Barriers
It is expensive for other companies to set up
* Advertising
They may spend lots of money building up a reputation.
* Economies of scale
Larger firms generally have lower costs per unit. They can cut their prices to force out competition
CARTELS
A cartel causes similar problems to a monopoly. 3 or 4 firms may dominate an industry, in this case they could agree to keep the price at a high level in order to each make a healthy profit. They may eventually be investigated and punished by the OFFICE OF FAIR TRADING.
ACTION
a. If you travel from Derby to London you must go by Midland Mainline. What are the possible problems for you?
b. What prevents new firms competing in the chemical industry?
SMART THINKING
c What is meant by barriers to entry in an industry?
d In what ways could a monopoly be (a) more efficient (b) less efficient than several firms competing against each other.
http://tutor2u.net/economics/gcse/revision_notes/firms_monopoly.htm
Growth of Businesses - Business Locations
How do businesses decide where to locate? A number of factors are involved. These vary depending on what the business produces e.g. primary, secondary and tertiary
--------------------------------------------------------------------------------
POSSIBLE REASONS FOR CHOOSING A SPECIFIC LOCATION:
• Near to the market (that is its customers)
• Near to raw materials
• Availability of skilled / unskilled labour
• Local pay rates – this could be influenced by unemployment rates
• Cost of land
• Government support e.g. grants
• Transport links
Technology has given businesses far more freedom in recent years. Computer networks, mobile phones and the Internet mean that many service companies can locate away from their customers and other branches. They can communicate through technology or the postal service.
HOW DO INTERNATIONAL BUSINESSES DECIDE WHERE TO LOCATE?
• Cost of workers
• Transport costs / links
• How near is the base to its existing / new customers?
• Is the country in the European Union? (see page )
• Is the country in the European Monetary Union? (see page)
ACTION
a. Think of THREE businesses near you. Why have they located there. Do this for a) Primary sector b) secondary sector c) tertiary sector
b. How can the Government influence where a business locates?
SMART THINKING
c. What is meant by industrial inertia? Explain why this occurs.
d. What factors might influence a foreign business to locate in the UK?
http://tutor2u.net/economics/gcse/revision_notes/firms_location_of_industry.htm
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POSSIBLE REASONS FOR CHOOSING A SPECIFIC LOCATION:
• Near to the market (that is its customers)
• Near to raw materials
• Availability of skilled / unskilled labour
• Local pay rates – this could be influenced by unemployment rates
• Cost of land
• Government support e.g. grants
• Transport links
Technology has given businesses far more freedom in recent years. Computer networks, mobile phones and the Internet mean that many service companies can locate away from their customers and other branches. They can communicate through technology or the postal service.
HOW DO INTERNATIONAL BUSINESSES DECIDE WHERE TO LOCATE?
• Cost of workers
• Transport costs / links
• How near is the base to its existing / new customers?
• Is the country in the European Union? (see page )
• Is the country in the European Monetary Union? (see page)
ACTION
a. Think of THREE businesses near you. Why have they located there. Do this for a) Primary sector b) secondary sector c) tertiary sector
b. How can the Government influence where a business locates?
SMART THINKING
c. What is meant by industrial inertia? Explain why this occurs.
d. What factors might influence a foreign business to locate in the UK?
http://tutor2u.net/economics/gcse/revision_notes/firms_location_of_industry.htm
Growth of Businesses - Competition
Most businesses operate in a competitive situation. This means that they have to consider the activities of other businesses when they make decisions.
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COMPETITION means
• a large number of producers
• new firms can set up in the industry
• firms are knowledgeable about the activities of their competitors.
How do firms compete?
1. PRICE - not too high or too low
2. QUALITY
3. INNOVATIONS e.g. new ideas
4. PROMOTIONS e.g. special offers
5. ADVERTISING
6. BRANDING e.g. creating an image / identity (Nike, Burberry)
Successful competition means that the business may
• Survive in the market
• increase profits
• increase market share
• make more dividends for shareholders
Unsuccessful competition may mean the opposite
ACTION
a. Who are the main competitors in the fast food market in your locality?
b. Consider the fast food outlets near you. How do they compete for customers?
c. Why do you think that competition is good for the consumer? Try to think of 3 reasons.
d. What do you understand by branding (clue Virgin, Nike)? What are the benefits of branding to a business?
SMART THINKING
e. Why does competition force a business to become more efficient?
http://tutor2u.net/economics/gcse/revision_notes/firms_competition.htm
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COMPETITION means
• a large number of producers
• new firms can set up in the industry
• firms are knowledgeable about the activities of their competitors.
How do firms compete?
1. PRICE - not too high or too low
2. QUALITY
3. INNOVATIONS e.g. new ideas
4. PROMOTIONS e.g. special offers
5. ADVERTISING
6. BRANDING e.g. creating an image / identity (Nike, Burberry)
Successful competition means that the business may
• Survive in the market
• increase profits
• increase market share
• make more dividends for shareholders
Unsuccessful competition may mean the opposite
ACTION
a. Who are the main competitors in the fast food market in your locality?
b. Consider the fast food outlets near you. How do they compete for customers?
c. Why do you think that competition is good for the consumer? Try to think of 3 reasons.
d. What do you understand by branding (clue Virgin, Nike)? What are the benefits of branding to a business?
SMART THINKING
e. Why does competition force a business to become more efficient?
http://tutor2u.net/economics/gcse/revision_notes/firms_competition.htm
Understanding Growth of Businesses
Growth means that the business is becoming larger, this may be an objective for the business.
It can grow in a number of ways;
1. INTERNAL GROWTH
This means that it grows without joining with another business. It could
• build new premises
• ‘take on’ more employees
2. EXTERNAL GROWTH
In this case it has some involvement with another business
a) MERGER
Two firms join together and have equal ownership e.g. Lloyds and TSB merge to create Lloyds TSB bank.
b) TAKEOVER
One firm takes over another firm and has the ownership of that business. It is probably against the wishes of the other business. e.g. Lloyds could takeover TSB. It would probably still be called Lloyds but it would also own TSB.
BENEFITS OF GROWTH
• Increased profits
• Increased market share
• Gain new ideas from the other business
• Avoid having to compete with the other business
• Gain from economies of scale
• The new business may not need all of the workers. They could remove some workers to become efficient and make more profit
PROBLEMS OF GROWTH
To the businesses
• There may be two sets of managers who are unable to agree on the best direction for the company. This could cause many problems.
• The businesses may have different objectives and targets
• It costs a lot of money to merge with or takeover another business
To customers
• Possibly less choice in the market and possibly higher prices to pay
To workers
• Possible job losses and job insecurity
http://tutor2u.net/economics/gcse/revision_notes/firms_growth%20of%20businesses.htm
http://tutor2u.net/economics/presentations/a2economics/micro/GrowthofBusinesses/default.html
It can grow in a number of ways;
1. INTERNAL GROWTH
This means that it grows without joining with another business. It could
• build new premises
• ‘take on’ more employees
2. EXTERNAL GROWTH
In this case it has some involvement with another business
a) MERGER
Two firms join together and have equal ownership e.g. Lloyds and TSB merge to create Lloyds TSB bank.
b) TAKEOVER
One firm takes over another firm and has the ownership of that business. It is probably against the wishes of the other business. e.g. Lloyds could takeover TSB. It would probably still be called Lloyds but it would also own TSB.
BENEFITS OF GROWTH
• Increased profits
• Increased market share
• Gain new ideas from the other business
• Avoid having to compete with the other business
• Gain from economies of scale
• The new business may not need all of the workers. They could remove some workers to become efficient and make more profit
PROBLEMS OF GROWTH
To the businesses
• There may be two sets of managers who are unable to agree on the best direction for the company. This could cause many problems.
• The businesses may have different objectives and targets
• It costs a lot of money to merge with or takeover another business
To customers
• Possibly less choice in the market and possibly higher prices to pay
To workers
• Possible job losses and job insecurity
http://tutor2u.net/economics/gcse/revision_notes/firms_growth%20of%20businesses.htm
http://tutor2u.net/economics/presentations/a2economics/micro/GrowthofBusinesses/default.html
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