Avoid these business minefields at all costs

Tuesday, May 26, 2015

Whether you’re managing a large or small business or a department, there are a few “business minefields” to avoid.

People are your most valuable asset

Your talented and experienced people are your most valuable assets. Never delay or defer milestones that are important to employees, such as their semi-annual or annual review. Even if you have little or no budget for salary or wage review, still schedule and conduct the review on time, every time. Employees want to know that you value them, and you show you don’t when you are late with their review. Next, don’t forget to praise them in public when they earned it—it makes them stronger and even better at what they are doing. If you have to give constructive criticism, always do it in private. Never, ever forget they are your most important resource. 

Remember business is a game of margins, not volume

Examples of rationalizing low-margin business include accepting it for incremental business and/or to absorb overhead costs. These are both habit-forming and hazardous practices. Your sales force can easily sell low-margin business because it is often a lot easier to sell than regular-margin business, but quickly you will find a lot of what you sell is incremental and low-margin business. Plus low price and low-margin business is never sustainable. It attracts usually the worst kind of buyer who will switch to another supplier with an even lower price and may not pay well. 

Know who and what you are

Planning always starts with determining who and what you are, not who or what you wish you were. Capitalize or develop your strengths and address your weaknesses—it is always the first step in your plan. Famous strategists from Sun Tzu to recent secretaries of defense remind us that, “You are going to war (or competing) with the army (resources) you have, not the one you wish you had”.

Remember the five strategic forces in any business

Five strategic forces determine any businesses’ past, present and future profitability, and these are:

• The leverage of your customer or buyer

If you select buyers like Walmart, are you as likely to be as profitable as you would be if you served many fragmented buyers? The short answer is “No way.” If you choose to serve large, sophisticated, high volume customers and buyers, what will happen to you if they are 50% or more of your business and decide to change suppliers?

• The leverage of your suppliers

The same is true for your suppliers—if one or a limited number of your suppliers control a valuable and often irreplaceable product or raw material, what happens when they raise the price? Or can’t supply, or both?

• Possible substitute goods

What are the possible substitutes for the products or services you provide? Is there someone waiting in an adjacent industry that could easily enter your market and could buy market share? Or is there something that would make your product or service obsolete? What are the entry barriers to your market and customers—can you make them higher? What are the exit barriers—ideally, they should be low to allow existing suppliers or market entrants to get out in the event of downturn. If they can’t get out, then they will cut prices and margins to stay alive. That’s never a good situation.

• Possible government involvement

Are you profiting from some type of government regulation? If so, you may likely find “what the government gives it can also take away.” Or what happens with increased regulation? What are you doing to encourage self-regulation in your industry?

• Finally, the rivalry of competitors

Does the rivalry in a particular market segment, niche or industry foster poor or inadequate returns? Maybe it is time to exit and deploy your resources where the return is better?

Business ethics

If you want to last very long in business, you must stress business ethics and integrity from the top down in everything you do. Never oversell a product or service. Never overpromise and underperform. If you don’t know the answer, tell your customer, your employee, your supplier, your auditor, your board, your boss, etc., “I don’t know but I will find out and get back to you.” It increases your credibility. It should go without saying that as a manager, you set an example far stronger than your words. If you tell little white lies, cut corners, fail to demand the best or promote or hire someone for something other than performance and achievement, everyone in your organization will do the same, to an extent you never imagined. hme 

David Marquard II is the founder & owner of Applied Home Healthcare Equipment LLC and Superflash Compressed Gas Equipment, LLC, both in Westlake, Ohio. He can be reached at dmarquard@applied-inc.com.