The importance of a strong business foundation: you can't build a house on smoke and mirrors

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UnstablefoundationI have had a few interactions lately with some entrepreneurs who have been in business for a number of years, but are struggling terribly to make money in their business.  Usually, they ask questions like:

"Do you have any advice for how I can close more sales?  My expenses are just about the same as my income, and I don’t know what to do."

or

"What am I doing wrong?  I work 15 hours a day, 7 days a week, and I never seem to make any progress in my business.  It seems all I ever try to do is convince resistant people about how much they need my product."

or

"What do I do if I have no money to invest in my business?  There are some new products that my customers are interested in, but I don’t even have enough cash flow to order from wholesalers."

All these types of questions lead me to wonder: did these people build an appropriate foundation in the planning stage of their business, or did they skip that step and go straight to execution? 

If so, there are often no simple remedies, as the following structural problems may be lurking underneath their business:

  • There is no clearly defined target market for their products or services, so they have no focus for their sales and marketing efforts.  This leads to a bland and unspecific message which appeals to no one
  • There was never research done to determine if a market exists for the products and services they are selling
  • They didn’t complete financial projections to determine if their business model was capable of generating a profit
  • They didn’t do a realistic assessment of their own strengths and weaknesses in order to determine which support and resources they needed to run their business.  Most often, they are doing everything themselves, some tasks which take far too much of their time, detracting from key activities like customer follow up, sales and marketing

I don’t judge these folks, since part of the entrepreneurial spirit includes a bias toward action, and not spending so much time in the planning stage that business opportunities pass you by.  I did a lot of flying by the seat of my pants in the early years of my consulting business, and I wouldn’t trade my learning for anything.  But how can you avoid finding yourself with a business model that is not sustainable or profitable?

Create a business plan.

Many people get squeamish with this idea, as it can seem like overkill when you are cooking up a small business in your basement. Seth Godin recently said, in point 14 of The realistic entrepreneur’s guide to venture capital, "Business plans are bogus." However, in the same paragraph, he clarified "…The act of writing one is critical." (my emphasis added)

You don’t have to write 50 pages of analysis, but you do want to make sure that you answer some fundamental questions to make sure there is a foundation to your business.  Some of my favorites come from Startup Nation’s Defining Dozen, part of Step 3:  Create a Business Plan in the 10 Steps to Open for Business.  They are:

  1. What’s your idea?
  2. How does your idea address a need?
  3. What model suits you best?
  4. What’s so different about what you offer?
  5. How big is the market, and how big will you grow?
  6. What’s your role going to be?
  7. Who’s on your team?
  8. How will customers buy from you, and how much will they pay?
  9. How much money will you need, and how much will you make?
  10. Where’s the startup money coming from?
  11. How will you measure success?
  12. What are your key milestones?

If you can’t answer these questions with confidence, you may want to re-think your idea before finding yourself in the shoes of the overworked, overstressed and underpaid entrepreneurs I described above.

Is there hope for those entrepreneurs that started out with shaky foundations?  Of course there is.  But they must be willing to look at their business from a completely fresh perspective, and perhaps change major portions of their business model.

If you need help with business planning, I always recommend the volunteers at SCORE, a totally free consulting service affiliated  with the U.S. Small Business Administration.  Unfortunately, they are U.S. only, so if you reside outside the U.S., you may want to check with your local government for a similar service.

Filed Under: Managing your business

6 Responses to “The importance of a strong business foundation: you can't build a house on smoke and mirrors”

  1. Gray Miller says:

    Thanks for this post, Pamela. I’ve scribbled the questions into my moleskine for future perusal. I’m one of those “failed” entrepreneurs, who dove in without a business model, flailed for about 8 years, and finally ended up in a cubicle. Now I’m playing with how to escape, and the problem is that I have less of a regular business model and more of an artists/consultant model. Still, your questions apply, and I appreciate the starting on the track.

  2. Erik Mazzone says:

    Great post, Pamela. Good advice on doing a sane (or “necessary and proper”as we former lawyers sometimes babbly) amount of planning.

    Sometimes solid, basic advice like this gets overwhelmed entirely by the “ready, fire, aim” movement. Nice job cutting the balance.

  3. WorkShak says:

    The Business Plan

    When my partners and I got together and began our discussions on how to get Shakadoo off the ground, we experienced excitement, crazy ideas and lots of planning. It was easy to get sidetracked from the business aspect with the entrepreneurial spirits w…

  4. And of course question #0:
    Why is this going to make you happy? Why will this be so much fun, that you couldn’t possibly NOT do it.

    :o)

  5. Kostya says:

    Well, to build a good business, you can always start with sending love. Like what Klaus Joehle shows in his book “Living on Love — the Messenger”

  6. Mea culpa. You’ve just hit the reason why I started following your blog. I was already reading startup nation. But I’m trying to solve this. Thanks for a reminder…

Leave a Reply to Kostya