Surviving entrepreneurial challenges

Charles Pittaway

The following ten tips may prove useful, as doing business in 2012 is as challenging as ever, especially with on-going recessionary influences in South Africa and abroad, ever-rising fuel, energy and raw materials costs and the tightening purse strings of possible investors.

1. Agreeing the terms of engagement
   Friends and colleagues start many businesses and agree to split the equity and the decision-making. Unfortunately, these deals have a history of falling apart, usually painfully and expensively. Eventually one partner begins to feel their own contribution is more valuable than the others are, so if there is no mechanism for handling these differences, you are in trouble. It is a good idea to workout out a buy-sell agreement at the start of the business to govern what will happen in the event of a stalemate. If you cannot agree on the terms of a buyout while you are still friends, how can you hope to do so when the relationship has soured?

2. Ignoring signs of trouble
   Failures of judgment at the top have killed more small businesses than lack of money, talent and information combined. As entrepreneurs, we are often influenced by our sentiments to act in ways that actually put our businesses at risk. It is essential to put aside regular time to step back, take a good cold look at what is going on and check whether it still adds up. When you do that, you need to trust the numbers: do not let your attachment to the business blind you to warning signs of trouble.

3. No back-up plan
   Of course, you believe your business will succeed, or you would not be doing it. However, failing to put a backup plan in place is suicidal. What if your product takes twice as long to develop as you thought or customers buy only half as much? It often takes twice as much time or three times as much money to get going as you predict.

4. Excess cash
   Oddly enough, too much money can be as much of a curse as too little. It can tempt you to hire people you do not need, approach problems in ways that do not focus on the value to your customer, take your eye off the market and weave dangerous inefficiencies into your business. Do not ever get too comfortable.

5. Accountability
   I love working in flat organisations without lots of structure and hierarchy, it is one of the reasons I started my business. But it would be naïve to think we could survive without some structures and channels for making decisions. When people start looking for direction, they need to know where it's coming from.

6. Isolation at the top
   Even if you keep an open door and employees know they can give you honest feedback, sometimes you need a trusted advisor outside the business. Your lawyer or accountant is not necessarily the right person - how many of them run their own businesses. Find a mentor or peer group of other entrepreneurs who have faced the same issues.

7. Leverage
   It is tempting to fund a business with debt and keep 100% ownership - but very dangerous. Your bank is not your partner and it has no real stake in the success of your business - if things go wrong it has your house, your car and everything you own to fall back on. An equity partner, on the other hand, has to pitch in to make the business work. As the saying goes, it is better to have 50% of something than 100% of nothing.

8. Too many eggs in one basket
   It is great to have a bread-and-butter client; a big account that keeps the money rolling in but, if you lose that client, your entire business could be at risk. Keep your client base as diverse as possible - and if you cannot, make a plan for what you will do if you lose that account.

9. Competitive advantage
   One successful product or service does not make a business. If you really have found an attractive market, you can bet there are competitors looking to take a piece of it. Keep on researching, developing, introducing new products and new levels of service. Make the competition scramble to keep up, rather than digging yourself a static position and defending it with everything you have.

10. Moving on
    At some point in the life of almost every business, the original founder needs to step aside and let someone else manage it. The skills and attitudes needed for a successful start-up are very different from those needed to manage a stable, mature company. If you stay on past your sell-by date, you run the risk of poisoning the business. Rather get out while you are ahead and enjoy the rewards of success or move on to a new challenge. Then read this advice all over again.