We often hear of people in 9 - 5 jobs talking about how they would love to be in a position to give that life up to pursue entrepreneurship and start their own business. The most common reason appears to be this desire for freedom. Freedom from answering to someone else, namely a boss, freedom from the daily commutes, freedom from working 9-5 each day with only weekends off and 4 weeks annual leave each year.
I find this perspective quite interesting because from a business owners perspective this is not always the case, in fact it can be far from reality for many small business owners. But why is this the case?
I feel it's because many inexperienced entrepreneurs either start-up or purchase businesses without exploring the different models of businesses available in the market and the pros and cons of each.
When purchasing a business we really need to look at the growth potential of the business. Much like purchasing an investment property. If there is little chance of that investment property either growing in capital value or cash flow, then why purchase it? The same applies when purchasing a business. This is where potential purchasers of businesses and property make the mistake of getting emotionally involved in their purchase.
When purchasing or starting a business, it's important to look at your business model as this will ultimately determine where you can take the business and whether the business may one day offer you the freedom that you dreamt of.
In recent years business models have changed dramatically, due mainly to the internet and constant changes in technology. These changes are hugely impacting older business models that have been slow to adjust. Examples include brick and mortar retail businesses. Online sales are growing exponentially from one year to the next having a huge impact on their brick and mortar counterparts. Think of brands such as Whitcoulls, Borders and Paper Plus. Some of these brands have disappeared completely from the retail scene over the last 5-7 years. With the global expansion of mega online businesses like Amazon, we are going to witness many more retail brands disappear from the landscape unless they quickly adjust their business models.
Businesses need to constantly re-assess their model, their customer base and what competitors are doing. One example of a well known brand who does this well is fashion store Country Road who built it's brand on classic styles and quality goods aimed for a customer base of middle aged men and women, however, as their customer base aged, they didn't want to lose these customers so set up a separate brand called Trenery which is aimed at the 50-70 year old market. By doing this they retained many of their older customers and were able to focus on attracting a younger age group of customers to their Country Road brand.
Another example includes the hospitality sector which has been shaken up considerably since the inception of Airbnb as has the taxi industry since Uber and Lyft found a customer base who were quick to see the benefits of share riding.
I believe that smaller businesses hold one major advantage over their larger counterparts as they are generally not bound by having to consult boards of directors and key stakeholders such as shareholders and investors before making decisions which could change a businesses direction and ultimately avoid unsustainable losses. When I think of a large corporation such as Kodak which for many years held the major market share for film processing, but were too comfortable in their position as market leaders to even acknowledge the technological advances that were being made in the area of digital cameras and the impact this would have on their profitability as a company. Their demise is probably one of the most enlightening examples of a large company which was too slow to adjust to a changing market.
If there is one piece of advice I can share with business owners today, it would be that you avoid complacency at all costs and carry out an audit of your business plan on a six monthly basis. Check that your business model is still the best for your business. What are your customers doing? What are your competitors doing? What other key partnerships or alliances can you form to further strengthen your business and what changes have occurred in your cost structure since you last checked your plan?
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