Swings + Roundabouts Winter 2021

One of the fundamental questions facing business consultants is this: Is business success an art or a science? At first glance, this might seem like a frivolous question, but the purpose behind it is far from flippant. If success is an art form, then we are looking for solutions which emphasise personal talent and technique. Alternatively, if success is a science, then we should be interested in facts, figures, and formulas. And, if it is a mixture of both, then we need to work out an appropriate balance of the two extremes. Over the last few months, I have been giving some thought to this problem, while doing some work for the good people at Grow Digital. Grow Digital is a nationwide initiative to improve the online business capability of New Zealanders, particularly those with a barrier-to-success, such as a disability. The programme is designed primarily to introduce people to digital tools, and to show them how to use standard social media platforms, including Facebook, Instagram, and LinkedIn. My role in all this has been to provide insights into successful business planning and practice for small-scale start- ups, by introducing them to various tips, tricks, and techniques, gleaned from the wonderful world of business. With a nod to both the drama and the risk inherent in starting a new business venture, I entitled my contribution, “Starting a New Business - Beating the Odds”. My message- behind-the-presentation was quite simple: As a small start-up business, your chances of survival and success are disturbingly low! How low? Well, have a look at these figures from StatsNZ and figure.nz. According to StatsNZ, 63% of New Zealand micro start-ups fail within two years. Hand- on-heart, would you invest your time, money, and future in a one or two-person business with only a 37% chance of success? figure.nz’s numbers are equally graphic. They took a broad look at all New Zealand businesses established in 2014, and concluded that while 85% of these businesses were still operating in 2015, only 66% survived their second year, and only 56% were still operating after three years. The figures stabalised a little bit in the fourth year (48% of the original number, still operating), before falling to 38% by the end of the fifth year. There is also a clear tendency for larger businesses to have better survival rates than smaller start-ups. After four years, 80% of businesses founded in 2010 and operating with 100 staff or more were still in business, as opposed to businesses with under 50 staff, where the figures fluctuated between 50% and 70%, over the same time frame. (Sharp-eyed readers will have noted already that these are pre-COVID figures, dating from the decade of recovery following the Global Financial Crisis, when times were better than they are today.) The good news in all this, is that the better businesses can survive, and that we can join the ranks of the better businesses (and “beat the odds”), if we apply good business principles and practices. So, what can we do to “beat the odds”? Well, here are a few simple suggestions, which will probably enhance your chances of financial survival in a troubled world! For many businesses, the ultimate success test is how well they manage their financial affairs. At its most basic, the goal is to make more money than you spend, after your outgoings, expenses, and proprietor’s income have been taken into account. If you make a profit then you should be happy, but if you make a loss then the result should be misery. The Micawber Principle has stood the test of time, and it is still good basic advice after all these years! Start by avoiding debt, whenever possible. Yes, sometimes you just have to raise a loan, and it is cheap to borrow money right now, but in return you take on an obligation of servicing a long-term debt under uncertain conditions. If business doesn’t go as expected, or if interest rates rise, then you end up shouldering the resulting burden. Cash is likely to be the second most valuable resource your business can have (the first is probably ‘people’), so keep at least some of your assets in a readily convertible form. Once you start borrowing money, your costs only go up! You can manage the ‘cash burn’ by keeping good maintenance schedules, by re-negotiating contracts in your favour, by minimising unnecessary costs, and by generating additional income. If you can reduce your debt servicing costs by $100, reduce your operating costs by $100, and increase your income by $100 each week, then this is a positive difference of $15,600 over a whole year. Use smart-funding and boot-strapping BY PHIL SALES SURVIVAL AND SUCCESS BY BEATING THE ODDS June 2021 { 22 }