Financial Data
Updated 24 Sep 2020

3 Reasons your business is dying

Many entrepreneurs believe that if they develop a better product than their competitor they will succeed. This is particularly not the case for early-stage entrepreneurs. What guarantees’ you success in the early years is top-line (sales) & then your ability to convert that into ‘money in the bank’ or free cash flows.

Mr. Vusi Thembekwayo, Entrepreneur, 19 August 2014  Share  0 comments  Print

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Here is a fact: in the early days of your business, it is neither your technical competency nor your innovation that will deliver sales into your business.

Most entrepreneurs miss the point: early stage success (survival in the first three years of your enterprise) depends on sales and then cash flow.

Here are three reasons your business is dying:

1. Tinkering on the product

There is a point in the product-development cycle where extra effort does not mean better product.

In other words, for every unit of time you spend past that point, you are getting little to nothing in return.

Think about Apple: they release a version of the iPad fully aware that in a few months time they will have better iterations of it. But they release what they have because it is ‘market ready’.

Notice I have mentioned nothing about ‘being the best’ here but simply being market ready.

Quality is an obsession for the established or those with volume seeking to differentiate them. Your obsession in the early days is simple: Get in.

Lesson: Have a ‘definition of done’. Your product must reach a stage where it is meets the minimum acceptable standards (to compete) and then you launch. You will figure out how to become the best later on.

There is a reason BMW will first release the 320i before the M3. They know the M3 is best version of the 3-series but the 320i is how they get a share of wallet. Get in with what you have & claw some share of wallet. 

2. Dump the spreadsheet

Projections are lies. Budgets are fiction. Bank statements are history.

Running a projections exercise is thinking tool for the entrepreneur. It is not a blueprint. Its reason for existence is to allow you to think through the various financial issues in your business. That’s all.

  • Budgets (whilst a little closer to the truth) are just a blueprint. They help you plan what money, for when, by whom and how.
  • Bank statements (whilst retrospective) can be a very powerful tool in analysing your cash-burn rate i.e. once you’ve earned a rand, how long does it take you to burn it & on what?

My advice: spend money on a good accountant, one that will tell you the various ratios of your business and give you a ‘vitals reading’ of your business every month.

Financial statements are not a business intelligence tool (unless you’re an accountant). For most of us they are just for compliance.

3. Give customers a reason to pay on-time

Customers are human beings too. And human beings don’t do anything without a reason, result or motivation. In truth, we are all motivated by a ‘pay-off’.

Spend your time thinking about how you can give the customer a pay-off to pay you earlier.

Example: A friend of mine runs a watch business. He sells high-end very expensive watches to the middle class and affluent. In the early days he really battled to get payment. On average, customer payments were 62-days overdue. Sixty-Two Days!!!

Whilst he was a one-man band this was fine but when he grew and employed people and took up offices and other fixed expenses, it became a serious problem … and almost killed him.

Solution: Clients would place orders and then he would source the stock, buy it, ship it & they would pay.

He had delivered to their office or home a plastic version of the watch (it looked just like the real deal and was beautifully packaged).

He would have the plastic mock-up made in China for a steal and then deliver it to the client to remind them that their order had arrived and that payment was now due.

It reduced his overdue days to four. Today he has six stores in the main city malls around South Africa, employs 22 people and turnovers R48million a year. Not bad!

Lesson: give your customers a reason to pay you earlier and they will.

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About the author

Mr. Vusi Thembekwayo, Entrepreneur

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