We have already reflected on 5 of the 7 reasons why small businesses fail (according to an article on ‘BusinessKnowHow.com’). It should be apparent that all of these factors have something in common. They all represent obstacles which may prevent a business from growing fast enough to be sustainable. As expected, lack of growth accounts for the majority of small businesses failures in the first 18 months of operation.
Today’s discussion may seem a little counter-intuitive on first inspection, as the sixth reason why small businesses fail is: “Overexpansion”.
Why Small Businesses Fail – Overexpansion
Surely expansion in a business is a good thing, right? But unfortunately it may not always be the best thing for a small business, particularly if the infrastructure isn’t in place to support growth.
As an example, if a business delivers a service to its customers, then it may be heavily reliant on the number of staff they have available to provide the service. If a business sells a product, then they may be constrained by how quickly they can manufacture, or source the product. There is no sense in over-promising and under-delivering to the customer, end user or consumer.
There are many essential functions which need be taken into consideration when a business chooses to expand, as rapid growth may put a strain on resources. If you are unable to recruit or train suitable people to carry out those functions on your behalf, then what is the impact likely to be for the customer? As mentioned in an earlier post, the customer experience must be a central consideration and focus in any business:
Why Small Businesses Fail – An Antidote to Overexpansion
It is important to plan for growth in your business, as the last thing you want is to repress or prevent growth. Steady, sustainable growth should be the goal. The best small businesses (in my humble opinion!) are ones which are fully scalable; meaning that if it works for one customer then it can work for 1000, or even 10,000! Any opportunity to automate systems, or to achieve leverage in your small businesses should be seized with both hands, but ONLY if you can fulfil the demand that this creates for your products!
One of the big advantages of acting as a re-seller for a large company is that you are unlikely to run into the problem of not being able to keep up with demand. As global demand increases, larger corporations can manage growth and will have the infrastructure in place to sustain it.
Many direct sales and Network Marketing companies also handle packaging and shipping to your customers. You are responsible for marketing the products and services, to find new customers and the company that you are affiliated with deals with the orders placed by your customers. This removes the burden of holding stock and dealing with distribution.
The company that I represent has 350,000 plus active associates and operates in 20 countries, so it is highly unlikely that my efforts, or the efforts of my team, will ever surpass the production capacity of the company!
Click below for more information about my company of choice:
Why Small Businesses Fail – Lack of Leverage
So where does leverage come in? One example of leverage is how you approach your marketing. If you intend to cold call potential customers, then that method will offer no leverage. If you are not on your phone, then you are not doing any marketing!
Alternatively, if you produce a relevant video or article then this may act as a piece of bait to attract potential customers back to your site, or landing page. You may give these potential customers the opportunity to register for more information and then you can send information periodically (using an email auto-responder) to provide more details. This is a prime example of leverage at work! Your marketing campaign is active 24-7. This is known as ‘leveraging systems’.
Another example of leverage is also available through Network Marketing businesses. This is known as ‘leveraging the efforts of others’. By training other associates to be effective, you can earn commissions on any orders placed by their customers, as well as orders your own customers place.
Why Small Businesses Fail – Overexpansion in Network Marketing
I want to make it clear that overexpansion can still be a problem in Network Marketing, especially if you shift your focus away from simply promoting the products and intend to leverage the efforts of others too. If you recruit more business partners than you can feasibly support, then they are not going to provide you with any leverage, as they are unlikely to achieve any results! In order for your efforts to duplicate you must allow sufficient time to help all new associates to develop the skills to succeed (assuming you already possess the skills for yourself, or have access to people are succeeding).
Having learned this lesson early on as a Network Marketer, I now carefully pick my businesses partners, based on who I believe will follow my guidance and do whatever it takes to succeed. My marketing is focused on educating a larger volume of potential partners than I am willing to sponsor, so that I can hand-pick those I wish to work with.
Think about it, what is the alternative? Bring in more people and dilute my efforts, so that eventually all of my businesses partners drop out due to lack of support! That wouldn’t help me and it certainly wouldn’t help them! This would be a prime example of overexpansion in action! If I devote time and effort to ‘showing’ them how to market and grow their business, then I am likely to have committed business partners for life.
Here’s a link to my unique businesses partnership proposal, which also outlines my marketing strategies: