We can write about business success, however we need to learn from business failure. Once I mentioned at a business forum that I study “failure”. The look I received was of shock and puzzlement. Why would you want to study failure and not the successes of entrepreneurs like Steve Jobs? Obviously they missed the point. Yes, studying the successes of Steve Jobs is important, but equally important is to study failures of start-ups and mature companies to identify missteps, symptoms, causes, and the reasons companies came and went. Remember Steve Jobs studied the business failure of Apples’ previous management upon his return to the company. Think of the company he left us with.
Think about it, NASA studied its mistakes to make corrections with the space shuttle program. Pharmaceutical companies and financial services companies study product design failures to make improvements, and hospitals study their service offering to improve the quality of healthcare service. Successful companies create value for shareholders, customers, and other constituents from learning from business failure.
Knowing how value was destroyed will make you a better business owner, investor, and stakeholder. Studying the phenomenon of entrepreneurial failure can create value, a return of investment, by understanding the fundamental causes behind business breakdown. Studying business failure should be performed because starting the business strategy process.
Business failure does not end in bankruptcy liquidation. In the event a company declines in value and is considered worthless, the enterprise failed from the perspective of the owner. However, the business or the assets of the business in the hands of others may result in the re-creation of value, jobs, and new business in the eyes of customers, suppliers, and employees.
When discussing business failure, I mean that the business has fallen short of its goals, thus failing to satisfy investors’ expectations. Business failure involves the loss of capital and the inability to make the business successful. With the fall in revenues and/ or the rise of expenses, the company cannot continue to operate under existing ownership and/or management.
Learning from business failure can be viewed from different perspectives.
We can start at looking at business ecology from the business life cycle perspective. Although the business life cycle has various definitions and stages, fundamentally the business life cycle can be viewed from birth (startup), growth (emerging), maturity (stable), decline (distress), and either failure (insolvency) as well as revival (renewal). Different causes of business failure depends generally where the organization is located on the business life cycle.
A failed business rarely moves from prosperity to bankruptcy in one step. Each step has diagnostic value. Business operators, adviser, directors, investor will learn from studying failure.
Early Stage—In the early stage of business failure, companies operate with inefficiencies that show a lack of synergies in production and distribution. Customers complain about quality of products and services. Both revenues erode and margins suffer.
Intermediate Stage—In the intermediate Stage of business failure, the trouble in production and distribution are severe. For manufacturing companies, inventory build up or material shortages are quite noticeable. Employee morale is low. Rumors about the company’s problem spreads. Top employees begin leaving as “the cream” search for green pastures.
Late Stage—In the Late Stage of Business Failure, both management and reporting systems breakdown. Vendors are requesting cash for delivery.
Speaking about startups and young companies, start-up and young companies face different issues than older mature companies. The primary causes of start-up company failure are lack of resources, competence, and inexperience.
Financial resources–The inability to obtain financial resources necessary to develop or maintain an operational synergy is a problem. For young companies the lack of financial endowment tends to be the number one cause of business failure. The deficiency on financial resources prevents the company from developing the operational infrastructure (systems, processes, and people) and applying an adequate strategy to succeed because of the lack of sufficient working capital either in the form of internal cash or line of credit. To create a sale, an organization needs working capital to pay for the revenue generating process (payments to vendors, employees, overhead, etc.) until cash is received from the sale. And there is a point where bootstrapping is no longer sufficient to execute the strategy.
Business competence and management–Subject matter experts tend to establish new companies on the belief that making an entrepreneur endeavor work is not as hard as people think. Such beliefs are furthest from the truth. The inexperience and lack of business acumen is the principle factor of young company failure. Studies have shown that the deficiencies in the competence of management negatively influenced the direction of young companies toward business failure. Many subject matter experts lack the acumen about the complexity of business. Both not understanding marketing and finance contribute to the business demise.
For mature companies, business failure generally is traced to the inability to adapt to the changes of the environment. The company ignores changes in economic conditions, changes in competitive conditions, changes in technology conditions, and changes in societal conditions. When the company is in decline, in large part management tends to be “in a state of denial”.
After the financial crisis and the current government budget problems, economic conditions shifted for the entire business landscape. As an example with the U.S. federal government, the largest buyer of goods and services, cutting back on contracts, large defense contractors and other government service providers is forced to reduce employment and expenditures. Companies that primarily depend on government contracts the cutbacks are starting to impact the bottom-line.
“Corporate failure is never the results of a random set of events. It is normally a reflection of deep-seated corporate shortcomings.”
(Chartered Institute of Management Accountants, 2012)
We have all heard about the stories of companies that once dominated industry but later fell into business decline. There are many reasons for this. The usual suspects for business decline include becoming to dependent on existing customers, the inability to adapt business models to deal with destructive technologies, the lack of leadership, and focusing on short-term financial performance all have led to business demise. One reason not often mentioned for business decline is the hindrance of learning at both the individual and organizational levels about the true causes of business success. Success can breed failure (Edmondson, 2011). Learning enhances your capacity to face and respond to situations. However, from the business success perspective:
When companies catch the upward draft of success, the arrogance of the enthusiasm kicks in. Not surprisingly, the virus of success can become fatal in five or ten years (Kolind, 2006). Think of Research In Motion (RIM) and AVON, companies in decline. The downdraft winds of business decline are a factor of the business life cycle. The death cycle of business decline encompasses three factors: company size, company age, and company success. One of these three factors can result in increase in:
A problem is when the company loses its mojo. Success blinds management and causes lose touch with its customers. Bureaucracy grows, information gets filtered and delayed, and arrogance breeds. Unfortunately, management will begin blaming others for performance slippage when the company begins to slide due to the downdraft of business failure.
Recommended actions include:
Chartered Institute of Management Accounting. (2012, February 15). Understanding the causes of corporate failure. Retrieved December 15, 2012, from Financial Management: http://www.fm-magazine.com/feature/depth/understanding-causes-corporate-failure
Edmondson, A. C. (2011). Strategies for learning from failure. Harvard Business Review , 89 (4), 48-55.
Kolind, L. (209). The second cycle: winning the war against bureaucracy. New York, NY: Pearson Prentice Hall.
Bootstrapping is important for new and small businesses. Among other things, on average, many companies develop and flourished through the use of bootstrapping without access to long-term external financing, over a five-year period (Winborg, 2009). Bootstrapping is a form of raising capital (money) for the business. Many studies demonstrated the important role played by bootstrapping (Brush, N.M., Gatewood, Greene, & Hart, 2006). A large percentage of the businesses examined used bootstrapping to secure resources. These companies had reduced dependency on external financiers for capital. The positive influence of bootstrapping was demonstrated by profitability from the use of some kinds of bootstrapping methods (Patel & Sohl, 2007).
Access to capital continues to be tight. In a third quarter survey of lenders (Phoenix Management Services, 2012), the majority of lenders identified uncertainty as their chief concern regarding future economic growth. Less optimism was shown for opportunities of their borrowers, indicating a slight pullback in their own customer growth expectations and a reduction in new capital investments and hiring expectations. Respondents were asked whether they plan to tighten or maintain their loan structures i.e., collateral requirements, guarantees, advance rates, and loan covenants. Accordingly, in each of the four loan structures, 82 percent of lenders anticipate maintaining their loan structures in their in the near-term, which showed a slight shift towards tightening loan standards. For the entrepreneur, use of bootstrapping techniques will continue to play an important role in funding operations.
Ten tested and widely used bootstrapping techniques (Sherman, 2005) include:
Entrepreneurs have an explicit motive for using bootstrapping techniques. The deliberate choice of using bootstrapping strategies can be seen in proactive ways from reduce risks, restricting expenses, and funding business activities. Such techniques allow for business opportunities without the need to own a sizable resource base and without the need to source external financing. These methods minimize the need for cash by obtaining resources at little or no cost. Additionally, the use of resources can be acquired without the need for bank financing. Overall, entrepreneurs can utilize their social contacts to obtain free access to specific resources.
Brush, C., N.M., C., Gatewood, E., Greene, P., & Hart, M. (2006). The use of bootstrapping by women entrepreneurs in positioning for growth. Venture Capital , 8, pp. 15-18.
Patel, P. F., & Sohl, J. (2007). Bootstrapping to buffer a venture’s core commercialization processes. Academy of Management Conference. Philadelphia.
Phoenix Management Services. (2012). Lending Climate in America 3rd Quarter 2012. Chadds Ford: Phoenix Management Services.
Sherman, A. J. (2005). Raising Capital (Vol. 2). New York: American Management Association.
Winborg, J. (2009, January). Use of financial bootstrapping in new businesses: a question of last resort? Venture Capital , 11 (1), pp. 71–83.
Bootstrapping…bootstrapping…bootstrapping, it can be said that the purest form of entrepreneurship is bootstrapping. During the prelaunch phase of a company and at times when access to business capital is difficult, bootstrapping is the way to go. To compete with existing businesses entrepreneurial firms face two major disadvantages: the burden of smallness and the disadvantage of newness. The reality means that the majority of start-up businesses and small businesses lack available resources to effectively compete (Winborg, 2009). Access to capital is a major issue for entrepreneurs. Inexperience of many entrepreneurs has made it extremely difficult to obtain debt and equity when lack of a track record, reputation, or collateral for loans exists. Starting with personal savings, followed by funding through family and friends, have been the main sources of finance for the vast majority of entrepreneurs. Engaging in “bootstrapping activities” is the way to go in operating the business.
Do not be discouraged with the thought of bootstrapping. There exist many great American bootstrapping success stories. A snippet include (Sherman, 2005):
Apple Computer. In 1976, Steve Jobs and Steve Wozniak sold a Hewlett-Packard programmable calculator and a Volkswagen van to raise $1,350. Through bootstrapping, the partners built the first Apple I personal computer in Job’s garage.
Hewlett-Packard Co. Starting with $538 in 1938, Hewlett-Packards first client was fellow bootstrapper Walt Disney, who required sound equipment for the production of Fantasia in 1940.
Microsoft Company. With is high school sidekick (Paul Allan) and dropping out of Harvard University, Bill Gates moved into an Albuquerque hotel room in 1975 to start the company and write the programming language for the first commercially available microcomputer.
Nike Inc. William Bowerman and Philip Knight in the early 1960s sold imported Japanese sneakers from the trunk of a station wagon with startup costs of $1,000.
Lillian Vernon Corp. With her brainstorming idea of selling monogrammed purses and belts through the mail, Lillian Vernon established a mail-order company in 1951. As a recent bride and four months pregnant, Lillian needed to earn extra money to support her new family. Society in the 1950s dictated that she stay at home for the duration of the pregnancy. A home-based business was her answer. Lillian took $2,000 that her husband and she received as wedding gifts and designed a bag and belt set targeted at high school girls. She manufactured the set through her father’s leather goods company. Than placing a $495, one-six-of-a-page ad in the September 1951 issue of magazine Seventeen the company generated $32,000 in orders by the end of the year.
The use of bootstrapping requires imaginative and parsimonious strategies for marshaling and controlling necessary resources. Think of bootstrapping from two perspectives:
1. Raising money without the use of banks or investors.
2. Gaining access to resources without the need for money.
First, entrepreneurs can raise money through the use of personal credit cards, cross-subsidizing from other businesses owned or through employment, reducing the time for invoicing seeking advanced payments and loans from friends and family. Entrepreneurs can hire temporary employees, share premises and/or employees with other entities, share or borrow the use of equipment, and obtain emotional support, skills, and knowledge from friends and family.
A key question that should be asked, “Do I need it or want it?” In the event the entrepreneur needs a resource, try to use a bootstrapping technique to get it. If the entrepreneur wants a resource, defer the purchase. Preservation of cash is important. This means controlling cost too.
Based on the writing of Oswald Jones and Dilani Jayawarna (2010) some bootstrapping techniques include:
• Customer related
• Delay payment
• Owner related
• Joint use
Simply put, bootstrapping is “entrepreneurship in its purest form” (Salimath & Jone, 2011). Overcoming resource constraints enables business operations to continue with the aid of external financial resources. Bootstrapping transforms human capital into financial capital also known as sweat equity that converts into bankable equity. It is about creating value that includes the idea of “meeting the need for resources without depending on long-term financing (debt or equity). Bootstrapping is the strategy of necessity for entrepreneurs and not of choice.
For entrepreneurs that want to learn how to raising money for their business, push to following button:
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Jones, O., & Jayanwarna, D. (2010). Resourcing new businesses: social networks, bootstrapping and firm performance. Venture Capital , 12 (2), 127-157.
Salimath, M. S., & Jone, R. J. (2011). Scientific entrepreneurial management: bricolage, bootstrapping, and the quest for efficiencies (Vol. 17). Orange, CA: Journal of Business & Management.
Sherman, A. J. (2005). Raising Capital (Vol. 2). New York, NY: AMCOM, 2. 30-33.
Winborg, J. (2009). Use of financial bootstrapping in new businesses: A question of last resort? Venture Capital, 11 (1), 71-83.
Sometimes, deciding what niche to focus on for your niche marketing business can be quite difficult. How do you choose when there are so many possibilities? Other times, the answer quickly becomes as clear as day.
Whether you have a concrete idea and are ready to roll, or need to spend a little time deciding just what niche is right for you, you will need to do some research before truly beginning your niche marketing business.
Your niche should be something you enjoy (like hiking, biking, painting or cooking) but that also allows for you to fill a void in that niche. For example, if you enjoy cooking with organic ingredients, maybe you can provide a product like an organic cookbook, offer recipes of the month and exclusive coupons for organic foods.
Just be sure you know what you are talking about and enjoy it, because it will quickly become your bread and butter, both literally and figuratively!
Once you have chosen your niche, you will then want to ask yourself the following questions: (All may not apply.)
* What is the formal definition of this niche/topic?
* Who is typically interested in this niche?
* Who is/are my target market(s)?
* Is there a broad target market? Or a narrow target market?
* Are there many other marketers already catering to this niche?
* How can I stand out from other marketers in this niche?
* How will my business/offering be different/better/valuable?
All of these questions and more are critical to answer before getting to work. Why? Because it is absolutely critical to understand what you are doing before you begin doing it!
You will also most likely need to differentiate yourself because unless you have hit the jackpot with an off the wall, yet realistic idea, you will most likely be joining a niche that already has marketers catering to it.
How do you stand out? Well, you begin by offering quality products and services. Don’t just say you know what you are talking about. Actually do the research, put together valuable information, and provide your customers with something your competition isn’t; Expertise!
Your target market/customers will soon realize that your products are better than the rest and that your commitment to customer service is what truly sets you apart. Respond to requests in a timely manner. Act on calls to action, like increased functionality or product improvements. And pay attention to feedback. What your customers are saying to others is often just as important (if not arguably more) than what they are saying directly to you. While not everything they say is worth listening to, 99% of it certainly is. Just as the old adage goes in the restaurant and retails businesses, the customer is always right!
Effective businesses analyze their competitors as closely as they do their customers. Studying and evaluating competition help owners decides where to compete and how to position against the competition in each market margin. Global competition requires constant analysis of competing forces. Competitive strategies need to take advantage of opportunities and to avoid threats. Market leaders and competitors cannot fulfill market-fulfilling role unless customer needs and desires are understood and satisfied.
By attempting to expand market size, dominant companies continuously defend their current business against rival attacks. Businesses that are second, third and lower ranks are often called runner-up, or trailing, firms. To avoid being a follower in a large market, many attempt to be a leader in a niche, a smaller market
However, there are many myths surrounding niche marketing and the opportunity it provides for making money. Although many have questioned the possibility of great success by marketing to a niche, or small market group, it can and will be profitable if you do it right.
So how do you separate fact from fiction when it comes to niche marketing and how you can benefit from it?
Here are 3 of the most common myths that surround niche marketing and the truth behind them.
A small market does not dictate a small profit. Sure this can be true, but it is a blanket statement to say the least. Take for example the market of multimillion dollar residential real estate. This is arguably a small market as most of us are not in the market for such expensive homes. But there are some who are and the realtors who sell to them make anything but a small profit. In fact, they probably make more off of one sale than most of us do in an entire year! Therefore, just because you are focusing on a particular segment of a larger market does not make your earning potential small. It makes your target more focused. Think about Starbucks. Who would pay over a buck for coffee? Hmmm. Howard Schulz proved that niche markets can change from a small market, small profit to large market, large profit.
Are you familiar with the old adage, less is more? Well, it’s a phrase that carries on in its infinite wisdom for a reason. It’s true! And it is especially true for niche marketing.
You will never hear of a carpenter who manufacturers handcrafted rocking chairs begin to offer leather sofas. Why? Because he has a specialty and knows there is a very specific group of people who enjoy and appreciate his work. Just the same, you may never hear of a fast food restaurant offering five course meals. Again, they know their market, they understand what their market wants, and they stick to it.
You should do the same! Remember, you can’t sell everything to everyone. You should focus your efforts and continually work on perfecting them. That is how you will set yourself apart and gain the trust and respect of your customers.
If you’ve ever stepped foot in a store that is right ANY store, you know that this is far from the truth. How many times have you walked into a grocery story for a gallon of milk and walked out with a carton of eggs, a candy bar, magazine and bottle of water?
Or, how many times have you walked into a shoe store and bought a second pair because they were buy one, get one half off?
Or, how many times have you stocked up on your favorite perfume or cologne because it was being discontinued?
We’ve all done it. We are consumers and we live in a consumer-drive world. Therefore, people don’t just buy what they need. They buy what they want. Hopefully, you are providing them with both!
Footwear company KLAS Shoes LLC of Bedford offers a full children’s line, under the name Roc-A-Bouts, along with three lines in the adult health and wellness category — Rotasole, KLASFit and Strolleez. Its shoes are sold in at approximately 300 individual store locations nationally, including many independent retailers in the mid-South, as well as some online retail venues. The company was founded in 2008. Not a very good time to establish a company. Gross sales are now over $6 million.
Niche marketing is about focusing your marketing efforts on a particular market segment, or niche and creating a product and/or service that speaks directly to that niche. Niches must be a part of your competitive strategy. As an Entrepreneur, niche marketing is a must.
For example, the pet market is quite large. It includes all types of animals from mammals to amphibians. So, a segment of the pet market might be horses. But a niche takes it one step further. A niche would be something more specific, like polo ponies or riding ponies.
Another example might be the food market. A segment of that market is fruits and vegetables and a niche would be organic fruits.
The list goes on and on and once you truly understand what a niche is, you can then begin to decide which niche is right for you. Niche marketing is all about doing what you love. That’s right! You get to make money by focusing your efforts on something you enjoy. Whether it’s hiking, cooking, painting or fishing, you can create your niche marketing business on just about anything in the world.
This line of questioning will help you hone in on your likes, dislikes, and what really stands out as a topic or area of interest for you. Once you realize what that is, make that your niche! So simple…..
Aspiring entrepreneurs must select a market to go after. Selecting a market niche is crucial. You cannot be all things to all people. Focus must be you mantra. So you must utilize niche-marketing tactics. This must be a part of your competitive strategy. While there are many things you can do right with your niche marketing business, there are also many things you will want to avoid doing wrong. Through the don’ts, you will, most likely, develop a bad strategy.
Here are some classic don’ts of niche marketing that you should avoid:
Make sure not to invest time, money or other resources until you fully understand your niche, have a plan in place and know what it will take to go after it successfully.
Once you decide on which niche to go after, and have taken the proper time and course of action to ensure it is a good one (namely profitable) then go for it! You don’t want to wait too long only to have someone else beat you to the punch.
You can sell your products online, but you can also use good, old-fashioned word of mouth. Tell everyone you meet and know about who you are, what you do and how you can help him or her.
There will always be critics and those who bring negativity to the table. But don’t let them rain on your niche marketing parade! Be confident in the work you have done to ensure this is a good idea, that this will work and that you do know what you are talking about!
Just like with anything else, you will want to avoid potential downfalls with your business. That being said, bring your common sense to the table and you will have a good chance at success. Remember, choose a niche that you enjoy, are knowledgeable in and can fulfill a need for. If you do, the rest will fall into place.
Every successful business venture starts with a plan. Without one, how will you know where you are going and how you will get there? This is part of your strategy (competitive strategy). Take the time to not only become familiar with your niche and target market, but set goals for yourself. For entrepreneurs, this is especially critical.
Set a date for when you would like to launch your niche marketing website and business and do everything in your power to meet that deadline. As you move forward, continue to set goals and timelines to follow as a way of keeping yourself on task and on schedule.
Be sure to set a budget and stick to it. If your plan is to invest $100 or even $1000, set up a budget that allows for expenses that stay within your means. Sticking to your budget will be a large deciding factor as to whether or not your business becomes a success.
Of course, the purpose is to make money, but you must set realistic financial goals in order to meet them. In other words, say your ultimate goal is to make $5,000 a month. Well, that is a great goal. But is it realistic for your particular niche?
Your potential for revenue will directly depend on what you are selling and whom you are selling it to. Some niche markets lend themselves to higher profit because of the value of the product being sold (like limited edition watches), while others require more volume in order to meet high revenue goals. Neither one is better than the other, it just depends on your individual business scenario.
No matter what your goals or how extensive they are, the most important thing to remember is to be realistic with yourself first. If you are, and you know and understand your boundaries and limitations, then the rest will follow and your goals will be that much easier to achieve.
Also read: SEO and The Significance in Niche Marketing at http://garyrushin.com/2012/07/seo-and-the-significance-in-niche-marketing/
Entrepreneurs have realized the importance of Internet Marketing (IM) in putting a “stake in the ground” in creating their market footprint. IM must be a part of good competitive strategies to capture business. So too is the impact of using SEO. Search Engine Optimization (SEO) is a critical piece to the niche-marketing puzzle. If you do not tackle SEO head on, you will get lost in the crowd.
SEO is basically the process of helping search engines (i.e. Google, Bing, or Yahoo) not only recognize and find your site, but also list and rank your site content. The purpose of this process is to ensure Internet searchers see your website in the (hopefully) first, if not first couple of pages of results when performing a search related to your niche.
When you set up your niche marketing website, you will want to first create a list of keywords that are relevant to your target market. For example, if your niche is vegan dinner dishes, your keywords might include vegan, vegan dinner, vegan dinner recipes, vegan dinner dishes, and vegan recipes.
However, you will want to be careful not to make your list too long because you can only realistically top so many keywords. With SEO, it is critical to focus.
Once you have a set list of keywords (preferably anywhere from 5 to 10 should suffice_ you then must include these words within your site content, your site headings, footers, site page titles, meta tags and anywhere you deem appropriate. You want to weave these keywords into your messaging as much as possible in a casual way that allows for maximum optimization but still makes sense to your readers.
SEO is all about strategy, so take your time when deciding how to approach your niche market. This is not something to take a shot in the dark with. You will want to put careful planning into your SEO efforts, as they will drive traffic to your site, and ultimately, drive your business.
Read more on entrepreneur strategies and lifestyles at http://GaryRushin.com.