This is a reprint of an article I originally wrote for the Exclusive Series on Multibriefs.com. It appeared on June 12, 2014. This story is an attempt to explain to entrepreneurs how to avoid the common mistakes that cost many new business owners dearly.
The Wine Trip
On a particularly lovely spring afternoon, I was sipping wine in the Sonoma Valley at a delightful winery called Benziger Family Winery. The estate is biodynamic, meaning that is run to be environmentally friendly, and they make some nice wines.
But that really has nothing to do with my point. What is important is that while I was there, I overheard a comment that stuck in my head — and no, this has nothing to do with the amount of wine I had consumed prior to hearing it.
A patron was talking with the wine master about how cool it would be to own and operate a winery. Then the wine master said, “Do you know the quickest way to make a small fortune in the winery business?” The patron said, “No.” He replied, “Start with a large fortune and open a winery.”
The Business Connection to the Wine Trip
What struck me about this comment was that it actually describes the business model with which a lot of small business owners unintentionally operate. They take a bunch of money, throw it at a problem and hope it works.
The failure rate of new businesses is 44 percent by the end of the third year of operation. The most common causes of failure are:
lack of experience
poor inventory management
poor credit management
misuse of funds
The Simplified Solution
So in my never-ending quest to give simple answers to incredibly complex questions, I have attempted to give a quick explanation of: What makes a business successful and worthy of growing in to a big business? There are really only three things that matter:
- Does the business have a value strategy that resonates with the marketplace?
- Can the leadership build a process that continually enhances value for the marketplace?
- Is the business managed according to a sound management principles?
Great ideas fail without great leadership. Great leadership fails without a good value strategy. And no business is sustainable if it is financially irresponsible. A great idea at the wrong time may not work simply because the market wasn’t ready yet. Conversely, a mediocre idea with no money can be driven to the top by exceptional leadership. And a spectacular strategy can be destroyed by bad leadership.
Many people see the success of the iPad and rightly credit Steve Jobs with bringing a game-changing product to market. But many people forget that Jobs tried to bring this product to market twice, once under the Apple Newton concept and once under NeXT computing. Both product lines failed miserably.
The reason the iPad came to fruition is because Jobs learned from his failures and persevered until he got it right. Strong leadership overcomes the inherent negativity of failure to get the job done when no one else thinks it can be done.
Resonate or you will Disintegrate
In short, you need a value strategy that resonates with the marketplace. Once the sales have begun, the product must continually improve and add value to the market. And you must use good management principles to keep sales expenses and ROI in line to not grow too slowly or too quickly.
I have started and run several multimillion-dollar businesses. When I have followed these rules I have been successful. And when I haven’t, l have paid for it.