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Business Resource Center

Successful Ideas For Growing Your Business
What you need to know about boosting your business and uncovering new opportunities

By Richard Siedlecki

More than half of all small business owners experience problems in growing their businesses after reaching the fourth or fifth year of existence.

There seem to be two major problem areas. The first relates to the loss of business focus. Entrepreneurs start selling anything and everything - the more sales the better. They market products or services that are considered outside of their core businesses. The other problem area - perhaps affecting as many as 75% of growing businesses - is the loss of a good grip on managing cash flow. These entrepreneurs enjoy satisfactory sales and profits, but they can't manage to control their cash flow to keep the business growing.

While there aren't any hard and fast rules for avoiding the pitfalls of growing a business, there are some insights that could help you grow your business more logically, more systematically - and more effectively.

Build on what you know and do best
Most entrepreneurs want to grow their businesses quickly. However, about 60% of small business people believe that as long as their customers are buying and profits are rolling in, they're doing fine. Their business plans and philosophies are quickly forgotten, because "you've got to shoot while the ducks are flying," so they say.

In short, these entrepreneurs sell whatever they can to make a buck, even though many of the products and services are not part of their regular line. They also attract a different profile of customers. This sales (as opposed to marketing) mentality usually sputters and even fails over time, because it ignores the basic management premise - stick to what you know and do best.

Few do it. You already know the big companies that learned how to stick to their knitting: Disney is in the entertainment business; Levi's is in the apparel business; and Mercedes Benz is in the luxury vehicle business. That's what their customers perceive. That's what these companies deliver.

Think for a minute: What was your original business idea? What did you first emphasize? What was your real strength? What differentiated your business from your competitors? What were the products or services your customers connected with you? That's what you should be building on - what you know and do best. Maintain your business focus and core capability.

Zero in on cash flow, not sales and profits
I've found that about 98% of small business owners spend too much time concentrating on sales and profitability, because that's how they keep their businesses growing. Unfortunately, most of them don't spend enough time thinking about cash flow. For small and growing businesses, positive cash flow is more important than sales and profitable margins, especially during the first five or six years of growth. The fact is, sales and profits don't mean a lot if you don't have the necessary cash set aside to help your business grow and expand.

A growing business needs a steady flow of cash to ensure growth - for new equipment or computer upgrades, inventory, employees, new or expanded offices, and production facilities. And don't forget about insurance and taxes. Frequently, businesses show a positive sales and profit curve, but they have to scramble to add more debt or give away equity to raise the necessary capital.

Make cash flow your friend for life - Learn how to project and manage cash flow, since it's one of the most vital signals of how well you are growing and managing your business. Your ability to maintain an adequate level of cash flow and to anticipate when capital will be necessary can affect your competitive advantage - and your business growth. One of my clients had to "give away" 97% of his company's equity just to raise enough cash to continue the growth of his business.

A word of warning: If you are experiencing cash flow problems and you have to borrow money, you may be compounding the situation and you'll eventually experience problems earning an operating profit. So manage your cash flow (time your needs, control the flow, watch for trends, etc.), rather than crowing about how well your sales and margins are looking.

Develop multi-niches and distribution
To help ensure growth, don't get married to one market or channel of distribution. Concentrate on multi niches consisting of small groups of potential customers with common needs. For example, specialty tire maker Denman Tire Corp. of Akron, Ohio, markets to niches that include tires for U.S. Postal Service vehicles, antique cars, and off-the-road equipment.

Also look for other ways to distribute your products and services. For example, if you supply women's hats to retailers, consider supplying hats to women who have natural hair loss or those women who are undergoing chemotherapy. Market directly to them via catalogs, direct mail and the Web.

Look for opportunities - Think of your market as a big pie. The big slice is where you're marketing right now. Now look for smaller slices (or niches) that have the same or similar customer characteristics as your current customer base. Make sure the new slices are big enough for you - that there is market potential and that you can grow the market accordingly. Theoretically, the smaller slices or niches may be unprofitable for many of your larger competitors to consider, but they may be right for you.

Concentrate on sales after the initial sale
You'll have more opportunities to grow your business through existing customers than you will by spending most of your time trying to find new customers. Satisfied customers mean repeat sales, multiple sales and referrals. Invest about 60% to 75% of your budget to market to existing customers.

Start by building a database of customers. Categorize customers by the types of products or services they purchased: dollar amounts, average orders, purchase dates, frequency of purchases, methods of purchase (credit card, cash, purchase order), special needs, and even their brand loyalty. Then market to your customers accordingly, targeting the right products and services to the right segments of customers, with the right presentations and offers at the right time.

Big idea - The main goal of database marketing is to build and maintain a list of customers by categories. The more sophisticated your database, the more effective your marketing. In fact, I believe that up to 60% of your marketing success can be linked to the sophistication of your database.

So contact or communicate with each customer based on variables such as average order and the types of products or services they purchased. Make more frequent contacts to your more profitable customers, concentrating on what is right for their needs or wants. It's a logical, positive way to grow your business.

Don't get caught!
There has never been a better time to rethink your business growth than now. Look at all the options. Explore the possibilities. Plan for the future. And remember: The mouse with only one hole is setting itself up to be caught.

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Richard Siedlecki is a small business management consultant specializing in direct mail, catalogs and direct marketing.

 
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