Reducing the Business Risk

I see a lot of SME’s maturing early during their business life cycle¹. During these times many mention that they are unable to expand their operations or require time and money to diversify. I believe The Ansoff Matrix² is effective in providing guidance towards what needs to be done to bring growth to the business during such times. Just to summarize, Ansoff Matrix assists in planning and evaluation of growth initiatives and provide a risk assessment while undertaking the growth strategies as mentioned below:

1.       Increasing the sales of existing products in existing markets – Market Penetration

2.       Focus on selling existing product in new markets – Market Development

3.       Focus on introducing new products in existing markets – Product Development

4.       Enter new markets with altogether new products - Diversification

But the problem is that all these initiatives take a lot of time and effort, and working on them when your business has already matured increases the risk. Innovation and R&D are long-term initiatives which need to be invested in early in the life cycle. Developing new products is challenging and time consuming, and the risk of customers responding negatively to it is also quite high. Overall, working on these strategies at the last moment seems like a knee-jerk reaction to the prevailing market conditions. One must really delve into the problem to accept any one of these strategies and it requires time. The risk increases tremendously based on how late the action is taken during the life cycle. So, the question arises is WHAT TO DO?

I say keep a control over fund allocation and start working on one or more of these strategies while you are in the growth phase, to reduce risk to business when you reach maturity. Get to the depth of exploring existing markets and simultaneously spend moderately on developing new markets as well. Diversify the risk first. Later, even if few markets do not perform well, it probably will not affect your top-line too much. For testing new products while growing, you may choose smaller existing markets where a negative response would not affect your brand and revenue stream. This way you can take the feedback from these markets and improve the product before launching in your performing markets, or in some cases you might even take the decision of shelving the product and allocating the funds elsewhere. Basically, you will have quite sometime to try and test every initiative during growth phase and this will lead to development of a formidable strategy for the maturity phase of the business.

As the saying goes “Do not dig a well only after the house catches fire”. Also, in some businesses the decline comes faster after maturity. Such businesses by the time they think about diversifying or getting into new markets are already loosing existing markets. Before you know it, you just can’t do anything to save the business and eventually it leads to a wrap-up.

So don’t make such mistakes and take risk before it gets too late to do anything.

 

Think Ahead,

 

M

Are you really an entrepreneur?

Emma got up to go to her boring, monotonous job and as usual was tired of waking up early every day. The same routine was getting too much and one day she decided that I will leave the job and follow my dream of becoming an entrepreneur.

THEN THE SEARCH FOR PASSION BEGAN!! AND THEN THE PROBLEM STARTED!

Welcome to a world where every other person with a decent financial background and no appetite for a steady income finds solace and escape from a regular job by becoming an entrepreneur, rather a wantrepreneur because they want to become an entrepreneur, but are they really the one?

Am I an expert on entrepreneurship? The answer to this is “No One Is”. Just because one becomes a successful entrepreneur doesn’t mean they know everything about it. But there are few questions that one needs to ask themselves when they decide to become an 'Emma'.

Are you confusing hobby with passion?

Let’s work on basics! Hobby is something you like doing, while passion is something you want to work for continuously. So, search for your passion and see if you can make a revenue generating business out of it.

Do you think your business can generate positive cash flows in future?

Let's answer some fundamental questions before you start finding an answer to this one. In simpler terms do some number crunching and answer questions like,

How much money can you invest in your business?

What’s your risk appetite?

Can your business sustain itself after a period, or will it require more investment in the future?

How will you acquire customer and what is the expected volume?

Finally, based on your response to these questions, answer the question we started with!

Can the business generate positive cash flows in future?

These are just questions you need to answer before you even start working on the implementation part, and still there would be a hundred questions you will be answering and problems you will be solving during your turbulent yet experiential journey.

Word of advice! work hard on your business plan, always practice financial discipline, and know when to stop. If you do this, then even if you fail, you will still have enough zeal to start again and not get dejected.

Be sure of one thing, you will learn a lot more compared to what you learned in your B-schools.

 

Do it for the right reasons!

 Manan