3 MUST-TRACK METRICS FOR BUSINESS SURVIVAL

"Businesses are separate legal entities". When most entrepreneurs hear this, they don't think beyond "...yes, my business can sue or be sued" however, there is more to the statement than meets the eye. Having looked deeply into it, I have uncovered something even more powerful.

Every human being is born with a survival instinct. We do not need to be lectured on the need to breathe, eat, or create value to get money, these things are found out almost naturally. To continue to exist and live well, we need to make sure we breathe, eat, and create value.

In the same vein, businesses (as intangible persons) also needs to survive by making sure that it breathes, eats, and create value. These three components are vital to business survival and growth so every entrepreneur must pay close attention to it. So what does a business breathe, what does a business eat, and how does it create value? What  are those metrics you need to monitor to ensure your business doesn't die? Here.

1. CASH-FLOW: Cash is king, and even more importantly, cash is air. If you have a startup or you run a business, you will agree that everything revolves around cash; thus it is referred to as the air of the business. With enough cash, the business lives, with no cash, it dies.

Because  cash-flow is so important, the first metric every entrepreneur must monitor closely is the cash-burn rate. The cash burn rate tells you how long before your business will run out of cash. It details how much cash you have available, the biggest bills you must pay  and when the payments are due.
If you have more than a year's worth of cash in the till, you are in good shape. If you have between eleven months and three months before you run out, you should be getting nervous. And if there's less than three months, you have a cash crisis that will require a big financial infusion, huge layoff, or an orderly shutdown.

2. CUSTOMER BASE: Every business feeds on (or off) its customers, and every customer is important. No matter the industry, every business is designed to sell something to certain people. So if there is no one (or too few) to sell to, such businesses are on the highway to demise. It is therefore highly important for businesses to track the growth of their business through the Customer-growth monitor.
The customer-growth monitor tracks the growth rate in number of customers and revenue. It details the number of users of your product and  how frequently they use it, how many of them are recommending your product to people in their network, how many of them are paying for it and how much they shell out.
Your customer-growth monitor is flashing a green light if more people are using your product frequently, if many of them are recommending it to their network and if an increasing proportion is paying a higher price for it. If customers are not recommending the product and very few are willing to pay for it, find out why and change your product. And if you’re not getting more customers or they’re not paying for your product, then you need to take more radical measures.

3. PRODUCT: It is the job of every business to create value and solve problems; that is how money is earned in return. The value being created can either be a product, a service, or both but whatever it is, it has to give people a compelling reason to give money in exchange, which is why every business needs a Product-development tracker. The product-development tracker lets you know whether you are on schedule for building the right products. It details the timeline for your products, whether your team is meeting its milestones and if not, what’s holding things up and the feedback you’re getting from
customers about the prototypes you're releasing to them.
Your product-development tracker will flash green if you are ahead of schedule and customers are giving useful feedback on the prototype. If you are falling behind on the
schedule and not getting customer feedback on the prototype, you're in trouble -- and should investigate why and make changes

Its vital for every businesses to pay close attention to these metrics. They should be monitored at all times, and not at the end of the year. Every other thing can wait till then but not these.
As Peter Cohan puts it, put them on your business dashboard. This will help you to spot danger signs and respond to them in timely fashion.

Cheers to your business' success

ARE BUSINESS PLANS REALLY NECESSARY?

Whenever we have those ‘light bulb’ moments and great ideas pop into our heads, conventional business wisdom teaches us to scribble down the idea as fast as we can; after which we take out time to examine the feasibility and viability of the idea. When this is done, we are then required to devote our resources into the creation of a business blueprint i.e. the business plan. This plan is supposed to describe (in detail) the main idea, the business model, the market, and the operational steps necessary to convert the idea into a successful business within a specified time-span. Not only does the business plan show the roadmap, it is also said to be a vital tool in raising finance and getting the necessary support and resources to execute the business idea.

However, my experiences as a business owner and a SME consultant have engendered the need to question this wisdom. I have had many entrepreneurs ask me questions such as: are business plans really needed, do they work, is there something better, etc. In an attempt to provide answers to such questions, let’s examine the value of the business plan in light of its uses as a roadmap and a tool for raising finance.

To start with, we live in a world of fast paced change. The dynamism of the modern day business environment has obligated businesses to be highly flexible in structure. This has led some to argue that the business plan is an obsolete business practice due to the need to constantly change business strategies.

However, one factor which is common to today’s successful businesses is their ability to change with the times while remaining true to their essence. The business plan is more or less a long term plan built around certain core ideas and values which serve as the very essence of the entity. This makes it a necessary document even in a highly volatile business environment. Certain elements may change along the way, but through these changes, the business plan helps to monitor the direction of the business in line with set standards.
Also, we should consider the fact that in using the business plan as a roadmap, the entrepreneur is forced to think through his idea bit-by-bit until he arrives at the workable model. This is an invaluable experience in the entrepreneurial journey.

On using business plans as a tool for raising finance, I have found the success rate to be relatively low. To most investors, the business plan is just a bunch of assumptions. They would rather have the business model canvas and a proof of concept. With these, savvy investors can make their decision on whether or not to invest. The business plan might be required for clarity, but it is not a vital requirement.

In addition, the idea of bankable business plan is outdated because entrepreneurs are continually advised not to start businesses with bank loans for obvious reasons. Moreover, banks will rather provide loans to ‘proven businesses’ and not ‘risky start-ups’.

Judging from the two issues raised, it is safe to conclude that although the business plan is of decreasing prominence both in operational and financing matters, it remains an essential document for entrepreneurs especially at the start-up stage.

VERDICT: The business plan is necessary mainly because it helps to fine-tune ideas and arrive at a workable business model. Moreover, you are better of with it than without it.

Do you agree or disagree? Kindly, state your thoughts in the comment section below.

ONE SKILL THAT MAKES YOU AN ENTREPRENEUR

The ever-increasing emphasis on entrepreneurship in today's world has made the term "entrepreneur" more generic than expected. Loads of people in our society today now refer to themselves as entrepreneurs, regardless of whether all they had was an idea in the shower (which remained in the shower), or a venture which started and failed in two months. This is not to discredit the efforts or ideas of such people; rather it points them in the right direction as regards the meaning and roles of a real entrepreneur.

Entrepreneurship has no singular globally accepted definition. However, I like to define it as the process of identifying business opportunities, and coordinating the assembly of all the resources needed to successfully take advantage of such opportunities. By this definition, the role of the entrepreneur then is to identify opportunities, and get the necessary resources to convert such opportunities into thriving businesses. This process requires a couple of skills, the most important of which is the ability to sell.

  

The art of selling is the singular most important skill any entrepreneur must possess considering how central it is to the execution of every entrepreneurial task. From the conception of an idea or identification of an opportunity to the actual running of a successful business, every stage involves the need to sell something.

Once an entrepreneur identifies an opportunity, he needs to sell the idea to others who will help him to bring the idea into life. The start-up team must be comprised of people who perfectly understands how the idea creates value for them, for others, and how they add value to the idea. If the entrepreneur is unable to sell them on the idea, he/she either has no start-up team or has an incompetent team.

Then, the entrepreneur has to sell his business model to investors. He needs to be able to convince investors about the feasibility and viability of his business model. Investors are like sharks who will rip your business model apart and ensure that it makes financial sense before they will agree to invest in your idea. Investors abound and are ready to invest only when they find good ideas with great business models. Every entrepreneur should be able to convince investors that his own proposal is worth investing in.

There are lots of other processes in between getting an investment and starting the business. You need to deal with banks, government, and suppliers, among others. All these 'stakeholders' need to be sold on one thing or the other before an entrepreneur can get the value he requires from them. As long has you desire an exchange of value, you need to sell your value proposition at every step.

Then when all is ready and business commences, the business needs to sell its products or services in order to remain in business. Sales is central to the very survival of the business. If the business doesn't sell, there is no cash inflow, without which the business becomes insolvent. When a business cannot meet its obligations as at when due, it ceases to become a business.

Sales is the most dynamic business section and has evolved the most over the years. New industries such as Multi-Level Marketing were born out of the need to improve sales. Therefore, it is important for every entrepreneur to learn this skill. Usually, what differentiates an entrepreneur from an inventor, is their ability to sell.

 Entrepreneurship is not about getting the best ideas, it is about convincing people to part with value in exchange for what your idea gives in return...that is sales. Selling is a skill anyone can learn; there exists a wealth of resources for those who are willing to. Learn it, Practice it, become skilled at it; when you do that, you will become a real entrepreneur and not a wantapreneur.

 
 
NB: I am more than happy to help you become better at selling, just ask, its free! Drop a comment or send me a message on Google+, Facebook (Davies Okeowo), LinkedIn (Davies Okeowo), or Twitter (@okeowodayvies). I look forward to your message. Sell, and have fun.

3 START-UP LESSONS FROM ADIDAS

You might be forgiven for thinking its a sporting fashion to have three stripes on parts of your sportswear; it is actually not sporting fashion, its a brand identity, Adidas' identity.

All over the world, the Adidas brand is well known.  Its presence in over 170 countries is testament not only to its global acclaim, but also to its reputation as a successful brand by all measures. Actually, one out of three people that read this blog own a product made by Adidas.

Amidst all these however, it is easy to forget that what is today known as Adidas was started by just one creative entrepreneur; who was aged 20 at the time. From those early days in the 1920s he was able to grow the company into a global brand which still exists today, years after Adolf (Adi) Dassler himself passed on. How did he make it through Depression and World War II? In true Adidas fashion, here are three lessons we should learn from Adidas' earliest days.

HAVE A CLEAR VISION, START SMALL

Being a keen runner, Adi's vision was to develop a perfect running shoe. The vision encompassed three guiding principles: produce the best shoes for the requirements of the job, protect the athlete from injury, and ensure the product lasted. Armed with this clearly defined vision, Adi started small but never took his eyes off the vision.
Germany after World War 1 was a tough place to start a business but Adi was relentless. He used whatever he could scavenge to make his shoes including parachutes and army helmets. Working from his mother's kitchen, Adi utilized the "lean startup methodology" to develop his first set of products. He invested "sweat and blood equity" and was able to grow from that point on.

PROTECT YOURSELF

"Business is business, family is family, never mix the two together" is one of the first business lessons I learnt. This lesson is reinforced by the early troubles of Adidas, which was then known as Dassler Brothers Shoe Factory.
Adi loved making shoes but he had no business experience; therefore he brought on his brother who had experience in sales to join the venture in 1924 (which was the right thing to do). This led to the creation of Dassler Brothers Shoe Factory which was registered in the same year. Adi kept designing and innovating while his brother Rudolf, was responsible for marketing and sales. Although these moves grew the company, Adi was left exposed as there were no legal agreements as to the ownership structure of the business.
The growth of the business brought about disputes between the brothers which led to a split in 1948. That split marked the beginning of a bitter rivalry as Rudolf took half of the company's shoe making machines and started a new shoe business of his own. That company eventually became what is known today as "Puma", which is one of Adidas' fiercest rival.

KNOW AND LEVERAGE YOUR MARKET

Right from those early days Adi knew his market, what they wanted, and how to reach them. First, he was his own customer as he tested his products while running to see if it had the proper feel. Then, he made sure he attended all the important sports event to sell, get feedback, and interact with his customers. He initially sold to sport clubs and athletes before expanding to supply footwear to participants at the 1928 and 1932 Olympic games. However, the 1936 Olympics which was held in Berlin was where Adi's growth really began. By this time, most of the German athletes wore Dassler shoes and the brothers realised that the athletes themselves were the best form of advertisement they could use to create a buzz around their product. This led to a new marketing trend as the Dassler brothers became the first company to use sport/celebrity endorsement to advertise their products. Adi went further to persuade US sprinter Jesse Owens to try on Dassler shoes. The gamble paid off as Owens won four gold medals which boosted the reputation of Dassler shoes. That trend is still in force today as sport icons such as David Beckham and Lionel Messi endorse the Adidas brand.
Adi knew his market, and used that knowledge to great effect...you should too.

In 1949, Dassler Brothers Shoe Factory was dissolved when Rudolf went to create Puma. Adi as a result created Adidas and its iconic logo which till today remains the second largest sportswear company in the world behind Nike.

Those efforts of Adi in the 1920s were the foundations of Adidas which now employs over 45,000 people. If that business could survive the economic and political climate at the time, then your business too can survive today. Just learn these lessons and ACT ON THEM.

***your feedback is important for the growth of this blog, please let me know your thoughts by dropping your comments. I will be more than happy to reply them***

The First Thing Every Creative Entrepreneur Should Know

Dumping a career in the corporate world to explore the boundless opportunities that lies within one's creative genius is quite common in our environment today. The lure of doing what you love is the singular most important factor that encourages creatively gifted people to become entrepreneurs. Consequently, we have a vibrant creative industry that is filled with people who are passionate about what they do...if they have a scalable business is another question altogether.

It is safe to say that the creative industry is home to the largest number of micro businesses. While a few have been highly successful, 98% of creative entrepreneurs are basically self employed. Note that being self employed (which means owning a job) is quite different from being an entrepreneur (which is more about creating systems which creates wealth). Many creative entrepreneurs today are frustrated in their bid to grow their businesses. Of course they produce great products, they love their work and are best at it; those however are not the full recipes for building a scalable business.

So if you're one of those "unsatisfied" creative entrepreneurs, or you know someone who is about to ditch a job for the pursuit of their passion, here is the very first lesson you must learn...

As an entrepreneur, its never enough to do what you love to do, you have to also do what you need to do

Its one thing to be a creative genius, its another to be a successful business person. Business success requires a lot more than great products. A business is a system not an hobby. So if as a creative 'hobbyist' you want to build a successful business, here are the skills you need to develop (just basics, they're not difficult).
1. Selling skills
2. Basic business law
3. Basic accounting
4. Web, Internet, and Social networking
5. People skills
6. Technical Investing (if you desire to expand your portfolio)

These basic skills are pivotal to the success or failure of any business. As a creative entrepreneur, you must learn these basics. This doesn't substitute the role of professionals in these areas, rather, these skills helps you to understand your business and helps you relate better with all stakeholders.

As a micro business, learn these skills or build a team that balances them. As you grow bigger, you may then hire professionals to handle each aspect. By so doing, you will be laying the foundation for a highly successful and scalable business; thereby creating value and contributing to social development while still doing what you love.

Entrepreneurs are perpetual students, and an "I don't like that area" mentality will not work. No one is asking you to became an business guru overnight. Just acquire basic knowledge of all these other areas.

Remember, its great that you love what you do, but if you're serious about building a business, you've got to do what needs to be done.

Thanks for your time.

3 LITTLE THINGS THAT KILL BRANDS

I am sure you know Coca-Cola even if you don't drink it. You might use a computer made by another company but you sure do know Apple. Some of us don't even have a McDonald in our towns but this surely isn't your first time of hearing that name. Although these businesses have different interests, they've all got one thing in common...a great brand.

Whether you are a business veteran or you're just dabbling into your first venture, we all have heard about branding; which can be simply said to be the complete identity of an entity. Your brand is the outward appearance of your core internal values.

The Coca-Cola brand name in itself is said to be worth more than its entire product line. This is an example which portrays the value of a brand. Over the years, many businesses have failed because of failure to define or manage their brand properly.

Unknown to many, the brand is very much attached to the core of the business. A failing brand cannot be revived by pumping in money because money has very little influence on a brand. On the other hand, issues that are seemingly insignificant are what determines the strength of a brand more than any other. Your brand is your value, you brand is your message, it also is your promise.
Amidst many others, here are three little things that kill brands.

1. FAIL ON YOUR PROMISE: People buy from great brands not necessarily because they make a great product, but because they constantly deliver on their brand promise. For example, Walmart's promise is cheapest prices, Apple promises innovative designs, Virgin's promise is the best customer service. These businesses have succeeded because they have built a business structure that consistently delivers on their brand promise.
Customers patronize you because they expect something from you that your competitor doesn't offer. The moment you fail to deliver on that promise, they will begin to look elsewhere. So if you really want to build a strong brand, define your brand message, and build a business model that helps to consistently deliver that promise.

2. INCONSISTENCY: As with many other endeavours, consistency is pivotal to sustaining a brand. It is what gives first time customers the confidence to become repeat customers, and it is what makes repeat customers become your advocates. Consistency is the ability to maintain your core brand values amidst the turmoil of the ever-changing business environment. It means complete and continuous alignment of actions with expectations. Coca-Cola has been around for over a century, it has gone through several recessions and wars, its made many errors, but its brand values have remained the same.
Entrepreneurs who focus on trying everything will burn out fast. Know your strengths, build systems that leverage your strengths, and stick to it.

3. LACK OF ACCOUNTABILITY: We have emphasized the need to consistently deliver on your brand promise. However, that doesn't mean you must become "failproof". Even the big brands have had blips along the way. But in order to keep growing your brand, when those blips happen, be accountable to your customers. When many businesses run into problems (if you stay long enough in business, its inevitable), they try to gloss over it or sweep it under the carpet. Your brand is a promise, if for unforseen reasons that promise fails, own up to it and restore the confidence of your customers. People want to know that you care about them; so you should get in front of the customer, be accountable, and be sincere in your efforts to correct the wrong. That puts everyone at rest, restores confidence, and strengthens the bond between your brand and your customers.

Understanding the dynamics of a thing teaches you how best to deal with it. A brand is vital to the sustainability of any business; these lessons are vital to the sustainability of any brand. Business is easy, just understand it.

Customer Acquisition Cost: An essential metric for Startups and SMEs

One out of ten businesses fail in their first year of operation! If you are familiar with the SME world, this is no news.

Inadequate funding, wrong pricing, and poor cash flow management are some of the factors responsible! Again this is no news to most of us.

Customer Acquisition Cost is one major metric that determines the success or failure of many businesses! Wait a minute, what on earth is Customer Acquisition Cost?
Not many of us have heard of Customer Acquisition Cost before now. Nevertheless, it remains a major determinant of business success or failure.

Customer Acquisition Cost (CAC) is an important metric which calculates how much it costs a business to convert prospects into paying customers over a specified period of time. It takes into cognisance, every cost related to acquiring a customer such as marketing and sales figures (which is quite obvious), and the time spent on nurturing prospects. You might argue that the time spent on nurturing prospects is not a cost; however if your business grows large, you will have to pay someone to do that.
CAC is calculated by simply dividing the total cost incurred in attracting new customers over a period by the total number of customers gotten during that same period.
For example, if your costs for a year totalled $50,000, and you got 500 new customers during that period, your CAC is $50,000÷500 = $100.

However, for effectiveness, the CAC is used alongside another related metric called Lifetime Value (LTV), which measures the lifetime value of a customer to the business. LTV is the gross margin expected from each customer over the course of your business relationship. This takes customer retention efforts into consideration as well.

Simply put, business success is when CAC is less than LTV. So if it cost you $100 to acquire a one time customer who earns you a $30 profit, you are experimenting with an unsustainable business model. If however the customer earns you $400, then you business is poised for growth.

If this is the case, then the action point for any business is to seek ways to reduce CAC and increase LTV. This however should not be done by slashing your marketing budget (as most business owners do) as this will not reduce the CAC. From the previous example, if the cost is cut in half to $25,000, it will most likely result in  an equal reduction in new customers acquired (250) which leaves the CAC at $100 still.
What should be done instead is to identify the most effective marketing medium, and then redirect funds towards the identified efforts. This is just one of many ways of reducing CAC. You may also improve LTV by learning to retain your customers. LTV is measured on repeat business so we should seek ways to ensure that. Encouraging your customers to become your advocate is another major way of bringing your CAC down.

Understanding CAC is of great importance to any business as it helps to focus your marketing efforts. For startups, CAC is even more important for its role in defining the business model, and its role in cash flow analysis and revenue projections. Investors also look out for this metric because it helps determine the safety of their investment.

In conclusion, it is recommended that your LTV is 3 times your CAC. This maintains your business equilibrium, and creates the platform upon which the growth of your business is based.

So, whether yours is a startup operating from your garage, or you have 20 people employed in your stores, as long as you desire to be profitable, as long as you desire to scale your business, you MUST identify and (rightly) balance your CAC and LTV.