What type of Business do You Run?

The question that must be asked of every business owner and manager is… What type of business do you run? Most of business people reading this will probably swiftly reply that they are in a specific industry or sector. Essentially you are right, that is the industry/sector that you operate in, but in more simple terms businesses (ALL businesses) can be split into four broad types: growing businesses, cash cow businesses, lifestyle businesses and failing or declining businesses. This can be applied to any business from a shoeshine business on the street corner to a software company.

A discussion that I have had on many occasions with business owners follows the basic pattern of… “it is a way of life not a business…” Whilst in many ways that is true, and can be for many businesses, to view your business as a way of life is potentially a huge barrier to progress and success.

A business can be a way of life, but turn this idea around and consider it from a different viewpoint – without the business there is no way of life!

The closest that you can get to my farmer clients’ view of a business being a way of life without running a very real risk of the business failing is to be a lifestyle business.

At this point some readers may be thinking that I have just contradicted myself but I have not. A lifestyle business is one where the owner/s consciously decide that they will run a business that can give them a desired standard of living and also be a business that they enjoy. This could be a business in almost any industry sector. Many people run “successful” life style businesses. But it should be remembered that often these “lifestylers” have had successful careers before entering the lifestyle business arena and are often financially secure before they start – a major benefit if they are competing against others who have not got that fortunate head
start.

If you are reading this, then it is likely that your business either is, or you should be aiming to be, in one of two categories – either a growing business or a cash cow business.

What, I can hear some of you saying, is a cash cow business? It is essentially a business which has an established product or service which it is selling into an established market with the minimum of effort. Coca Cola and Pepsi Cola could be considered to be this type of product.

Businesses that are in the position of having a cash cow are fortunate. Time will tell if your business will get to the same position.

Businesses in growth are often obvious, both to the owner/manager and also to the onlooker. The business is seen to be seeking out new work and/or continually busy. Often it will be employing additional staff – either on a permanent or temporary basis. The main problems that these businesses have is that of too rapid expansion or competition. In the case of competition, this can mainly be of three types – the well established, the business in growth stage or the business that is coasting (or in decline). A well-established competition can spell the end to a smaller business’ expansion plans unless the market place is also growing (look at the mobile phone market… still experiencing rapid growth with lots of businesses entering the market).

If the market is not growing and you want to grow your business you need to have a unique selling point (usp) – particularly if there is an established player in the market. More so if that player has a cash cow. At this point the manager of the growing business must ask themselves two very searching and serious questions – do they have that usp and can they afford the cost (both financial and emotional) of what may turn out to be a full blown battle with the established player? It is often the latter question which many over look – all too often to their detriment!

If the owner/manager doubts either that they have a usp or that they can afford the cost, then they should seriously look at their motives for entering the market and, most likely, look elsewhere to expand the business. A large and established competitor can and will eat them up and spit them out.

Rapid expansion can be good for the growing business, but only if it is strictly controlled and planned. Those businesses that grow fast and in an unplanned way are often inherently unstable at their core – they have an unsustainable level of business. Often in service orientated businesses (contracting for example) the initial level of business that is encountered is high and the manager wrongly over estimates the level of sustainable demand having wrongly interpreted the initial interest from customers and grown the business rapidly to match.

Care must be taken when you are interpreting the initial level of demand. Consider whether it is sustainable, and why it is at the level it is when you start your growth drive. Always look at the potential for growth conservatively. However, that does not mean that the level of demand that you encounter at first will always be inflated; sometimes it is the reverse – effective market will show where the trend is likely to be.

The final category is that of the failing or declining business. The two are similar, but not the same. However, both will result in the business closing.

A declining business is often one where the owner/manager is reaching the end of their working life or have lost interest in the business and are just letting it come naturally to an end; slowly, without deliberately shutting it down over night.

The failing business however is the on where the owner/manager has lost direction by taking their eye off the ball. This could be for a number of reasons, for example they may have little or no knowledge of the current changing market place. Alternatively they may have failed to react appropriately to changes in the market place and have therefore been overtaken by competitors.

People who consider their business to be “a way of life” often do not react to change. I have seen too many of these businesses who tell me that the way they do business is right “cos my grandfather did it this way and ‘is father afore ‘im” fail. Our forefathers wore skins and hunted with spears… but they evolved and welcomed change – if they hadn’t we would not be where we are today.

A successful business can become a way of life, but a way of life does not become a successful business.

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