After a successful career in marketing, April John decided to start a shoe retail business. The retail store will sell specialty shoes specifically made to increase the activity level of seniors by reducing the stress on their feet. The business became so successful that April within the span of a year opened three other stores. April took loans to finance the opening of these three stores.
April could not believe how fast she was growing. April started adding additional product lines which took her away from her original concept of “keeping seniors active”. She added a kid’s line of products so grandparents can pick up a pair of shoes for their grand kids. With more product lines, came the need to finance inventory. Cash flow problems became an issue and on several occasions, April came very close to not making payroll.
The market had also become attractive to competitors as they tried to imitate April’s success. With increased competition and restrained cash flow, April was no longer able to allocate resources to new product development for her senior citizen market. Traffic to her stores began to decline as her customers were looking for something new. April was very close to losing all four stores.
Looking at April’s story it seems like April’s major problem was cash flow. But looking deeper, you will see a more integral problem. April lacked focus in her business. She had no plan, and she did whatever felt good at the time. Her cash flow suffered as a result. As entrepreneurs, it is so easy to divert from why we went into business in the first place. Staying focused is one of the hardest things for us. This is why we need systems to keep us in check. Without systems we spread ourselves too thin. How could April make her growth more manageable? April could have done the following:
Create a map
April should have created a map of where she wanted to go. She should not have added a kid’s product line without evaluating how this addition would have affected her existing strategy. Why it might have seemed like a good idea to sell children shoes to grandparents, April did not consider the financial consequences
of her action. Adding new product line means tying up cash in inventory. Tying up cash in inventory means April cannot serve her current market as well as she could. She had to forego market research to sell children’s shoes. She did not realize that seniors did not come to the store to get children shoes, they only bought the children’s shoes because they were already in the store. If no innovation occurs, her customer traffic also dries up. If she had a plan, she will look for alternatives which will allow her sell children’s shoes on consignment.
A map allows you to focus and focus allows you to maximize the returns on your investment. By staying focused on her seniors’ market, April would have continuously sought ways to help them.
Create a budget
Once a plan is created, the next step is to add numbers to the map – this is called a budget. Every business has financial constraints, and cash should be invested in markets that yield the highest return given the businesses core competencies. A budget is the reality check that says, “You can’t do it all”. Therefore, choose wisely!
Cash Flow Management
If you are a business that heavily depends on supplies, inventory, employees or contractors, then cash flow management could become an issue. April never took the time to develop good vendor relationships. Good vendor relationships allow you to better manage your cash while getting the best deals on your order.
Something else, April needs is a line of credit to finance cash shortages. April, over extended herself by getting multiple loans to open up three other stores and her bank did not want to lend her more money. This is another area where having a plan comes in very handy. If April, had a plan, she could have foregone opening up three other stores in exchange for a line of credit to finance her cash shortages. Being overextended, presents you as a business risk, which makes it less attractive to investors. Slow but sustainable growth is better than fast growth that liquidates you.
Learn to say NO!
Learning to say no could be hard at first. But, this word gives you the freedom to do the things you really love. Growth becomes very stressful if you never learn to say no. Each time April clients made a comment about something she could do in her business, she implemented without considering how it will affect the overall financial health of her business. This made April stressed to the point where she could no longer serve her original customer base effectively. You cannot do it all. A jack of all trade, is a master of none. Master one thing to the exclusion of others. Have gazelle focus, intensifies your growth.
In summary, as entrepreneurs we go into business because we are passionate about a cause, a product, etc. We want to change lives and we deeply care. These same attributes that makes us successful also could become our downfall if not properly managed. Passion has a “dark side” and as entrepreneurs we need to be aware of what these are and address them appropriately. This is why it is important to surround ourselves with people that keep us accountable. If we don’t, we find ourselves spending our money in foolish ways and even worse, we find ways to justify it!