Hunkering down in tough times

John started his career selling local insurance products. Eventually through perseverance, charm, good business acumen, and the strong support of his wife, he started his own insurance brokerage. At the height of his success, his company was raking in over US$5 million in insurance premiums. For a small company with under 40 employees, John was the epitome of success. You could argue that his strategy to stay focused on a specific market segment and narrow band of products (he only sold products from one principal) paid off.

Today his company is on the brink of failure. What went wrong? As a business, you could surmise that greed and pride were at the roots of the impending demise of his company. He and his wife decided to take a back seat and let the children run the business. The children were inexperienced at managing people much older and more experienced than they. The company elected to diversify its product portfolio approaching several principals and using the company’s track record to secure lucrative deals. Sibling rivalry pulled the company into different directions as employees lost direction, drive, interest and loyalty. John’s dream of building a dynasty is in the brink of oblivion. At this very moment, he is trying piece together plans to resurrect his business. Is he too late?

John’s fate is not an exception. Nor is it the stuff of local soap dramas. Rather it is endemic of business cultures that fail to use initial success to drive growth and innovation. It is also a lesson in separating personal interests from those of the business. Neither is his company a norm. AllBusiness.com, a D&B company lists 10 reasons for failure:

  • Overexpansion
  • Poor capital structure
  • Overspending
  • Lack of reserve funds
  • Bad business location
  • Poor execution and internal controls
  • An inadequate business plan
  • Failure to change with times
  • Ineffective marketing and self-promotion
  • Underestimating the competition

In the case of John’s story, we add failure to assess the situation arising from a change in management and addressing it quickly enough to correct earlier mistakes (errors in judgement as some might like to call it).

Sin Yong Loh, General Manager of CrimsonLogic eTrade Services in Singapore, says that many small businesses are operated by “old timers” who are set in their ways. Yes, they see and hear about how new technologies can change the way they do business – in some cases, efficiency gains are obvious. “But some would rather spend $10,000 on entertainment than the equivalent in a tech solution that would boost sales or improve efficiency,” adds Loh.

He is right. I’ve seen first hand where owners of small businesses would spend hard-earned revenue on gifts given to themselves or family or friends, rather than on ventures that, if executed properly, would result in more business.

Consider the story of Jollibee Food Corporation. What started as an ice cream parlor in 1985 is today one of the most successful fastfood chain in the Philippines. Just two years after setting up shop in a commercial district of Cubao, the owners brought in a business consultant who used market research to identify a new market opportunity. The rest is history.

John did bring in an external person to try and streamline his business. But family-politics ensured this venture would fail. John listened to other “experts” about technologies that could help bring his company closer to their clients (a.k.a. customer relationship management) but his non-techie children took the reigns on these project and, once more, doomed this venture.

So where does this story leave us? The current financial crisis that started out with bad home mortgage loans qill force many small businesses to close, even as bigger companies brace themselves for tough times. Small businesses can survive using good business acumen and a bit of technology. Being small implies that they are nimble and can react faster to market forces. But being small also means they are on the bottom of the pile when it comes to secure additional funds to support the business during hard times.

Danny Lau of the Hong Kong Small and Medium Enterprises Association, predicts that by end of 2008, “maybe only 50,000 Hong Kong-owned businesses will remain,” from about 70,000 in the province (Guangdong).

There are no hard and fast rules when it comes to running a business. In good and in bad times, it pays to watch closely, listen intently, spend wisely and act prudently. These are age old habits that have stood the test of time.

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