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Business Case Studies - Real Life

by John van der Graaf and Ralph Blakey

“Everyone learns from failure.” That condescending platitude is usually handed to us by people who have never really experienced or admitted to failure. No one wants to talk about failures. They are negative. They are depressing.

If you want to learn how to succeed in virtually anything, however, there is a plethora of sources giving great advice. Your favorite bookstore is stocked with business and self-help books telling you how to succeed in whatever endeavor you choose. You can even learn how to successfully build a deck on your home if you buy the right book or go to the correct website.

This advice is given by people who have achieved “success” in their chosen fields. We all emulate them. However, there are many people who have read all the books, done all the right things, and yet have failed, or are struggling in their business endeavors. The thing worth considering is that none of these authors ever write about when they made a mistake. Has any author of a book on how to successfully build a deck ever told you how much lumber he wasted until he learned to do it right? Has the author of the self-help book admitted to how many failed marriages she has had? Probably not.

There is truth to the statement that we learn from our mistakes. As small-business owners who have experienced a degree of success, we have profited from our mistakes, our failures. The following are some of our mistakes, our failures, to spare you from experiencing the same.

Don’t Hire Friends, Family, Or Ex-Spouses

Unless they truly share your vision, dreams, and goals for your business, they can use and misuse you no matter how strong your friendship or how qualified they are for the position. You are his or her friend, or family member, so you simply will not come down on that person when he or she does not perform.

Friends are great drinking partners, companions, golf buddies, etc. They are questionable employees. Your friendship will be strained at best, destroyed at worst. Keep them as friends. Do not hire them unless you have clearly laid out your vision, your goals and your expectations. Ensure they know the conditions of employment. Friends and family must be treated exactly the same as any other employee of your organization.

Learn How To “Fire” Clients Or Customers

The old adage, “the customer is always right,” is wrong. Frequently, the customer is not right. Sometimes, in fact, catering to a specific, demanding customer can cost you more than you make. It is the old “cost-benefit” ratio. Does Wal-Mart come to mind?

We have had some clients who would have destroyed our business if we had maintained the relationship. We entered into contracts with them to provide specific services for established rates, timelines and with a cap on our charges. We were comfortable with the contracts as were our clients. That is until they began to make more and more demands. They expected, required, even demanded so many services

Because they were very visible, highly prestigious organizations, we took pride in having them on our client list. They were great selling points for future business. However, their demands became outrageous, their arrogance so overbearing, the benefit of having them as clients was simply too expensive. They were also extremely slow in paying for the services we rendered. We had to “fire” them. Using a clause we write into every one of our contracts, we had the right. They were outraged. We had no choice. Upon our explanation for the cancellation of the contract, they were only somewhat contrite. No one had ever rejected them before.

Outrageous clients are not worth the time or the money. Learn to fire those who, no matter how much they are paying, are taking from you psychologically, emotionally, even physically.

Don’t “Undercharge” To Get A Client

Price, first of all, should never be a selling point. As business owners, we want and need that contract, that customer. Frequently, we are tempted to underbid simply to obtain the business. We think that, ultimately, we will make up for the initial financial loss through increased or peripheral sales. It does not work.

Pricing is one of the four “P’s” in marketing. Under-pricing on just one project can destroy your operation. Obviously, if you under-price your profit margin is reduced, even eliminated. Perhaps most importantly, so also is your reputation. Your future earning power certainly has been affected.

Never “undercharge” to get a contract. If you have the product or the service, charge accordingly. Don’t “undersell” yourself. Your value is not determined by the quality of your work. It is determined by the cost of your services. Certainly, you must provide quality works or products, but price them to sufficiently attract those to whom cost means quality.

You Represent Your Business All The Time

If you are striving to grow or develop a small business, you must realize that you represent that business all day, every day. Depending on your clientele and the market you want to penetrate, you must portray the essence of that business everywhere, every day.

So many examples illustrate this. Regardless of whether we think it is fair or not, reasonable or not, it is reality. Here’s one example. We had a staff “Happy Hour” in the bar of a restaurant just a few doors from our offices in Clayton. Our staff was in attendance and all were enjoying the event. They were not in any way loud, obnoxious or unprofessional in spite of the drinks consumed.

We, as management, attended for a short period of time. As we were leaving, we encountered the CEO of one of our clients who had just had dinner in the restaurant with his wife. As we greeted each other, he asked, “Are those your people?” We, of course, responded, “Yes.”

He grunted and said, “I’m a Christian. I don’t abide the use of alcohol.” We wanted to say, “We’re Christians too,” but we refrained. Though our performance and relations with his company had been very positive and productive, when our contract came up for renewal, it was not even considered. From then on, any staff gatherings and celebrations were either held in the office or in a reserved room of some establishment.

Diversify Your Customer/Client Base

You have identified a need. You have developed a business to address that need. Your primary customer/client is a huge organization or business that requires your product or services. You have obtained a tremendous contract with that customer, who is paying you a lot of money. You expand your staff to meet the demands of the contract.

Your operating expenses have certainly increased, but you have done your financials and know that your income will exceed expenses and you will have a comfortable profit. Everything is going well. You are feeling pretty good about the situation.

The contract is for three years. Eighteen months in, you are skating along, making money, doing your job. Everyone is satisfied. Because things are going so well, you are confident the contract will be renewed. You might have stumbled upon a couple of smaller contracts, but you did not really pursue them as your concentration is on meeting the requirements of the primary contract, the real money producer.

All of a sudden, your primary customer is purchased by another organization. Or, your customer’s market disappears. It could be a natural disaster, political changes, even a management change. Whatever the cause, you are out. Your contract is negated.

Your major source of income has just disappeared. Now, you have employees relying on their jobs for income for themselves and their families. You have accounts payable. Your business is skidding down a swift slope. Your other minor contracts can, in no way, sustain you. Your comfortable ride has ended. You ask yourself, “What did I do wrong?”

The key is to diversify your market. We moved from a focus on not-for-profit agencies and organizations to include for-profit entities. Flexibility and diversity in marketing is a key lesson to learn.

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The Carnival of the Entrepreneurs 13th edition has chosen this article as one of its “best of the week” (March 7) picks. You can see it and many other wonderful, inspiring and informational articles at Ben Yoskovitz:The 13th Carnival of Entrepreneurs At Your Doorstep.

Carnival of Small Business Issues - Edition 3 has chosen this article as one of its “best of the week” (May 25th) picks. You can see it and many other wonderful, inspiring and informational articles at Atlantic Canada’s Small Business Blog.

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