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<\/a> Whether you\u2019re operating a start-up or an established business, the small-business world can quickly become a minefield. Briefly, let\u2019s review the more common types of business disasters faced by entrepreneurs and small business owners today.<\/p>\n- \n
- Neglecting your marketing and letting your new-customer pipeline run dry<\/strong><\/li>\n<\/ul>\n
If you enjoy the company of entrepreneurs, like I do, you will eventually hear complaints about the feast and famine nature of their business, particularly with solo entrepreneurs in service industries. The feast-and-famine cycle goes like this. Your business starts in a famine state, because you usually don\u2019t have a large revenue stream from day one. You market your services for months and finally acquire a client. Then you work full time serving that client. You are now in a \u2018feast\u2019 state. Time passes and the client\u2019s project ends. Wait a minute\u2014you’ve stopped marketing! You spent all of your time serving your client instead of selling your services. Damn! The famine state returns. Again you market full time to acquire your next client. You eventually land a client, and the feast-and-famine cycle continues.<\/p>\n
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- Customer concentration risk<\/strong><\/li>\n<\/ul>\n
Simply put: Don\u2019t put all your eggs in one basket. By definition, if one of your customers represents more than 10 percent of your total revenue, then you have a customer concentration risk in your business. The higher the percentage of revenue that one customer represents, the greater the business continuity risk. You have to face the difficult question: what happens to your business when your largest customer disappears? Will you go out of business? How will you manage that scenario?<\/p>\n
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- Non-customer-based funding<\/strong><\/li>\n<\/ul>\n
I worry about start-up businesses that raise equity angel funding or take out a loan too early. You can keep raising equity funding like a start-up dot-com from the 1990s, but equity funding eventually ceases if you don\u2019t make a profit. Alternatively, you can borrow money, but it must be paid back. What, then, is the long-term funding solution? Eventually customers are the only long-term source of funding for any business. Equity and debt should be treated like catalysts and timing solutions, respectively.<\/p>\n
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- Overly optimistic sales and marketing projection<\/strong>s<\/li>\n<\/ul>\n
Most of the business plans that I read contain overly optimistic sales projections based on their sales and marketing efforts. Be conservative with your expectations and you can avoid this disaster. Problems surface when we spend our money before earning our sales. While it\u2019s true that you have to spend money to make money, you do not have to spend most of your money before making any money\u2014or at least establishing a sales trend. Wouldn’t you rather under-promise and over-deliver?<\/p>\n
- Overly optimistic sales and marketing projection<\/strong>s<\/li>\n<\/ul>\n
- Non-customer-based funding<\/strong><\/li>\n<\/ul>\n
- Customer concentration risk<\/strong><\/li>\n<\/ul>\n