Post: #1

Inspired by this thread: /thread-3869.html

I wanted to poll people for ways you've seen (or heard of) small business owners screwing up their business with clearly-bad decisions or easily-avoidable mistakes.

I can think of a couple cherries to pick:

-Hiring unqualified people for specific-skill functional work. For example, hiring general office lackeys or hot chicks off the street to keep the books, or promoting a secretary with no accounting/reporting experience to the the job.

-Allowing one's personal life to mix with office work - bringing in personal associates to work there who aren't the right fit, allowing nepotism or personal politics to influence company decisions in a negative way, banging people at the office (something the big boss should never do), or probably worst of all dumping your current spouse/gf to date someone at the office.

I'm sure people have other lessons in managing growth, recruiting/hiring, finance, and market selection. Would love to hear some stories.

Post: #2

diversity

Post: #3

(12-30-2015 06:28 PM)NewMeta Wrote:  diversity

I'd put that under two bad moves:
-Fooling with your hiring criteria to emphasize anything other than getting the best people for your organization
-Moving the mindset of your organization away from producing and selling your product/service and into social interest or simple feel-good management

Post: #4

Trying to expand too fast.

Post: #5

As an insolvency accountant dealing with companies in liquidation (both voluntary and court appointed), and in receivership, I deal with this on a daily basis.

The number one reason that companies fail - they do not make adequate provisions for taxation and or/superannuation to their employees, which is a symptom of poor financial/strategic management on the directors' part (which are the ones that should be across everything, so blaming the company accountant/bookkeeper is moot).

Most company directors have a decent grasp of what they're doing in terms of the product or services they provide, but lack the business savvy to survive in an increasingly competitive and evolving economic landscape. They think they can continue to operate like they did 10 or even 5 years ago, and that everything will be ok. Just like a relationship, you have to bring your A game if you want it to thrive.

Insolvent trading is a big issue, whereby the director(s) become personally liable for those company debts incurred whilst they traded insolvent. Part of my job involves investigating the mitigating factors and reaching a conclusion about the date in which the company became insolvent. In almost all cases, the factors are glaringly obvious (creditor demands, aged payable blowouts, poor liquidity), and insolvency is present at least 6 months prior.

Directors will argue "but things were starting to pick up, we had these big contracts on the horizon", or "we were waiting on payment from a debtor, if they had've paid, everything would be fine". The problem is, they are relying on everything going right, when that's not the real world and not a healthy way to run a business.

Some other things I've seen in my line of work:

- director (of mining sector company) thought it would be a good idea to build an ostentatious, way over-spec'd shed, then make a distribution to shareholders in the millions. Maybe justified in a booming economy, but the mining sector is tanking here. He also didn't diversify enough, and his main contractor didn't renew, therefore the company became insolvent.

- disputes among directors are fairly common, as is company fraud i.e. one or more company directors misappropriating funds. When it is just one director/shareholder, then the potential for mismanagement is actually far greater, mix that with an addiction or gambling problem (which I see quite a bit of) and funds can be drained pretty recklessly.

- economic downturn (or industry specific downturn), increased competition and increases in costs are fairly common too. Prime example of industry specific is if a major player exits, the smaller dominoes fall due to work drying up. This can also have an effect on unrelated support-type businesses too.

The ones I feel sorry for are the employees of the company, as the directors are complicit for the most part. Often they won't know they're about to lose their jobs until a couple of weeks before (best case scenario) or even the day before the company enters into liquidation. At least the Australian government has an initiative whereby unpaid employee entitlements are covered, otherwise they'd be truly fucked over.

Post: #6

Bulletpoints I've witnessed in the retail automobile industry:

-Growing too big too quickly
-Not understanding your market
-Nepotism
-Hiring incompetent women based on the desire to be surround by women*
*This can serve a marketing end as a greeter, etc. but you need to impose limits.

I've seen a two-million dollar investment crash and burn in 11 months. A couple from West Virginia sold their small town Ford franchise dealership and started a retail used car dealership in Florida. The location was a former Dodge dealership (one of the many franchise stores shuttered in the most recent bankruptcy) and was a large, relatively turn-key modern facility with six-lane highway access and a new Wawa 24/7 convenience/gas station opening adjacent.

Cash cow, right?

Wrong.

Hired a large, bloated ~30 person staff, including a floor manager, four girls in accounting, two sales manager, a dedicated wholesale buyer, and seven salesmen (again, mentality of operating a new-car store). Keep in mind this was for an inventory of ~40-50 cars, which can be easily handled by 4-5 full-time staff members doing multiple tasks. The wholesale buyer was a moron and paid way out of book for generic former rental cars and undesirable junk you can buy anywhere. They also invested thousands and thousands remodeling the facility - which was NOT in need of it - and even had those lockable key boxes you hand on car windows ($40/per). Bought radio ads, TV spots, etc.

They lasted 11 months and shuttered.

Shows that money and even experience cannot necessarily guarantee success.

Post: #7

(12-31-2015 01:22 PM)dicknixon72 Wrote:  Bulletpoints I've witnessed in the retail automobile industry:

-Growing too big too quickly
-Not understanding your market
-Nepotism
-Hiring incompetent women based on the desire to be surround by women*
*This can serve a marketing end as a greeter, etc. but you need to impose limits.

I've seen a two-million dollar investment crash and burn in 11 months. A couple from West Virginia sold their small town Ford franchise dealership and started a retail used car dealership in Florida. The location was a former Dodge dealership (one of the many franchise stores shuttered in the most recent bankruptcy) and was a large, relatively turn-key modern facility with six-lane highway access and a new Wawa 24/7 convenience/gas station opening adjacent.

Cash cow, right?

Wrong.

Hired a large, bloated ~30 person staff, including a floor manager, four girls in accounting, two sales manager, a dedicated wholesale buyer, and seven salesmen (again, mentality of operating a new-car store). Keep in mind this was for an inventory of ~40-50 cars, which can be easily handled by 4-5 full-time staff members doing multiple tasks. The wholesale buyer was a moron and paid way out of book for generic former rental cars and undesirable junk you can buy anywhere. They also invested thousands and thousands remodeling the facility - which was NOT in need of it - and even had those lockable key boxes you hand on car windows ($40/per). Bought radio ads, TV spots, etc.

They lasted 11 months and shuttered.

Shows that money and even experience cannot necessarily guarantee success.

Sounds familiar what town?

Post: #8

I'd say the following are often critical mistakes or overlooked by small business owners.

#1 Not having a formal business plan.

#2 Not having a formal marketing plan

#3 Not having a formal partnership agreement

#4 Being under-capitalized

Small businesses are usually/often started by someone who has experience in a particular field without necessarily the required business acumen to run a successful enterprise. For example a really good engineer or a world class chef don't necessarily have the necessary competencies to run an engineering firm or restaurant respectively.

Without the 4 items above, a small business is more or less "spraying" hoping to get lucky rather than focusing on the things that increase the likelihood of success

Post: #9

(12-31-2015 01:37 PM)el mechanico Wrote:  Sounds familiar what town?

Holiday, FL. It was Beford Auto, where the old Plaza Dodge used to be on US19.

Post: #10

(12-31-2015 02:07 PM)dicknixon72 Wrote:  

(12-31-2015 01:37 PM)el mechanico Wrote:  Sounds familiar what town?

Holiday, FL. It was Beford Auto, where the old Plaza Dodge used to be on US19.

Hahaha that's what I thought do you know the couple? They never had inventory and GOD DAMN Holiday FL???? That's the last place you want to start any business unless selling OXYs.

The guy that owns that building is a real dick to deal with too. They didn't buy it did they?

Post: #11

(12-31-2015 02:21 PM)el mechanico Wrote:  Holiday, FL. It was Beford Auto, where the old Plaza Dodge used to be on US19.

Hahaha that's what I thought do you know the couple? They never had inventory and GOD DAMN Holiday FL???? That's the last place you want to start any business unless selling OXYs.

The guy that owns that building is a real dick to deal with too. They didn't buy it did they?
[/quote]

I don't know them personally, but the place I run is in the vicinity and I wholesaled them an '05 Town Car through the sale one time. That was a stupid story, but I digress...

A lot that size, you must have at LEAST 100 units to even look halfway full. I learned years ago - better have a small lot that's full than a big lot that's empty. Always looks like you're teetering on the edge of shutting down.

Holiday and West Pasco sucks unless you take blues and 80-lb prostitutes as down payment. Hate that part of town.

I heard he bought the facility, which he didn't; he leased it. I know the guy who owns the property - vestiges of the old families in Tarpon Springs. Think they own North Pinellas, I'm sure you know the type. Some of them are fine, but most have that attitude.

Post: #12

If you guys ever want to write a book on how to run a business into the ground come to Florida and watch it unfold day by day.

Post: #13

(12-31-2015 03:24 PM)el mechanico Wrote:  If you guys ever want to write a book on how to run a business into the ground come to Florida and watch it unfold day by day.

FL deserves it's own corner of the internet. I'd call it "Wackypedia".

I say that as a someone who was born there and visits often

Post: #14

(12-31-2015 02:00 PM)PapayaTapper Wrote:  Did every one of these:

#1 Not having a formal business plan.
-tried it a few times, was amazed how little it resembled reality.

#2 Not having a formal marketing plan
-Mine was get on the phone and beg stores to stock my product.

#3 Not having a formal partnership agreement
-Did that one too late. My so-called business partner brought in four accounts in ten years. He got pissed when I asked him, as sales manager, to ACTUALLY GO OUT AND SELL SOMETHING.

#4 Being under-capitalized
-Ha, my prime investor was VISA.

Small businesses are usually/often started by someone who has experience in a particular field without necessarily the required business acumen to run a successful enterprise. For example a really good engineer or a world class chef don't necessarily have the necessary competencies to run an engineering firm or restaurant respectively.
-Yep. After years in a lab I was going to go out and show those Mutha's.

Without the 4 items above, a small business is more or less "spraying" hoping to get lucky rather than focusing on the things that increase the likelihood of success
-And yet I still have the "business" after ten years. I use it to get my insurance since it really doesn't bring generate much cash. I don't call it a "hobby business" because I do make money off it. Just not much.

Post: #15

(12-31-2015 06:15 PM)ColSpanker Wrote:  

(12-31-2015 02:00 PM)PapayaTapper Wrote:  Did every one of these:

#1 Not having a formal business plan.
-tried it a few times, was amazed how little it resembled reality.

#2 Not having a formal marketing plan
-Mine was get on the phone and beg stores to stock my product.

#3 Not having a formal partnership agreement
-Did that one too late. My so-called business partner brought in four accounts in ten years. He got pissed when I asked him, as sales manager, to ACTUALLY GO OUT AND SELL SOMETHING.

#4 Being under-capitalized
-Ha, my prime investor was VISA.

Small businesses are usually/often started by someone who has experience in a particular field without necessarily the required business acumen to run a successful enterprise. For example a really good engineer or a world class chef don't necessarily have the necessary competencies to run an engineering firm or restaurant respectively.
-Yep. After years in a lab I was going to go out and show those Mutha's.

Without the 4 items above, a small business is more or less "spraying" hoping to get lucky rather than focusing on the things that increase the likelihood of success
-And yet I still have the "business" after ten years. I use it to get my insurance since it really doesn't bring generate much cash. I don't call it a "hobby business" because I do make money off it. Just not much.

Keeping a very low overhead, such as running a small business from a home office, no or very small staff, etc. is a good way to "bootstrap" a new business and even maintain one. If growth isn't a priority, (which it sounds like it isn't for you) then this is a good way to avoid the "under-capitalization" (running out of money) issue.
Congrats on starting your own shop regardless and making something viable out of nothing. It really is an achievement. So many people, the majority even, dream of and talk about "doing their own thing" but actually never do.

Post: #16

^^^^Its one of the things I remind try to tell myself every day: The company is still there after all these years.
I used to go down to Philly for the start-up meetings and quit because so many of those people never had a viable idea. Tons of service provider companies and people trying to create the next Facebook. I would tell them I made an actual, physical product and they would stare at me. One investor snipped "We don't invest in the physical sciences" and I never went back. The meetings were filled with preppy grad students who were living off mom and dad's money or married to someone in professional school. They just couldn't understand why I would work retail to keep my company afloat.
I checked and 80 percent of them are gone. Guess the realities of running a business didn't square with their fantasies.

Post: #17

Guys go to Thailand, fall in love with a hooker then sell off all of their assets back home, open a beach bar with said hooker in which she has majority control (by law) then she gets some goons to rough up the farang and he's broke without the bar.

*Holiday, Florida is indeed a shit hole, I drove by there several times in the past two weeks, Pasco county in general sucks pretty bad but that's the worst.

Post: #18

(01-01-2016 04:28 PM)ColSpanker Wrote:  ^^^^Its one of the things I remind try to tell myself every day: The company is still there after all these years.
I used to go down to Philly for the start-up meetings and quit because so many of those people never had a viable idea. Tons of service provider companies and people trying to create the next Facebook. I would tell them I made an actual, physical product and they would stare at me. One investor snipped "We don't invest in the physical sciences" and I never went back. The meetings were filled with preppy grad students who were living off mom and dad's money or married to someone in professional school. They just couldn't understand why I would work retail to keep my company afloat.
I checked and 80 percent of them are gone. Guess the realities of running a business didn't square with their fantasies.

I just read this riff by software-startup aficionado Paul Graham, and he comes straight out "Point 14: Investors Are Clueless."
http://www.paulgraham.com/really.html

There's a reason we've had at least two software-startup bubbles, too much money thrown around by people in an illiquid market who really have no idea what's coming out of the business and why it makes money come in. Not for no reason is "Is the business simple and understandable?" at the top of Buffett and Munger's list of criteria for considering a business to invest in.

I find the startup hard-on with all of its posturing and pretenses to be unnecessary (although to the right person that work style can be endlessly exciting). Many a man can make a profitable business without having to cop a snotty silicon valley attitude that he's going to change the world with a cobbled-together mobile app or web service.

Post: #19

After working a few long term jobs and having been through a number of owner/manager/director changes, in my head there is an epic reply to this thread packed with almost 20 years of examples, divided into separate parts AB style because it exceeds the character limit, but I've decided to simplify it to this;

-Attempting to save money on wages by being chronically understaffed which forces what would have been good employees to cut corners, be careless and have no respect for the company... while spending terrifying sums of money on poorly planned "upgrades" that are far less efficient than what was there before.

-Hiring a woman to do a man's job, then hiring another woman to help, and then another, and paying 3 women to fail at doing what one man used to.

Post: #20

- Hiring the wrong people.
- Divorce
- Believing what your employees say
- Being played by the investors/board

Post: #21

Allowing personal life to mix with business- don't hire someone because they are you're friend or family member solely, hire them because they are the best fit that you can afford for that position... Even then count on the very real possibility your relationship will change, and you may one day have to fire them one day....

Piss poor understanding of the market- Too many people dont truly understand the market they want to get into, or the direction it will go in the next quarter, year, or 3 years. Because you think something is a good idea for a business doesnt really make it a good idea for a business. You should put out feelers test the market make sure the possibility to make money is there, be sure not only the possibility to make money but sufficient money.

Targeting and Marketing to your Demographic- Understand who is your target demographic, how they decide to purchase, where they decide they purchase and how you can reach that demographic. Once you begin acquiring customers or receiving calls or emails form prospective clients one of the first questions should be asked is how they found you.. Understanding where youre clients are finding you lets you know where you should allocate more or less of your resources...

LOW OVERHEAD!!!!!- I'm not saying dont spend because you will have to spend money and no matter how frugal and smart youre going to make financial mistakes. You need to make 100% sure you are you are doing things as less expensive as you possibly can, hire overseas workers, always shop around when making purhcases, negotiate everything, let your vendors know you are shopping around for a combination of low cost and quality. simply do less with more every chance you get regardless of people or products.

Online Presence- This is 2016 and too many business owners dont truly fully understand the importance of online presence, I meet people all the time whom arent fully taking advantage of teh interwebs. I was speaking with a guy in the process of wanting to start an online business doing network/IT work and discounted the need for actually getting a web site, utilizing SEO. Hes started his business yet he has zero clients to date.

Physical Presence- If you are going to be in a market targeting different local areas GET LOCAL NUMBERS. Many customers would prefer to do business with a local company, with a local physical presence when in fact it doesnt matter. However if thats what they want why not spend 50 cents for a local number with a VoIP provider to make it appears youre local?

Sales- If you arent willing to sale you'll never make a dime you'll end up closed, shuttering doors and living in a van down by the river. Or worse you'll go back to working for the man.

Post: #22

^^^Sales- If you arent willing to sale you'll never make a dime you'll end up closed, shuttering doors and living in a van down by the river. Or worse you'll go back to working for the man.

No argument there. I leaned sales by going out and doing it. I also learned that it's easy to do when you have a product everyone wants and not so easy when you have to beg people to take your product. Sales does not come easy to me as I tend toward the introverted side. If you have a flamboyant personality, it might be easier.
Too many damn companies think anyone can be trained to do sales, which is why it sucks when you walk into a Big Box store and five clerks jump on your ass to sell you a TV. Yes anyone can be trained, but they often suck at it. Sales is situational. I rocked selling major brand electronics and sucked at selling jewelry to women. I sold industrial services and quit because, there wasn't enough money in it.

Post: #23

Scaling before your ready. I think hiring employees and finding good employees is one of the toughest parts of growing your business. It sounds corny to say but that Marcus Limonis on The Profit talks about process, process, process. If your working by yourself you can get by "whinging it" however when you bring in other people you can't have new, inexperienced people whinging it nor is it a good way to communicate amongst your team when everyone is whinging it. Until you have yoru process down you can't bring others into it.

Post: #24

Not being able to understand what the market is asking and evolve into it. A couple of friends have ended in debt due to that. They have a proyection for the business in their mind, invest a ton of money and have such a rigurous and straight position in regards to their idea, that end up breaking apart the whole business.

About 2 months ago a friend of mine opened a restaurant.. brand new concept in my city and had a lot of expectations. Turns out that customers were not satified with the concept and food vs the price. He is stubborn enough that after reading multiple reviews (negative), his solution was not to fix the problem, but to ask his friends (including me) to write a positive review. The fact that he has more than four stars online doe not mean customers are satified, happy and willing to come again.


"Stubborness kills entrepeneurs"

-me

Post: #25

Incompatibility between partners.
Women
Being under capitalized.
Hiring the wrong people..
Being over leveraged.
Selling on credit.