Mississauga Life — Early Spring 2015
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A Game Of Survival
James Tonin

How small businesses can weather the storm of growth.

In our last issue, we looked at some of the problems micro and small business owners face as a result of being categorically lumped in with larger enterprises. Despite the inherent challenges, micro and small businesses have unique advantages, especially in terms of their agility and responsiveness to changing conditions. Though competition is fierce, especially against deeper-pocketed rivals, micro and small businesses with sound fundamentals and committed ownership will always find a way to not only survive, but thrive.

The same holds true of smaller enterprises entering the crucial transition phase in which they’ve established a foothold but are struggling with growth-related issues. Here, owner burnout and accessing growth capital are two of the most salient problems, but the old adage that “eight out of ten new businesses eventually fail” paints a needlessly grim picture. The latest Industry Canada figures do not support the doom-and-gloom of conventional wisdom.

According to Industry Canada’s most recent comprehensive report, which was compiled in August 2013, 78.6 percent of micro-sized businesses and 85 percent of small businesses survive their first year. Small enterprises, defined as businesses with more than five but less than 100 employees, actually post better survival rates after year two, with 86 percent going on to a third year of operations.

Yet failure rates remain high during year three, and trends suggest that risk remains high for much of a startup’s first decade. Why?

First, owners typically find themselves overworked and under-resourced, both in terms of employees and cash flow. Wearing just about every hat as they try to compensate for staffing shortfalls, owners are often too busy trying to keep their heads above water to think about diversification and growth strategies. Funding issues frequently compound the problem, since such companies no longer qualify for start-up grants, and credit access is often limited if it isn’t already completely tapped.

Both issues speak to the importance of establishing a growth strategy before it’s needed, not after. Most people know of an eatery that was the best-kept secret in town until everyone found out about it, leaving the owners struggling to maintain the same standards that generated good word of mouth in the first place. Such cases are perfect examples of how things can go wrong when a business isn’t prepared for growth.

Growth Strategies: What to Do and When to Do It
The rise of online commerce and social media have given micro and small business owners powerful new platforms to reach customers, take on competitors, and win. While the routes to growth—increasing market share, diversifying, forming strategic partnerships with other businesses, and franchising—largely remain the same, the path to getting there is changing. Micro and small business owners need to hit the ground running with a social media strategy while charting routes to growth in advance. That means knowing when to invest in growth, and how to find the resources to do it.

Social Media
Marketing experts have identified four key elements of an effective social media strategy for small businesses:
• A clearly stated objective. All social media campaigns have a specific endgame, be it driving website traffic, increasing sales, raising awareness or promoting the company’s uniqueness.
• Audience specificity. Messages that try to reach everyone usually end up reaching no one. It’s certainly possible for campaigns to target multiple audiences and demographics, but separate strategies need to be implemented for each of those audiences.
• A brand identity. What does the company believe in? How is it positioned in the market? What differentiates it from its competitors? These questions need clearly communicated answers to reach and resonate with prospective customers.
• A focus on providing informative value. The most effective social media campaigns don’t actively sell products or services; they provide informational value to the people they reach, implicitly suggesting that the company offers a solution to a problem the customer faces.

Social media offers a low-cost, high-reward path to marketing the business, which is crucial to the success of cash-strapped startups and new companies.

However, timing is also a crucial factor when evaluating the growth opportunities that will inevitably arise once a business succeeds in establishing itself. To this end, it’s important to ask three key questions:
• Can the company, as it’s currently operating, sustain growth, or have its human resources already reached their limit? Forcing growth on an overworked, undermanned staff will backfire more often than not.
• Can the company prepare to expand operations into new markets without jeopardizing its current operations in its current market? Deviating too far from the “meat and potatoes” of a company’s livelihood often results in revenue losses and plummeting profitability.
• How can the business maintain its current customer experience while focusing on growth opportunities? Providing customers with a consistent experience is the single most important key to ongoing success.

There are no universal answers to these questions, but in most cases, internal analysis proves illuminating enough for owners to formulate plans based on the current state of affairs.

Experts stress the importance of continuing to look for growth options, such as franchising and diversifying product lines and services, even when a business owner is happy with the way his or her company is performing. Networking, mentorship, creating focus groups, conducting surveys, and membership on advisory boards or industry associations are also factors that can contribute to a business’s success. In addition, it’s important to continually apply insights harvested from social media campaigns to make fast, responsive changes that improve business performance.

Small businesses with nimble response mechanisms are much more likely to weather storms than their larger, slower moving counterparts. That’s the reason major companies like Panasonic, Home Depot and Coca-Cola have adopted innovation strategies that mimic those of tech startups.

Why Businesses Fail
As the famous quote goes: “Those who cannot learn from history are doomed to repeat it.” The adage holds true in many environments, and the business world is certainly one of them. It’s crucially important for business owners to understand the reasons large numbers of upstart companies fail; these common pitfalls affect businesses in all industries, even those that have been around a while. According to a recent Forbes article, new business failure rates are largely due to five factors:
1. Being out of touch with customers. Well-designed social media campaigns put customers and business owners in direct communication, and businesses that don’t take advantage of these tools lose customers to more responsive competitors faster than ever before. Engaging customers in meaningful dialogue about the business and making a concerted effort to address feedback are crucial.
2. A lack of differentiation. In business-speak, “differentiation” or “value proposition” refer to the way a company distinguishes itself from competitors. For example, WIND Mobile provides an alternative to the abysmal customer satisfaction rates of the dominant conglomerates, through flexible and customizable service plans and superior customer service. It’s a simple yet powerful illustration of what the business offers that the customer can’t get somewhere else.
3. An unclear or uncommunicated value proposition. Identifying a value proposition— or the primary reason customers should seek your product—is only part of the equation; businesses also have to find a way to communicate that differentiation to consumers. Straightforward, clear marketing messages targeted to a specific customer base are the way forward in this regard.
4. Leadership dysfunction. The vast majority of successful small business owners share five common characteristics: dedication, flexibility, confidence, resourcefulness and sociability. Shortcomings must be bridged, either through professional development or the delegation of core tasks to capable partners.
5. Ill-fitting business models. A large number of business failures can be attributed to trying to force the proverbial square peg into a round hole. Though it’s a large business, Target Canada’s recent difficulties are an excellent example; the parent company assumed its brand presence would be powerful enough in and of itself, without understanding and adjusting for the Canadian retail marketplace.

Of course, no business can grow without resources, no matter how ingenious its marketing, branding or differentiation efforts may be. Even with the rise of alternative funding models like crowdsourcing, most money still comes from the same types of sources it always has: banks, lending programs like the Business Development Bank of Canada and the Canada Small Business Financing Program, angel investors, and strategic reinvestment of profits. Preparation is key for business owners intent on taking their enterprises to the next level, and that’s where organizations like the Mississauga Business Enterprise Centre (MBEC) can help.

Strategic Resources for Local Business Owners
MBEC is a public/private partnership, with cooperation from the Province of Ontario and the Ontario Network of Entrepreneurs. The centre offers free resources, including extensive information on competitive intelligence and financing-related issues, as well as business plan reviews and Young Entrepreneur programs. Members can also take advantage of low-cost seminars and professional development opportunities.

The Southern Ontario Fund for Investment in Innovation is another uniquely local resource that extends loans of up to $500,000 to entrepreneurs developing new products or services, exploring new markets, or working on process improvements to current standards. Loans are also available to business owners looking for late-stage commercialization financing.

Organizations like MBEC help both new and established businesses discover and develop the tools they need to drive sustained success and future growth, and through them, business owners have a much better chance of navigating the stormy waters of today’s rapidly evolving commercial landscape.

James Tonin is a globetrotting freelance writer. When he’s not contributing to MississaugaLife, you can find him flexing his brain by writing screenplays.