Seattle IT Edge
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Business Technology Strategy and the entrepreneur

Just looking at successful businesses the statistics can be daunting.  95% of successful businesses fail to break 1 million dollars in sales.  Of those that break 1 million, only 5% break 10 million.  Why is it that so many businesses fail.  When I ask this question in front of a group who knows that I specialize in business technology the answer is always shouted out. 

Business Technology strategy…? 

It would be nice and simple to write the book and say, you will be successful if you invest in technology and you will not be successful if you don’t.  Unfortunately Business Technology strategy is not the answer to why businesses fail or succeed. 

 The last time I looked up the statics on this question the number 1 and number 2 answers were, 

  • ·         Lack of funding
  • ·         Poor management 

 While these are two good answers, are they really complete. We’ve all heard stories about businesses started with a minimal investment becoming hugely successful.  In addition I know lots of companies with 100’s of 1000’s of dollars that failed miserably.  Venture capitalists only expect 2 or 3 companies they invest in to be successful.  So is lack of funding really a good answer?

How many times do we see someone in a major business magazine being rated as one of the top managers in the world.  Then three or 4 years later when the business is failing be rated by the same business magazines as an incompetent even criminal manager?  Did they stop doing what they had been doing before?  Had the begun believing their own press and assume they couldn’t do anything wrong?  Could it be to blame the CEO as a bad manager is just an excuse for something beyond any manager’s control?

 Let’s ask the question in another way, why do only 1 in 20 successful businesses truly succeed?

The answer is Change.

 The simple reality is that businesses that plan to change are able to grow.  Those businesses that assume growth without change fail to grow.

Working with hundreds of businesses over the years began noticing something I call the Feast Or Famine cycle.  I talk about this cycle in the introduction and bring it up her again because almost every small business I’ve talked to goes through this cycle. 

An Entrepreneur decides to start a business.  They find a customer and spend all their time focused on that customer.  When the customer is done, the entrepreneur gets paid.  So now the entrepreneur starts looking for the next customer.  After going through this cycle two or three times the entrepreneur notices a cycle in his/her finances. 

When the customer is receiving a product or service, the entrepreneur receives income.  When the entrepreneur is selling, income is zero.  In the Customer life Cycle Diagram below this cycle is graphed over time. 

This is the natural customer life cycle for any customer with any business.  There is a period in the sales cycle when no income is made but the customer is being found.  Once the customer is found there is period of customer service where income is created for the business while the customer is serviced.  Once the customer is serviced income again goes to zero 

Unfortunately for the entrepreneur, with only one customer this is also the entrepreneur’s income cycle.  When compared with the income cycle of a typical employee we can see a vast difference.  The Employee who is paid a consistent 40 hours / week every week has no change in income. While the entrepreneur has a constantly changing level of income that includes the expenses associated with finding work.  The entrepreneur may have a higher income than his/her hourly counterpart; change is the best description for the income of the entrepreneur. 

Change is also the name of the game for the Entrepreneurs task list as well.  On any given day the task list changes from customer service to sales and promotion tasks.  Keeping up with changes in the Industry through training, study and practice are needed to maintain industry expertise of the entrepreneur.  In addition, on any given day the entrepreneur must handles a changing list of emergencies, business tasks and personal responsibilities.

 So far we’ve only described the changes associated with the entrepreneur.  The business the entrepreneur runs will also be going through change. 

In order for a 40,000 investment to become a Million dollar business the organization must double five times to break a million dollars.  The first steps doubling from one customer to two customers seem almost trivial.  With each business doubling the business must improve the capacity of every business system. 

How many business systems are there?  Let’s see there is, Accounting, legal, marketing, sales, production, shipping, HR, customer relationship, management and of course tying all these systems together is the technology department.  By the time the business is a million dollar business these tasks will no longer be managed by the business owner.  For example, the average manufacturing business worth 1 million dollars in sales per year will probably have between 10 and 50 employees.  Part of doubling the business includes increasing the capacity of each department within the business.