• SOS Inventory

How to Build a Business that Will Last


Recent statistics indicate the rate of business failure in the U.S. is increasing. Approximately 32% of us won’t be around in five years’ time!

Researchers have analyzed why some companies survive and thrive longer than others; their findings show that SMEs stand the best chance of adapting to change due to their entrepreneurial nature.


The Japanese construction firm, Kongo Gumi, is the oldest existing company, still operating after 1400 years. Founded in 578, the business remained in the family for over forty generations until its demise by leveraged debt in 2006. It is still building temples today, just under different ownership.



Research firm, Reeves and Levin, conducted an analysis based on comparisons of businesses with successful biological systems to identify traits and characteristics of enduring and long-lived companies. The results were narrowed down to five business traits commonly associated with SMEs, which tend to diminish as companies grow:


1,2 Redundancy and Diversity


These characteristics are indicative a business has more than one plan in place. If your current idea doesn’t work out, do you have other options? The key to identifying alternatives is being open to new ideas. In your industry, you will have people you respect, and you can actively seek their views. If you are a manufacturer, the people who know what is really going on are the people on the shop floor; they will always have ideas to improve day-to-day operations.


Engage your colleagues with an open mind and you will be amazed at what you will learn. Equally, you will have a network of people outside the business including partners, customers, suppliers, and even competitors, to speak to about market direction, who is succeeding, who is not, and why that might be the case.

3. Adaptability & Innovation


Rapid evolution of technology has greatly changed the business landscape. It has essentially shrunken our world, bringing international businesses directly to our backyards. The recent Coronavirus epidemic has proven video conference a viable business model, exalting Zoom.com to a net worth superior to that of many airlines. It has also become an integral part of doing everyday business, reducing the need to travel. Indeed, businesses will adapt when they must to survive.


While some businesses have suffered from the recent lockdown, others have evolved to create new, thriving models. One champagne supplier whose entire business model entailed supplying champagne to events, faced potential ruin as his events calendar evaporated overnight. This entrepreneurial leader immediately created a website to sell champagne online directly to the public and found a new niche – online weddings. Despite event restrictions, marriages continued to occur. Since families and friends were unable to attend physical events, the online wedding concept was born. Guests toast the bride and groom at the appropriate moment from wherever they join the virtual event. The “new normal” now entails the couple sending a bottle of champagne to each guest in a wedding goody bag. Our entrepreneurial champagne supplier morphed his new online website to target this new market with great success. In April and May 2020, the height of the lockdown, his champagne sales have each matched December, his previous ‘bumper month’ of the year.


You run an SME. You are an entrepreneur. Adaptability and innovation are what you do!

Larger more established companies are slower to change. It’s a bit like steering an oil tanker; it cannot react as quickly as you can. Larger companies cannot turn their businesses on a dime. They are not as plugged into the marketplace as you are. There are many layers of bureaucrats between the CEO and the customer. You don’t have that barrier, and that is why you can succeed.


4. Prudence


Small business owners are naturally prudent. It is your money - it’s personal! You are happy to invest it, but you will not waste it, and you don’t have deep pockets and cash reserves.

In a recent interview with the BBC, Willy Walsh, CEO of British Airways, indicated they were protected from the worst impact of the Coronavirus, as they had sufficient cash reserves to run the business for six months without flying another plane!


5. Embeddedness

Embeddedness is an indication of customer loyalty; the point at which they would never dream of using another supplier. This implies stellar levels of customer service, and a personal engagement with you that transitions your position from supplier to partner and, finally, to a trusted advisor. At that point, you’ve become an extension of their business, and they share their future thoughts and plans with you.


So, what about bigger companies?


Some set out to mimic the traits of an SME, and those are the ones that succeed.


Essilor


According to experts, glasses company, Essilor, “got it right.” In the last forty years, they have thrived, and this might be why:


· They have consciously sought out disruptive technology

· They bought into the disruptive technology early when it was cheap

· They invested in the disruptive technology to create disruptive products, even when there was a strong risk of failure, and when those products competed with their own established offerings.


Essilor has consciously sought to behave like an SME entrepreneur and its leadership has had the courage and vision to support this path.


Kodak


One company that famously got it wrong was the massive camera-film production company, Kodak.


They DID innovate. They invented the digital camera back in 1975; they just didn’t invest in it.


Their business model was focused on selling film. All the directors’ bonuses were geared around film. They were a chemical film production company first and foremost and viewed the digital camera as a threat to the sale of film, so they stifled the investment. And the rest, as they say, is history.


After 124 years of success, latterly as a household name, they filed for bankruptcy in 2012.


Toyota


Toyota snatched victory from the jaws of defeat when in 1997, its sole supplier of braking valves suffered a fire. Being the inventor of the ‘just-in-time’ inventory management philosophy, Toyota themselves only carried four hours of stock, relying on a seamless supply chain to deliver ‘on-the-minute-as-required’.

Experts assumed this would be a costly disaster for the company, taking down global production for weeks. Toyota, however, leveraged its network of engineering suppliers to repurpose their factories for valve production and they were back up and running in five days!


Toyota persevered because of the strong collaborative relationship it had engendered with its key suppliers, mimicking the SME trait of ‘embeddedness’ discussed earlier.

Here are the ten longest standing companies in the world today, courtesy of Google!

We live in a world of accelerating change, largely driven by technology. In 1975, Gordon Moore, founder of Fairchild Semiconductor, predicted demand for computer micro-chip processor power would double every two years. Moore’s Law has remained true to this day. Innovation and continuous change are inevitable, and many businesses will fall by the wayside as they fail to adapt quickly enough.


Unsurprisingly, businesses that follow a vision, are quick to innovate, and quick to change will adapt and survive and thrive. SMEs display these traits much more so than global corporations. So, if you run an SME and you are successful, you will grow. You will bring in new leaders, new structures, and new policies. Change will be inevitable. Running a business with $50m revenues is very different than running a business with $5m revenues. Remember what made you successful as an SME and keep those traits at the top of your agenda. As we observed with Essilor, the larger companies that mimic SME traits stand the best chance of surviving and thriving.



Andy Makeham has enjoyed a lifetime in software ‘business development’, as a programmer, implementor and entrepreneur. He has grown, bought and sold many business software companies and floated one on the public markets. He has worked with private and ‘private equity’ owners. Today Andy acts as a business development advisor to the software sector. In that capacity he is working with SOS Inventory.




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