Editor’s note: This article was first published in October 2016; ‘this last crisis’ refers to the 2008 financial crisis and its aftermath in Spain, and the e-cigarette shop boom and bust it mentions dates from around 2013–2014.
Over the life cycle of a business we will go through ups and downs, and some of them are probably unavoidable, since they are part of doing business. But it is also true that there are predictable problems that go unprevented because we don’t set aside some of our time for an analysis that should be a habit for any business owner, whatever the size of the company.
Some companies carry out this analysis once a week. Depending on the size of your company, once a week might be too much, but we should get into the habit of doing it at least once a month, because businesses, like shares, give off trend signals.
Whether you are self-employed or an entrepreneur in charge of 100 employees, you need to answer these questions.
What business are we really in? What exactly do we sell?
We already covered this point in a previous article. Sometimes companies lose their identity and forget why they started in the first place. As the old saying goes: “A business that makes nothing but money is a poor business.”
Never lose sight of your company’s identity. You don’t sell beds, you sell rest. You don’t sell computers, but everything that can be done with a computer. You don’t sell life insurance, but peace of mind for the family…
Every business is born (or should be born) with the idea of helping other people with the product or service it offers. It may sound silly, but remembering how we contribute with our product could keep our company from falling into an identity crisis, and it could also motivate our salespeople.
What stage of the cycle is our business in?
Businesses are like shares. They have a start, a rise and a fall; some last forever while others disappear from the market. Some meet resistance, and others stay flat.
Is your business growing, stagnant or shrinking? Has it been trending up or down for months? Am I selling more or less? Is the drop in sales due to fewer new customers coming in, or, on the contrary, are more customers coming in but the sales conversion rate has fallen?
What is our business missing, what does it have too much of, what can we do without, what could we add? However successful your business is, as an entrepreneur you need to know what stage of the cycle it is in and which way it is trending.
Often, when things are going well in the business, we don’t bother to analyse anything. It’s when things start going badly that we do it, and sometimes the damage is already serious.
What stage of the cycle is our industry or sector in?
We should analyse the situation like a funnel: from the broadest level (the market) down to the smallest (our company).
Take, for example, the e-cigarette shop “boom”. The first shops made a lot of money, then others followed that also made some money, and finally more opened that arrived just in time to lose their entire investment. The sector grew quickly, and fell just as quickly.
Knowing how our industry or sector is doing and analysing its trend can give us the perfect window to make changes or stop making costly investments, to take on other sales channels, or even to switch sectors.
What stage of the economic cycle are we in?
Nobody expects business owners to have expert knowledge of economics, but after what happened in this last crisis, we should at least know the phases of a bubble so we can identify which part of the economic cycle we are in. We won’t pinpoint the exact moment, but at least we should know that after a big rise, we will see major corrections and even severe downturns in the economy that will affect several sectors.
(See: How often does the stock market fall?)
By analysing all these questions, and doing it often with the rest of the people in our company, we can come up with ideas to increase sales, anticipate changes in our sector and, therefore, get ahead of our competitors.
See also: How to recover after a business failure
Featured image: Lindsay Fox, CC BY 2.0, via Flickr.
