How to Analyze Small Business Enterprise Strengths and Weaknesses

How to Analyze Small Business Enterprise Strengths and Weaknesses

Small Enterprise Weaknesses

Financial Limitation

Small enterprises find it difficult to get enough funds for their operations. Unlike multinational

they do not receive red carpet treatment by financiers when asking for loan. Small enterprise

cannot use credit as a selling tool as readily as companies ‘with large financial reserves like

multinationals.

Staffing Problems

Small companies cannot pay fat salaries and provide opportunities and status normally associated

with big companies. Small enterprise owners must concentrate on the day-to-day problems of

running the business and have little time left to think about objectives.

High Direct Cost

A small enterprise cannot buy raw materials, machinery or supplies as cheaply as a large

company or obtain large producer’s economies of scale. Per unit production costs are usually

high for a small enterprise, but overhead costs are generally lower than that of multinationals.

Lack of Credibility

The public accepts a large company’s product because its name is well-known. A small company

needs to struggle to prove itself each time it offers new product or enters new market. Its

reputation and past success in the market place seldom carry weight.

Small Enterprise Strengths

Personal Touch

Customers will often pay a premium for personalized attention. In many companies where

products and prices differences are minimal, the human factor emerges as a prime competitive

advantage.

Greater Motivation

Key management of small enterprise normally consists of the owner(s). They work harder,

longer and with more personal involvement. Profits and losses have more meaning to them than

salaries and bonuses have to the employees of a multinational company.

Greater Flexibility

A small enterprise has the prime advantage of flexibility. Big company cannot stop operation

without opposition from organised labour, or even increase price of their products without

possible intervention from government. Small enterprises have shorter lines of communication.

Their product lines are narrow, their market limited and their factories and warehouses are close

by. They can quickly spot trouble or opportunity and take appropriate action.

Less bureaucracy

In small business the whole problem can be understood readily, decision can be taken quickly

and the results checked easily. But in a multinational company, bogus management structure can

lead to delay in taken action and bureaucratic influences. –

Unobtrusive (Less Conspicuous)

Small company can try new sales tactics or introduce new products without attracting undue

attention or opposition. This is possible because it is not quite as noticeable as multinational

company. Large company is constantly faced with proxy battles, antitrust actions and

government regulations. It is also inflexible and hard to change or restructure.

DEFINITION of 'Entrepreneur'

An individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes.

10 Personality Traits Every Successful Entrepreneur Has1. Passionate

You need to be driven by a clear sense of purpose and passion. Typically, that passion comes from one of two sources: the topic of the business, or the game of business-building itself.

Why do you need passion? Simply because you’re likely to be working too hard, for too long, for too little pay with no guarantee that it’ll work out… so you need to be motivated by something intrinsic and not money-related.

2. Resilient

If you’re going to build a startup, you’ll need a spirit of determination coupled with a high pain tolerance. You’ll need to be willing and able to learn from your mistakes – to get knocked down repeatedly, get up, dust yourself off, and move forward with renewed motivation.

People will constantly tell you your baby’s ugly, that your business won’t work. Now, you should listen carefully and be open to constructive criticism. But after a while, having the door slammed in your face repeatedly can be withering, and the best entrepreneurs learn to feed off the negativity and actually gain strength from it.

3. Self-Possessed

You need a strong sense of self. You can’t be threatened by being surrounded by talented, driven people. To truly succeed, you’ll need the self-confidence to surround yourself with people “who don’t look like you”… that is, people with skills, background and domain knowledge that complement your own. And check your ego at the door: you shouldn’t be too proud to make coffee for the team, empty the waste baskets, or do the bank runs.

4. Decisive

You’ll need to develop a comfort-level with uncertainly and ambiguity. Entrepreneurs gather as much information as they can in a short period of time, and then MOVE, MOVE, MOVE!! The attitude is that it’s not going to be perfect… We only have 9% or so of the data from which to base our decision… but if we wait to have all the information, we’ll never get moving… and be mired in indecision. (Big organizations are really good at this – the mired thing – saying, We don’t have enough information, so let’s continue to study… form a committee or a task force)

5. Fearless

On the sliding scale from “risk-averse” to “risk-seeking,” it shouldn't surprise anyone that entrepreneurs tend to be closer to the latter. But you don’t need to be a nut-case, the sort who bungee-jumps without a helmet. Smart entrepreneurs develop an intuitive ability to sniff out and mitigate startup business risk. But you know you’re going to fall down, and feel comfortable with that fact and that you’re going to learn from your failures and adjust as you go.

6. Financially Prepared

You’ll need the right personal financial profile to make the leap. This doesn’t mean that only the rich can be entrepreneurs. But unless and until you’ve got the personal financial ‘runway’ (ability to go without a steady paycheck and subsidized benefits) of at least 18 to 24 months (ideally longer), you might hold off on quitting your day job.

Consider launching the startup as a side-business if that’s possible, while continuing to work the 8-to-5 shift to cover the bills. Or approach your boss about going part-time. Then, once your business generating cash flow, you can dial back on your hours, or submit your resignation and go full-time with your startup.

7. Flexible

I challenge you to find an entrepreneur running a startup four or more years old where that business doesn’t differ dramatically from the vision sketched out in their original business plan. The point is that the folks who stay on their feet are the ones who stay flexible and adjust to new information and changing circumstances.

8. Zoom Lens-Equipped

Can you ‘pan out’ to see a compelling big vision for your business, then ‘zoom in’ and focus on near-term startup goals? Successful entrepreneurs can facilely move back and forth between these two views. They’re able to articulate the big picture, while simultaneously managing and executing to the ‘zoom-in’ picture.

9. Able to Sell

Whether you’re a born extrovert or introvert, as a founder/CEO, you’ll find yourself always selling. You’ll be selling your vision to prospective partners and funding sources. You’ll be selling prospective recruits on why they should quit their day jobs and join this startup they’ve never heard of. You’ll be selling your products and services (yes, you’ll probably be personally closing at least the first few sales). You’ll be selling your employees on why they should remain calm and stay with the ship when the seas inevitably get rough.

You can’t delegate evangelism.

10. Balanced

You may not start out with a fool-proof gyroscope, but to survive as an entrepreneur, you’ll need that strong sense of perspective. How to maintain simple, clear focus. How to be at peace with, and learn from, a failure. Understanding that not all battles are worth winning, and when to walk away. Knowing that most in your startup aren’t as entrepreneurial as you – that this may be a very cool job for them, but it’s still a job. Knowing when to go home and give your loved ones a hug. When to go for a run.

Entrepreneurial Skills

We've gathered these traits into four categories:

Personal characteristics.

Interpersonal skills.

Critical and creative thinking skills.

Practical skills.

We'll now examine each category in more detail, and look at some of the questions you will need to ask yourself if you want to become a successful entrepreneur.

Personal Characteristics

First, examine your personal characteristics, values, and beliefs. Do you have the mindset that's typical of successful entrepreneurs?

Optimism: Are you an optimistic thinker?   Optimism is truly an asset, and it will help get you through the tough times that many entrepreneurs experience as they find a business model that works for them.

Vision: Can you easily see where things can be improved? Can you quickly grasp the "big picture," and explain this to others? And can you create a compelling vision of the future, and then inspire other people   to engage with that vision?

Initiative: Do you have initiative   , and instinctively start problem-solving or business improvement projects?

Desire for Control: Do you enjoy being in charge and making decisions? Are youmotivated to lead   others?

Drive and Persistence: Are you self-motivated   and energetic? And are you prepared to work hard, for a very long time, to realize your goals?

Risk Tolerance: Are you able to take risks, and make decisions   when facts are uncertain? Resilience: Are you resilient   , so that you can pick yourself up when things don't go as

planned? And do you learn and grow from your mistakes and failures? (If you avoid taking action because you're afraid of failing, our article on Overcoming Fear of Failure   can help you face your fears and move forward.)

Interpersonal Skills

As a successful entrepreneur, you'll have to work closely with people – this is where it is critical to be able to build great relationships   with your team, customers, suppliers, shareholders, investors, and more.Some people are more gifted in this area than others, but, fortunately, you can learn and improve these skills. The types of interpersonal skills you'll need include:

Leadership and Motivation: Can you lead   and motivate others   to follow you and deliver your vision? And are you able to delegate   work to others? As a successful entrepreneur, you'll have to depend on others to get beyond a very early stage in your business – there's just too much to do all on your own!

Communication Skills: Are you competent with all types of communication   ? You need to be able to communicate well to sell your vision of the future to investors, potential clients, team members, and more.

Listening: Do you hear what others are telling you? Your ability to listen can make or break you as an entrepreneur. Make sure that you're skilled at active listening  and empathetic listening   .

Personal Relations: Are you emotionally intelligent   ? The higher your EI, the easier it will be for you to work with others. The good news is that you can improve your emotional intelligence!

Negotiation: Are you a good negotiator   ? Not only do you need to negotiate keen prices, you also need to be able to resolve differences between people in a positive, mutually beneficial way.

Ethics: Do you deal with people based on respect, integrity   , fairness, and truthfulness? Can you lead ethically   ? You'll find it hard to build a happy, committed team if you deal with people – staff, customers or suppliers – in a shabby way.

Tip:

You can improve your people skills further by taking our How Good Are Your People Skills?   self-test.

Critical and Creative Thinking Skills

As an entrepreneur, you also need to come up with fresh ideas, and make good decisions about opportunities and potential projects.

Many people think that you're either born creative or you're not. However, creativity is a skill that you can develop if you invest the time and effort.

Creative Thinking: Are you able to see situations from a variety of perspectives and come up with original ideas? (There are many creativity tools   that will help you do this.)

Problem Solving: How good are you at coming up with sound solutions to the problems you're facing? Tools such as Cause & Effect Analysis   , the 5 Whys  Technique, and CATWOE   are just some of the problem-solving tools that you'll need to be familiar with.

Recognizing Opportunities: Do you recognize opportunities   when they present themselves? Can you spot a trend   ? And are you able to create a plan to take advantage of the opportunities you identify?

Practical Skills

You also need the practical skills and knowledge needed to produce goods or services effectively, and run a company.

Goal Setting: Do you regularly set goals   , create a plan to achieve them, and then carry out that plan?

Planning and Organizing: Do you have the talents, skills, and abilities necessary to achieve your goals? Can you coordinate people to achieve these efficiently and effectively? (Here, effective project management skills   are important, as are basic organization skills   .) And do you know how to develop a coherent, well thought-through business plan   , including developing and learning from appropriate financial forecasts   ?

Decision Making: How good are you at making decisions?   Do you make them based on relevant information and by weighing the potential consequences? And are you confident in the decisions that you make?

Core decision-making tools include Decision Tree Analysis   , GridAnalysis   , and Six Thinking Hats   .

You need knowledge in several areas when starting or running a business. For instance: Business knowledge: Do you have a good general knowledge of the main functional

areas of a business (sales, marketing, finance, and operations), and are you able to operate or manage others in these areas with a reasonable degree of competence?

Entrepreneurial knowledge: Do you understand how entrepreneurs raise capital? And do you understand the sheer amount of experimentation and hard work that may be needed to find a business model that works for you?

Opportunity-specific knowledge: Do you understand the market you're attempting to enter, and do you know what you need to do to bring your product or service to market?

Venture-specific knowledge: Do you know what you need to do to make this type of business successful? And do you understand the specifics of the business that you want to start? (This is where it's often useful to work for a short time in a similar business.)

You can also learn from others who have worked on projects similar to the ones that you're contemplating, or find a mentor   – someone else who's been there before and is willing to coach you.

Creating Business Plan

A business plan serves two purposes:

It provides a road map for your business.

It helps you obtain outside financing.

If you're going into business for yourself, you must have a business plan - period. Numerous

studies have shown that one of the major reasons new businesses fail is poor planning. (Many

people want to start a business, but not everyone has what it takes to succeed. Learn more in Are

You An Entrepreneur?)

The good news is that developing a business plan is not as hard as it seems. In order to develop a

solid business plan, you need to have a thorough understanding of the business you're entering.

Next, you need to determine how you'll use the plan and who your target audience is. Finally,

you should create a complete a business plan that is comprehensive and concisely written. We'll

explore each of these steps in detail.

Step 1: Know Your Business

In order to prepare a business plan, you must know the business you are entering inside and out.

This means lots of research. Research comes in two forms: reading everything you can about the

industry and talking to those who are already in it. Learn everything you can about your business

and industry.

Step 2: Determine Your Purposes for the Plan

A business plan serves to crystallize your business vision and guide you in fulfilling that vision;

it is also frequently used to entice potential investors.

If you are self-financing your business, you design the plan mostly for your benefit, but if you're

seeking outside investors, you'll need to target them. As such, before you create your plan,

determine whether you will solicit outside investors.

Step 3: Determine Your Audience

If you plan to recruit investors, you need to build a plan to suit them. Outside investors, who

range from friends and family members to banks and venture capitalists, will invest through

either loaning you the money, buying shares in your company or some combination of the two.

Determine their level of sophistication and what they are looking for in a potential business

investment. Remember that regardless of their level of sophistication, they are all looking for

four things:

1. Trust in you - You build trust by demonstrating ethics and integrity, so your business plan

should demonstrate those qualities. (Read Eight Ethics Guidelines For Brokers for more

on gaining a reputation for integrity.)

2. Understanding of the business - It is your job to clearly articulate your mission statement,

your product offerings and how you will make money. Your may have to tailor your plan

to suit your audience: less-sophisticated investors may be scared off by industry jargon,

while investment professionals will probably expect it. (Read Getting To Know Business

Models for further reading on how businesses make their money.)

3. Financial confidence - Clearly articulate the risks of investing in your business. Also,

show investors how they can recoup their money - whether your venture succeeds or

fails. (Learn how venture capitalists make their money in Cashing In On The Venture

Capital Cycle.)

4. A good return on investment - Over the period of 1928-2007, the geometric (exponential)

return for stocks was 9.8%, while for 10-year Treasury bonds, it was 5%.

Historical private-equity returns are more difficult to measure, but, in general, investors

will expect a premium of anywhere from 2-5% over public-equity market returns.

The return on equity for your new business must be in the private-equity range. (For

related reading, see Keep Your Eyes On The ROE.)

Typically, investors will look to beat a certain internal rate of return. Your job is to make sure

your projected returns are in line with those of similar industries. (For related reading, see An

Inside Look At Internal Rate Of Return.)

Step 4: Create Your Business Plan

First, develop an outline of your business plan. Consider every aspect of your business and how

it will affect your business plan. Remember, this business plan is a road map. It must guide you.

It must also communicate to investors what you're doing and why they should invest with you.

The order in which your plan is presented should be something like the following:

Mission Statement

Executive Summary

Product or Service Offerings

Target Market

Marketing Plan

Industry and Competitive Analysis

Pro-Forma Financials

Resumes of the Company Principals

Your Offering (what type of financing you're seeking)

Appendix (any other pertinent information)

You'll probably also want to note any personal seed capital you're investing in the venture.

Financiers want (and often require) entrepreneurs to put their own funds in the venture, and the

greater the portion you invest relative to your net worth, the better.

Now let's review each section of the business plan in detail.

1. Mission Statement

The mission statement is a concise, one- to three-paragraph description of your business

objectives, or your business's guiding principles. In this section, you should state your unique

selling point, or what separates your company from all the others in the industry that are

otherwise just like it.

2. Executive Summary

This is a one- to two-page summary of your business. Potential investors will read this to decide

whether they want to look at the rest of your plan.

3. Product or Service Offering

Create a section describing your product or service offerings in detail, as well as how much

you'll charge for what you're selling.

4. Target Market

Present your primary and secondary target markets, along with any research that demonstrates

how your target market will benefit from and consequently purchase what you're offering.

5. Marketing Plan

Present your marketing plan, which should show in detail how you'll reach your target market.

This part of the plan will include advertising and promotional strategies. (Read Advertising,

Crocodiles And Moats to learn more about the importance of good advertising.)

6. Industry and Competitive Analysis

Include a complete and thorough industry and competitive analysis that includes all stakeholders

in your business. Don't forget to include governmental and regulatory agencies.

(Read Competitive Advantage Counts to learn the importance of being different from the pack.)

7. Financial Statements

These must be complete, accurate and thorough. Each number on your spreadsheets must mean

something. Don't estimate payroll, for instance; determine what it will actually be. Your income

statement must reconcile to your cash flow statement, which reconciles to your balance sheet.

Your balance sheet must balance at the end of every period. You must have supporting schedules

(e.g., depreciation and amortization schedules) to back up your projections. (To learn more about

what investors will be looking for, see Reading The Balance Sheet and Breaking Down The

Balance Sheet.)

If you are having trouble building your pro-forma financial models, which should project out for

at least five years, seek outside help from a qualified professional. (Learn how to ensure that

your business stays afloat in Six Steps To A Better Business Budget.)

Use realistic projections. In estimating the growth of your business, you will make certain

assumptions, which should be based on thorough industry research combined with a strategy for

how you'll compete. Also, analyze how quickly you'll achieve positive cash flow. Investors vary

in their standards, but most like to see positive cash flow within the first year of operation,

particularly if this if your first venture.

In order for your projections to be accurate, you must know your business. If you've built an

accurate and realistic model, but still project negative cash flow for more than 12 months, rethink

your business model. (For related reading, see The Essentials Of Cash Flow.)

8. Resumes of Company Principals

Include the bios and professional backgrounds of all significant employees of your business. You

will want to emphasize how their backgrounds have prepared them to take on the challenge of

running your new startup. Also, if an employee's business background is in a significantly

different industry, you might want to emphasize how this can be an advantage instead of a

detriment. (Read more in Evaluating The Board Of Directors.)

9. Your Offering

Present what level of investment you're seeking and for what purposes you will use the funds. If

you're selling business units, state the individual price per unit.

Once you've put together all of this key information, make sure to present your plan

professionally. It should be typed, margin aligned and neatly bound. Use color graphics and

pictures where possible. Do not handwrite changes or corrections. The inside of your business

plan should be near book or magazine quality.

After you've finished your plan, have a professional you trust, such as a Certified Public

Accountant (CPA) or attorney, look it over. This person may catch details, errors or omissions

you've made. They also will be able to give you a more objective opinion of the viability of your

business.

Ten Common Causes of Business Failure

1. Going into business for the wrong reasons. Are you starting a business just because

you can? or perhaps to fullfil someone else's wishes? Starting a business requires alot of

hard work so make sure you are doing it for the right reasons.

2. Choosing a business that isn't very profitable. Its one thing to start a business, however

make sure it’s a business that is profitable. Even though you generate lots of activity, the

profits never materialise to the extent necessary to sustain an on-going company.

3. Inadequate cash reserves. This is the single most common reason why business fail. If

you don't have enough cash to carry you through the first six months or so before the

business starts making money, your prospects for Success are not good. Consider both

business and personal living expenses when determining how much cash you will need.

4. Failure to clearly define and understand your market, your customers, and your

customers' buying habits. Who are your customers? You should be able to clearly

identify them in one or two sentences. How are you going to reach them? Is your product

or service seasonal? What will you do in the off-season? How loyal are your potential

customers to their current supplier? Do customers keep coming back or do they just

purchase from you one time? Does it take a long time to close a sale or are your

customers more driven by impulse buying?

5. Failure to price your product or service correctly. You must clearly define your

pricing strategy. You can be the cheapest or you can be the best, but if you try to do both,

you'll fail.

6. Failure to adequately anticipate cash flow. When you are just starting out, suppliers

require quick payment for inventory (sometimes even COD). If you sell your products on

credit, the time between making the sale and getting paid can be months. This two-way

tug at your cash can pull you down if you fail to plan for it.

7. Failure to anticipate or react to competition, technology, or other changes in the

marketplace. It is dangerous to assume that what you have done in the past will always

work. Challenge the factors that led to your Success. Do you still do things the same way

despite new market demands and changing times? What is your competition doing

differently? What new technology is available? Be open to new ideas. Experiment. Those

who fail to do this end up becoming pawns to those who do.

8. Overgeneralization. One sure way to ruin your business is to be everything to everyone.

Spreading yourself too thin diminishes quality. The market pays excellent rewards for

excellent results, average rewards for average results, and below average rewards for

below average results.

9. Uncontrolled growth. You may not realise it a first but too much business can actually

destroy it. Hard to believe? Going after all the business you can get drains your cash and

actually reduces overall profitability. You may incur significant up-front costs to finance

large inventories to meet new customer demand. Don't leverage yourself so far that if the

economy stumbles, you'll be unable to pay back your loans. When you go after it all, you

usually become less selective about customers and products, both of which drain profits

from your company.

10. Believing you can do everything yourself. One of the biggest challenges for

entrepreneurs is to let go. Let go of the attitude that you must have hands-on control of all

aspects of your business. Let go of the belief that only you can make decisions.

Concentrate on the most important problems or issues facing your company. Let others

help you out. Give your people responsibility and authority.

Success Factors for Small BusinessesFind NicheAs a small business, you can't be all things to all people, so you need to carve out your own niche in the market. Determine what makes your business unique so you can capitalize on this feature through your marketing efforts. For example, do you offer products that differ from the competition or do you offer a unique shopping experience? Do you offer expertise that is not available in your local market?

Minimize OverheadYou may be forced to operate on a shoestring budget, especially when first starting out, so keep expenses to a minimum by reducing your overhead. Rent the cheapest building that suits your needs and shop around for items , such as insurance. Learn as much as you can about basic computer maintenance to keep service costs down. Even simple things like, such as turning off your computers at the end of the day, can reduce your energy bills.

Related Reading: Small Businesses & Daily Goal Setting for Success

Focus on ServiceYou may not be able to compete with the larger companies when it comes to pricing, which magnifies the need to deliver superior customer service. Go the extra mile by providing additional services, including free delivery or offering extended hours. Build a database of customer email addresses so you can send them a newsletter filled with useful tips and regular promotional offers.

LocationIf you operate a brick-and-mortar business as opposed to one that's Internet based, your location will play a big role in determining your success. According to the Business know-how website, factors to consider when choosing your location include proximity to your customer base, the location of your business in relation to your competitors and your building's accessibility.

1. Sell each unit at a profit.

Evaluate each and every product that you sell and determine if you are selling them profitably. If

not, you may need to identify how to make its current sales profitable, whether by reducing your

costs for that product or increasing its price.

Read the following articles:

How to Run Your Home Business Lean – and Profitable

Five Routes to Greater Profitability

How to Increase Profit: 4 Simple Steps

5 Ways to Increase Your Revenues

When Cutting Prices: Are You Giving Away Your Profit?

2. Continue to reduce overhead costs.

A lower overhead should be a continuing objective for your business. You can cut costs by

evaluating your insurance needs, reducing your reliance on outside consultants and service

providers, or cutting down unnecessary supplies and equipment.

Read the following articles:

How to Run Your Home Business Lean – and Profitable

Creative Ways to Cut Monthly Business Costs

How can Shipping Costs Affect Your Business?

Do’s and Don’ts in Cutting Down Overhead and Business Costs

Top Tips to Reduce Office Related Running Costs

3. Develop new products while maintaining the high quality of existing products.

Ensure that your products are created or chosen in response to the needs of your customers. Ask

for customer feedback through surveys or direct interaction with them to find out what are the

items that they need and expect from your business.

Read the following articles:

Where to Find New Product Ideas

When to Launch a New Product

How to Test Your Products

First Question to Ask When Launching a New Product

How Great is Your Product?

4. Find and retain high-value customers.

The 80-20 rule of business states that 80 percent of your business will come from 20 percent of

your customers. It is therefore critical that you exert the extra effort to ensure that you retain the

business of your top customers.

Read the following articles:

How to Keep and Retain Clients

How to Foster Loyalty and Get Repeat Customers for Your Online Business

6 Ways to Increase Your Customers

How to Nurture Loyalty in Your Clients

How to Get Loyal and Repeat Customers

5. Create and maintain the highest level of customer satisfaction.

A very important success factor needed to sustain your business is to provide the best service to

your customers. Satisfied customers are more likely to come back to you. Better yet, give your

customers more than they expect.

Read the following articles:

Excellent Customer Service: A Must for Small Businesses

Customer Service: How to Knock the Socks Off Your Customers

How Your Small Business Can Become the Leader of the Pack

How to Provide Good Customer Service

Is Your Home Business Delivering Quality Customer Service?

The above are but a few of the key success factors that you can use for your business. Your key

success factors must encompass all the important areas of your business, from finance, marketing

and product development, sales and customer service, and human resources.

As a small and home business owner, understanding what you must do to make your business a

success is the first step to your path to entrepreneurial success.