7 Hard Questions

I was about 5 years into building my first real business – other than a couple of ventures I tried as a teenager – and I was chatting with a friend who was formerly an accountant, but was off on long term disability with a debilitating illness, and she asked me a question that changed my business.

“Lisa - What risks are you carrying in your business? Have you done anything to mitigate those?”

I didn’t understand her – and while it is my personality type to just charge on through, for once that day I stopped and listened. And I am forever grateful that I did. She stopped me in my tracks. Actually, she scared me. And over the next 6 months, I changed everything about how my business operated. I thought I’d built an awesome business, but I hadn’t considered some significant risks. And I had not structured the business to minimize those risks.

Let’s be honest – being an entrepreneur means taking on risk. That’s just the reality. But you can be smart about it. You can calculate the entire suite of risks and do what they can to minimize the downside wherever possible while stepping out in … shall we call it “faith”… to achieve their dreams and realize the upside.

Since the day my friend questioned me, I have developed a keen interest in asking questions that make me and other entrepreneurs think. Here are just a few.

1. How long will your cash last?

Cash is king. So it should be tightly managed. If starting tomorrow, revenues from existing customers dropped to zero, how long would you last at the current burn rate?  Surprisingly enough, many business owners I have worked with do not have a clear picture of this – indicating they are flying blind to an extent.  Poor cash flow planning is one reason business owners run to their their small business bankers at the last moment.  That is precisely the wrong time to be seeking additional funds! And they often come out disappointed. You should always know how long your cash will last and monitor the difference betwen influx of revenue for sales and outflow of cash to pay creditors to keep it at a reasonable ratio.

 2. How Long Does It Take for New Customers To Come On Board?

One of the hardest things, especially for small business owners, to do is get customers.  This is because they always tend to operate with lean advertising budgets, and tend to have fewer resources for sales efforts. As such, more reliance is placed upon word of mouth, and referrals.  Both are excellent techniques, but take time.  Not having a good sense of the gestation period for generating business from new customers results in over dependence on few customers and a lack of focus on generating new business, which can be extremely risky.

3. If You Are Incapacitated Tomorrow, How Will the Business Continue?

No one wants to think about the possibility of death, disease or injury, but the possibility always exists. A smart entrepreneur prepares for it. Many owners do not have contingency plans in place to address this serious issue, should it occur.  They either don’t know what plans to put in place, or are just too busy managing the operation.  This risk can be mitigated with a few changes within your business and/or insurance coverage to protect you. But first you have to take the issue seriously enough to address it.

4. Why Do Customers Come to You (or Disappear)?

Everyone knows that no customers means no sales. Few businesses really have a good understanding of why customers come to them, or don’t. Many business owners I speak with say, “If they customer did not complain, we must be doing things right. So they will be back!”  This belief system may be self-aggrandizing but may come back to bite you.

By the time a customer overtly complains, they have already been dissatisfied, often multiple times. Maybe the product or service failed to perform as the customer wanted. Maybe an employee was rude or unresponsive. Maybe your systems weren’t working.

So by the time a customer complains, it is too late in the game – they are already on their way out. 

You are the owner of your business. You need to discover the “Satisfiers” and Dis-Satisfiers” before your customers do. 

5. Where Do Your Customers See You vs. Your Competition?

This is critical knowledge. It can mean the difference between a business that makes it, and one that doesn’t. 

Now you might be in a business that has little competition. You may believe that the customer has little choice but to come to you. Wrong!  If your product or service is bad enough, the customer will find an alternative.  And you never know when another competitor may jump in the game.

6. What Are the Constraints In My Business?

Every business operation has something that would inhibit it from moving quickly, responding to industry changes, or from reaching its full potential.  Most of these constraints are possible to work around, some will be more limiting. These may be things like available equipment that limits increasing production, a lack of management staff to run additional shifts, a fixed payment obligation that may be tied to a certain loan, or other constraints that determine the maximum capacity of the system. By removing or mitigating the single constraint, the company can be elevated to a higher level of performance.

Why consider this question at all? Business is subject to many forces that lead to changes – we may need to expand, contract or phase out our business, to name just a few. We need to do whatever we can to keep nimble enough to react quickly to take advantage of opportunities or respond to changing market conditions. If we are aware of constraints, we can set up contingency plans for different scenarios. 

7. How Strong Is Your Skill Set?

Are you aware of the trends in your industry, what your competitors are offering and how your customers’ needs and expectations are changing? If not, take the time to learn. Once you understand this, then do a brutally honest assessment about how well your business competencies match the trends. The good news for a business owner is that you do not need to personally possess each important skill. However, it is important that your organization consists of necessary skills and competencies that your industry and customers are coming to expect.

These are just a few of some fundamental questions that are vital to the survival of any business and that every entrepreneur should consider in their business – in order to do what they can to grow, to improve their business and to mitigate whatever risks they are taking on in their venture.