Operating a small business
Peter Torque, formerly employed by One. Tel as a sales person, has considered the possibility of entering the mobile phone business for himself. His friend, Simon, wishes to sell his mobile phone business, however, recently, it has been experiencing difficulties. Peter has also developed his own cash flow budget, in case he decides to start his own mobile phone business. Outdated product line- a difficulty such as this often begins in the Maturity stage, with regard to the sense of complacency that often envelops organizations.
In this instance, the management has become complacent in its research into the newest products and models available. This would have resulted in a levelling off, or plateauing, of sales. It is then the astuteness of the manager that determines what phase a business next enters. If business remains stagnant, then eventually sales will begin to decline noticeably, rather than simply plateau. This has occurred within Simon’s business. He has become complacent in his research into the latest developments in the mobile phone industry and, as such, is faced with the difficulty of selling outdated stock.
Implications- the possible implications of stocking outdated models are ominous. Simon’s customers have complained about his stock and sales are declining. Evidently, Simon is losing market share to competitors and will continue to do so if he continues to stock outdated models. Ultimately, he will be faced with a liquidity problem, that is, his debt levels will be large, while his cash levels and ability to convert assets into cash would be low. Quite simply, he will be unable to fund his activities and thus fail as a business. Strategies- Simon must update his product line.
Failure to do so will result in a continuing decline in sales and ultimately, cessation. This process has begun, so a loss of some degree will be incurred. To reduce the impact of this loss, Simon should hold a sale, offering heavily discounted prices on his outdated stock. After this, he should conduct research into the latest developments within the mobile phone industry and update his stock accordingly. He should also make it strict routine to regularly update this research. In the short term, Simon will make a loss, however, if he continues his outdated product line, the loss will be far larger – his business’ existence.
*Dissatisfied Customers- is linked directly to the characteristic complacency that envelops many businesses in Maturity phase and extends into the decline stage of Post-Maturity. The business has not kept up with the latest developments in the mobile phone industry. A customer will always desire to purchase the latest model they can afford and thus, Simon’s customers have deterred to his competitors. Implications- the consumer is what fuels business. Evidently, if Simon does not satisfy his, profit will continue to decline. Dissatisfied customers and outdated stock are linked.
As such, unless stock is changed, customers will continue to be dissatisfied and profit will continue to decline. Eventually, the same liquidity problems as outlined in “Outdated Product Line,” will arise, resulting in business failure. Strategies- customer satisfaction is primarily linked to the product line offered by Simon’s business. Therefore, see strategies in “Outdated Product Line. ” Simon should also review the service of his staff, which may be contributing to customer dissatisfaction (See strategies in “Dissatisfied Staff”).
Additionally, Simon should ensure that the presentation of his shop is clean and tidy, as well as friendly and welcoming. *Dissatisfied Staff- linked directly to the loss of enthusiasm, or complacency, that is a characteristic of business’ in the decline stage of Post-Maturity. The manager is the role model for his staff and his complacent attitude and lack of motivation will be reflected in their work attitudes. Obviously, employees will not wish to work in such a lacklustre environment, explaining his employee’s voluntary cessation.
Additionally, the decline stage of Post-Maturity is characterised namely by a decline in sales. Employees are likely to realise this, perhaps in how their wages are affected or simply by observing the decrease of customers in the shop. Realising the declining situation of a business, many staff will seek more secure employment. Implications- the implication of dissatisfied staff is that large amounts of money and time will be wasted. Many of Simon’s staff are leaving. Obviously, Simon will have to replace them. This, however, is an extremely time consuming and costly practice.
The new employees must have time to become oriented with their new position and, as such, will not work to their highest productivity for some time. This will impact on customer service and satisfaction, further lowering the reputation of Simon’s business and his profit. If these new employees too, become dissatisfied and leave, then Simon must begin the costly cycle once more. This would impact very badly upon the efficiency and profitability of the business. Combined with the other difficulties faced by Simon’s business, which also lower his profit margins, the business would likely fail.
Strategies- at a stage when staff are dissatisfied, Simon should adopt a policy of honest and open communication with his employees. He should inform them that the business has indeed suffered losses and has not been functioning as productively as previous years. The strategies he intends to instate should be outlined to employees and their contributions welcomed. Additionally, Simon should ensure he approaches work with enthusiasm – presenting a positive attitude will be reflected quality of Simon’s sales persons’ service and customer satisfaction.
Essentially, employees will feel more involved with the business, more confident in Simon’s management and more secure in their employment, which will impact positively upon future profit margins. *Generic Strategies- additionally, there are some strategies that can be applied to any business within the decline stage of Post-Maturity: *Lower pricing to entice consumers. *Removal of all products that do not provide a direct return. External Advisors: There are a number of external sources Peter could utilize to assist him in managing Simon’s business, including:
*Marketing Advisors- Simon’s business has recently suffered difficulties, customers and staff are dissatisfied; sales are declining. Therefore, Peter needs to create a new, fresh image for the business. A very effective way of doing this is with the help of an external marketing advisor. They can assist Peter in the best ways to create this new image in terms of price, place, product and, particularly in the first stages of his management – promotion. Professional advertising and sales promotion would be particularly effective in drawing consumers’ attention to the new, motivated business.
If Peter did not employ the services of a marketing expert and create a new, fresh image, then the future success of his business would be jeopardised. People would likely still associate his business with the outdated and unenthusiastic business that Simon managed. This would result in sales continuing to decline and placing considerable strain upon Peter’s resources. If effective marketing advice was heeded, Peter would attract new customers and eventually, the community would realise that the business had changed and was once more up to date and efficient.
External marketing advisors would also be of assistance beyond Peter’s first months as manager. The business environment is a dynamic place, presenting many opportunities for effective marketing. By utilising an external professional, Peter could capitalise on these openings and continue to grow and profit. *Accounting Advisors- an external accounting advisor would be very helpful to Peter both while negotiating to buy Simon’s business and in managing it after purchase. An accountant is trained to understand financial statements and could therefore study Simon’s financial records.
This information would allow them to inform Peter of two important points, whether Simon’s business is even a viable venture and, what an appropriate price is, if they deemed purchase viable. This would assist Peter greatly. Obviously, knowing a business venture is unviable will save much money, frustration and time. Equally, the worth of a business can often be difficult to determine, considering intangible assets such as goodwill. Therefore, professional advice could save Simon much money. This would be an immense assistance, as Peter could use the money saved to establish a fresh, positive image for the business and to update stock.
An external accounting advisor would also be of great assistance once Peter had established himself as manager. Utilizing an external, professional accountant would free time for Peter to apply himself to the areas he excels in. Equally, the strategies proposed and work completed by a professional accountant would create a more efficient and profitable business. An accountant can provide Peter with an understanding of his business’ financial capacity, thus helping him create goals and objectives that most effectively balance challenge with realism.
*Staffing advisors- many staff have left Simon’s business, while the ones that are employed are likely to be new and inexperienced. As such, when Peter assumes managerial responsibility, he will be employing a workforce that may not be complete and one not working at its full capacity. Therefore, he will have to make some wise employment decisions. The use of an external staffing advisor can assist Peter in doing this. They specialise in locating the employee most suitable for a position.
In locating quality employees, an external staffing advisor will also indirectly assist Peter in his endeavour to motivate the employees he begins with. The introduction of motivated, enthusiastic employees will positively affect others who may have developed poor work habits whilst Simon was managing. An external staffing advisor will also be of assistance to Peter once he has been managing for some time. One, at some stage, must always replace certain employees. External, professional advisors will be able to locate and present a pool of appropriate candidates, saving Peter much time.