Recipe Archive

RISCORE's June Recipe for Small Business Success

Keep Your Eye On The Top Line

This Recipe for Success is inspired by the bitter taste of failure. I have a client who is closing his business in which he invested his life savings. Because Score maintains client confidentially I have disguised the facts slightly and will not disclose my own identity. Suffice it to say this was an entrepreneur in Rhode Island and I’m a Rhode Island Score counselor.

My client had a great idea for a service business. Like many start-ups it was based on a personal skill he had developed in a lifetime of experience. He implemented it superbly; picked a good location, got the best equipment, hired qualified help, built an attractive facility. He priced his service right, controlled his variable costs, and maintained good margins. He marketed it well, not with much paid advertising but vigorous networking and good public relations and backed up by a web site. His customers loved it. He was in the local papers every week with some new event or promotion.

In a year he never brought in enough business to break even. He’s now closed and disposing of his equipment for a few cents on the dollar – and hunting for a job. What went wrong?

Specifically, what went wrong was that the market wasn't big enough to support his business. His service could only be provided on site – which essentially limited his market to perhaps 20 to 30 minutes driving distance from the store. A few customers came from farther away but not many. Furthermore his service appealed to a specific age group. The geographic and age limits combined just didn't provide enough customers. Some solid market research in advance would have revealed this and his plans could have been modified, scaled back or perhaps simply never been pursued. Instead his enthusiasm and obvious ability to implement clouded his judgement about the business viability and led to this terrible waste.

The broader message is to work hard and concentrate on planning your sales, your revenue, your “Top Line”. It’s almost a truism that if you can bring in the sales you can make your business succeed – and equally true if you can't bring in those sales, no amount of ingenuity or hard work can make up the difference. Every sales forecast ends up a leap of faith but do everything to reduce the uncertainty. Plan your promotions, price right, service excessively and of course make sure you know your market size and what share you can expect.