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my business

What is my business?

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Why is it important to know or rather review what is my business? Or what is my Core Business? Basically for the following reasons:

 my business

The speed with why

Why is it important to know or rather review what is my business? Or what is my Core Business? Basically for the following reasons:

The speed with which products age today.

The changing tastes of consumers that destabilize markets.

The opportunities of the new markets that are opening with the FTAs that Colombia is negotiating.

 

Threats from competition from new suppliers, which will enter the Colombian market as a result of the FTAs that Colombia is negotiating and the new market conditions that eliminate any barriers, based on price.

 

The cycle of manufactured goods has evolved almost at the same rate with which technology evolves; Twenty years ago the average permanence of a product in the market was of approximately five years today, the life of a product is almost of weeks. If all the new products that are invented or subject to innovation processes could be commercialized, the market would become an unimaginable chaos; Such is the speed of change that easily what is bought today tomorrow may already be obsolete.

 

But as products constantly evolve, consumers’ tastes are daily influenced and conditioned by the mass media and audio-visual marketing strategies that saturate the consumer via commercial television and radio: for every fifteen Minutes of transmission 40% is for advertising and only 60% for the transmission of content and, as if this were not enough, the Internet has been becoming the most revolutionary source of information and business known to mankind; Although currently only 2% of business is done by the network, it is expected that by 2010 the figure of e-business is ten times greater.

        Read also:https://your-business-plan-step-by-step

On the other hand, the elimination of barriers to the movement of people and migratory flows to the countries with the greatest capacity for consumption have created a new class of consumers that combines the ancestral consumption habits with those that must adopt in the country that the Welcomes; Habits that are neither fully consolidated nor fully taken by the immigrant, and which become changing as a result of the impact of the media that penetrate the privacy of people, setting new ideas in their subconscious that lead them to experience new sensations, new flavors, new colors And new designs; In many cases demand requires differentiated responses or special designs, which constitute what are called market niches.

 

If I look inward of my company and find that my processes and equipment have not been modernized in the last ten years, or that the goods or services I offer are the same as five or more years ago, it is very possible that it is time To make a stop along the way and to review, among others, the following indicators:

 

The behavior of my sales, in units, in the last three (3) years.

A mix of my products, ie the goods that form the Pareto of my company, in the last three years.

How my finished and in process inventories have evolved over the past three years.

How the liquidity of my company has behaved, in that same period and lastly,

How has the labor productivity indicator evolved over the past three years?

 

If, in addition to confirming that the equipment is obsolete, that the goods and services that I offer have not changed and that the above indicators have ceased to be favorable to business behavior, then it is time to ask myself the question  Am I in the business where I owe to be? Because it is usual for entrepreneurs to look for the fever in the sheets when in reality what is happening is nothing other than the business in which it is, it is not the business in which it should be.

 

The market usually talks to us through signs like the increase of inventories, the decrease in the sales or the illiquidity and it is not common that we understand these signals that indicate that something is happening.

Generally, we either do not understand or we do the blind eye or simply transfer the burden of guilt to third parties and instead of doing the obvious we simply condemn our company to the ostracism of its littleness. It is that the change is expensive and not exactly in money but in the transformations that imply, in the risks that I must assume, but above all in the change that must begin within me. The evolution of my company towards a more competitive stage can not be given if I do not lead that change from the depths of my inner; The change my company requires begins and ends with the change that I must give to my life as a person and as an entrepreneur; It does not make sense that I intend to give a north to my company and even reorient it, if I do not know where I go as a person and where I want to be in a couple of years; It is not conceivable that in my company institutionalized work groups, if I am a person unable to work as a team, it would be a contradiction that I intend to create a business culture based on the new information and communication technologies, in improvement processes Continuous or process automation, if I believe that “all that is proper to the big company” and that therefore  I have nothing to do.

      Read also:https://what-is-a-business-plan

In my life as a consultant many times I had to face the predicament of entrepreneurs about the lack of liquidity and the gradual and continuous reduction of working capital. Upon receiving these requirements, my first reaction was to tell the entrepreneur:  With debt, in Colombia, it is relatively easy to get into debt, how difficult it is to pay. The repeated business crises but in particular the one of the years 1998 to 2000, I was right. Those companies that survived were those who had prudently handled their indebtedness. But what is all this? Simply because the entrepreneur has the tendency to believe that the lack of liquidity of his company is the cause of its ills; However, my experience has taught me that lack of liquidity is the effect and not the cause that things are not going well in my company, and they are not marching well simply because I have lost the north of my business.

 

The accumulation of finished and in-process inventories, the fall in productivity and the profitability of sales and of the business in general, are traffic lights that light up to inform us that it is time to review the business. When this happens I must answer the following question: Am I producing the goods and offering the services that the market demands?

 

But there is something else: am I selling at my prices or those of my competition? It is a commonplace to hear entrepreneurs say that unfair competition, smuggling, and informality are their biggest enemies; However, it is also very common that the prices of the goods they offer do not correspond to actual costs of production, but to the perception of the market and the prices at which the companies that exercise leadership sell; In other words, it is very common for entrepreneurs to set their prices as a percentage of those who have the products of their competence; This custom leads us to the following questions:; Do I know how much my goods and services cost? How do I define my prices? Are my prices compatible with the market?

 

My intention is not to make this book an extensive recipe of formulas that solve all the problems of SME entrepreneurs, that is why I will not go into the methodologies for the cost of goods or services offered to the market; However it is good to note that the most known and accepted of the current costing methods is the so-called ABC Costs.

 

The importance of knowing the costs of which I produce has to do, among others, with the way in which cannibalism of the market is usually done. One of the most common practices is to try to stay in the market by “breaking prices” as a reaction to the same strategy by the competition, especially when it is the big company. Every day is more common, with some nuances, the confrontation of the SME with the large company for a fraction of the market that increasingly means less depending on its size in our country, but above all the opportunities offered by the new dynamics of the International Trade.

 

But if price competition is foolish with big business, it is suicidal the same strategy applied to address medium and small size companies, which participate in the same type of market in which my company is.

 

The strategy of reacting to the threat of competition via prices is not sustainable in the long term and, on the contrary, its effect is the decapitalization and loss of value of companies, especially when the costs are not known, producers. Not knowing the costs of the product and therefore not being able to set the prices logically places companies on the tightrope because they can not determine in time where the limit of profitability ends and the liquidity and unfeasibility begin. This is what I would call a boomerang strategy because late it is returned to the entrepreneur who took the initiative to use it.

 

The entrepreneur of small and medium-sized enterprises, but especially entrepreneurs in the MIPE segment, have the belief that accounting is only a legal requirement that allows the payment of commitments to the State and therefore only the historical record of What happened in the company; Hence the useless need” to know the costs of which they produce the goods or services they offer to the market.

 

I remember once when I was advising a company, that in the meeting to define the plan of operation of the following year when touching the subject of the utilities, the accountant said to the entrepreneur: Boss you do not worry about The costs, tell me how much you want to testify and I’ll take care of the rest.   At that time I understood that the company was in the hands of a “henchman of incompetence, But the worst thing is that later I could confirm that it was a cultural problem of the smaller companies.

 

In conclusion, I think the process of  creative destruction that Schumpeter speaks of is inevitable, in his book Capitalism, Socialism and Democracy; The time has come for smaller companies to look deeply into the business they have been up to now and look for answers that will allow their companies to survive in a changing, universal and flexible market, their transformation and Modernization or simply its disappearance. It is very possible that illiquidity, increased inventories and the consequent decrease in sales are only a warning of the need to rethink the business, but this decision implies breaking the paradigms that I have traditionally accepted: that I have the best product, That my quality is optimal and that what happens to me is due to external factors such as contraband, exchange rate or competition, etc.

 

In view of the threats posed by products from new economies of scale such as those of Brazil, China, and India, it has been emphasized, when the existing information allows, to resort to the establishment of temporary tariff or trade barriers  that have no other purpose than to postpone the agony of companies that do not understand that the market has turned their back on them and that the time has come to answer the question What is my business?

 

As Schumpeter put it in the above-mentioned book:  Capitalism is a model in which the new is replacing the structures and methods of the past because it is constantly destroying the old and creating new elements,  the surprising thing is that this great thinker of Modern economy said it in the year 1942.

 

 

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Author: Jack726

Freelancer

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