business

In my capacity as a business advisor, I have found that an unfortunately high number of entrepreneurs fail. I tried to document these failures, so other people can learn from them.

By Rehan Ijaz

The trouble is that the lessons from failed businesses can be difficult to discern, because there are numerous nuances involved. I have previously stated the study from US Bank showing that around 82% of all business failures are attributed to cash flow management errors. This is an important statistic to be aware of. However, the figure by itself does not provide much direction to entrepreneurs. They need to be aware of the problems that lead to these cash flow management mistakes.

Poor growth management is one of the biggest reasons that companies fail. A promising company might attain profitability by focusing on a particular market. They mistakenly believe that they can scale their profits by focusing on new markets. They might be generating revenue, but still be losing money for a number of reasons.

Unfortunately, some markets are not going to be as receptive to your offers as others. Every business owner must invest conservatively while expanding in new markets. They must also monitor the results of their marketing campaigns and pull back from any new ventures that don’t pan out.

Matt Johns, the founder of Ucreate, says that you should invest the majority of your profits back into your business. However, that only works when your strategy focuses on profitable growth. Here are some tips to keep in mind to manage growth profitably.

Focus on current market penetration strategies before diversifying with untested markets

I didn’t learn many useful things in my MBA program. However, I recall one matrix that was very useful. It covers the ways that companies can grow.

There are four different growth strategies that you can embrace:

  • Focus on capturing a larger share of the market you are already targeting
  • Sell the same product to a different demographic
  • Sell a different product to the same demographic
  • Sell a completely different product to an entirely new demographic

If you are having success with your current market strategy, you should double down on it as much as possible. This is the safest option. You don’t want to start expanding into new product lines or customer segments until you have saturated the market as much as possible.

The further that you venture from your original business model, the more risk that you will be taking on. This means that you are unnecessarily risking losing money. This is a mistake that too many people make. Risk is unavoidable as a business owner, but you don’t want to take on more than you need to. Smart business owners understand the importance of taking necessary risks and focusing on proven strategies first.

Try to segment different facets of your marketing plans

Sometimes, you are going to need to mingle certain elements of your marketing strategy. For example, I gain most of my customers through online advertising funnels. I create campaigns with multiple ad groups and keywords.

Some of my ad groups within a campaign are going to have a very high ROI, while others are going to lose a lot of money. Even within an ad group, some keywords are going to perform much better than others.

When I first started off, I would often kill off campaigns that were losing money. I finally realized that when I looked at the details, I would find some ad groups that performed well and keywords that were more profitable than others. I discovered that the best way to expand was to carefully monitor the performance of them and pause anything that was not yielding a positive ROI.

The logistics of your own revenue and expense tracking are going to be different. However, you need to follow the same principle I did. Look carefully at your campaigns and see if there are ways to turn ones that are losing money into profitable ventures. Even if this is only possible 20% of the time, it can make a huge difference in your bottom line in the long term.

Understand the key differences between markets, especially when penetrating new regions

Every market is going to behave differently. As an affiliate marketer, my friend often promotes offers in different regions. In one case, he was promoting an offer to German speaking consumers. He ran Adwords ads in Germany, Switzerland and Australia. For some reason, his campaign was highly profitable in Switzerland, but lost money in the other two countries.

There are always going to be differences between various customer segments. You can’t always predict which customer trip is going to respond the best to your marketing offers. However, you can increase your likelihood of profitability by studying those market segments in detail, so that you can identify the ones that are most likely to be interested in your offers.

Rehan Ijaz is an entrepreneur, business graduate, content strategist and editor overseeing contributed content at BigdataShowcase. He is passionate about writing stuff for startups. His areas of interest include digital business strategy and strategic decision making.

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