By Simone Cimiluca-Radzins, CPA
Starting up is hard. Starting up a successful business is even more challenging.
I’ve always used the statistic that 80% of businesses fail within the first 5 years of operation due to poor strategic, financial, and operational decisions. I am a true believer that operating in the cannabis industry is even harder due to strict regulations and it being federally illegal (banking and Code 280E). It wasn’t until I read an article from Expert Dojo (a startup accelerator program) that I realized I might be too optimistic. They cited that 97% of startups fail within 5 years. Talk about an uphill battle!
During the startup phase of a company, the main goal is to stay alive and not fall into that frightening statistic. The owners of the company typically are the business; focused on developing products and being creative. The owners are responsible for performing the bulk of all important tasks; building the client/customer book; managing suppliers; focusing on bringing cash into the bank (or vault); and unfortunately paying themselves little to nothing. There is a lack of formal meetings and communication among employees is infrequent and informal. As time progresses, the team becomes larger and so does the client base, and success appears like it is upon the horizon. Does this sound like your organization? It sounds like many organizations I’ve worked with.
But when we know that 97% of startups fail within 5 years, and we know that most startups fit into a similar pattern as described above, shouldn’t we disrupt the norm and inspire to be that 3%, or even better, change that statistic to something more reasonable?
The list below are 4 tips to consider if you’re an operating business.
1. Fluff Isn’t All Fluff
A business plan isn’t just a template to present to an investor, it is the strategy behind your Company and why your Company adds value to the market. It details how you will sell, distribute, and market your business. Many companies forget their strategy or fail to re-assess their strategy. During your first few years in business, you should be constantly assessing your business plan and tweaking if necessary.
Is your value proposition still accurate and is it really a unique identifier that distinguishes your business from the saturated marketplace? Do your employees and manager know what the value proposition is? It is essential that all employees understand why the are working for you and what the Company offers.
What is your Company’s mission and core values? Although it might seem like a theoretical discussion, without a mission statement and core values, how will you communicate with your customers, vendors, and employees? The mission statement should be a Company’s guiding light.
Are your actual customers the same segment you defined in your business plan? Are the habits consistent with your initial hypotheses and assumptions? Should your sales and marketing strategy change?
2. Your Team is Everything
People matter, and will drive your business to the next level. If you want to build a sustainable business that can live without you, your team needs not only to understand what their roles and responsibilities are, but they need to feel empowered and part of the team. Employees are costly, yes with respect to paying them market rates and their taxes; however, more importantly employees are costly if you don’t treat them right. According to the Huffington Post, “Unhappy employees cost companies worldwide billions of dollars per year in lost revenues, settlements and various other damages.”
One lure to both the startup culture and the cannabis industry is that it is not like “Corporate America.” It is more relaxed, which is one of the draws that brought me into this industry. However, it should be noted that being relaxed does not mean rules, roles, and responsibilities. Building a clear line of communication and accountability between employees, managers, and owners is essential. This governance structure will increase internal efficiencies, allow upward and downward feedback, and create a One Team environment. Implementing an employee review process, development plan and training plan should be a key focus for the Company.
3. Internal Processes Drive Excellence
Without order, there is chaos. A filing system that worked for the owners of the company might not work for a team. An excel list to manage finances might not still work when you have multiple locations. Business owners should assess how they are managing clients, keeping track of expenses, and ultimately making decisions. It is critical to assess what tools can help your business become more efficient!
Additionally, as your business grows, it is essential that processes around key financial processes are solidified, documented, and adhered to. There is a fine balance between control and efficiency, make sure your Company understands this!
4. Don’t Let Cash Manage You
We are all in business to make money, and ultimately have loads of cash (in the bank). One thing that business owners should be constantly managing is their cash flow. Although money might be coming in, is it enough to cover employees, marketing and sales efforts, as well as saving for future growth and a rainy day fund? Business owners should be forecasting out their cash on a weekly basis and constantly revising their budget.
I’m a firm believer of strategy and constant improvement. We are in the digital age and our ecosystem is continually evolving. To be in that 3% of successful businesses, a methodical, detailed, and FUN regiment should be deployed. By refining your value proposition, having a one team strategy, implementing operational excellence, and managing your cash flow, you’ve already set your Company apart from the rest.