Sunday, June 04, 2000

Fundamental lessons

Business basics key to survival

By Rhonda Abrams
Gannett News Service

        “We have to get back to good old-fashioned business basics.”

        With the recent “correction” in the stock market, that's a phrase I hear a lot. And not just by investors on Wall Street.

        Suddenly, many new Internet entrepreneurs who have been floating along a sea of venture capital dollars are discovering that to survive, they're actually going to have to put their oars in the water and row.

        It's not enough to just say “get back to basics.” After all, for those who've only been in the business world the last few years, “the basics” seems to have been “spend, spend, spend.” It's time for a refresher course in business fundamentals.

        ăMaking sales: Here is the No. 1 cold, hard fact of business life: If you don't make sales, you don't survive. For novice Internet entrepreneurs, this is a tough lesson. Some thought all you needed was the ability to generate a lot of “buzz” and a lot of traffic. It seemed all that mattered was “mind share,” not dollars.

        But “dot-commers” aren't the only ones who lose perspective. Many new business owners become so enamored of the excitement (choosing a company name, designing a logo) or focused on the details (selecting just the right computer, buying insurance) of starting a company, they forget to focus on the single most important aspect of survival — sales.

        So memorize the most important one of “Rhonda's Rules” and repeat it first thing every day: “If you don't make sales, you don't survive.”

        ăMaking a profit: It's not enough, however, to just make sales, you actually have to make a profit on those sales. This seems like an obvious lesson. Look around the Internet, however, and you'll notice very few “dot-com” companies seemed to have learned this. They're giving away their services or selling products below cost.

        Now, it's true that most companies — in the real as well as the virtual world — will lose money their first years in business. You should plan for that.

        My first years as a consultant, for instance, I had to charge much less than I could once I had more experience. I had the expenses of setting up an office and marketing expenses so I could establish myself in the community. You'll make more mistakes in the early years, and those cost you. Most important, you'll have fewer customers, since you're new.

        But even though you may not actually make a profit those first few years, you should at least be trying. You should be keeping costs under control, choosing suppliers carefully, figuring out which aspects of your business have higher profit margins and starting to concentrate on those. In other words, learning to watch the bottom line.

        • Satisfying customers: Surprisingly, customers are one of the most undervalued aspects of business. It costs a lot to get a customer to first walk through your door, call you on the phone or come by your Internet site. You've had to put a lot of time and money into marketing, advertising, even your choice of location. But all too often, we don't spend nearly as much time satisfying our customers.

        Remember last Christmas? All those Internet companies spending millions on advertising? But how many of them failed to make their deliveries in time, didn't have product in stock, or the computer lost customers' orders?

        Dissatisfied customers cost a lot. I just went to a new hairdresser who was barely pleasant to me; I'm not going back. Now, let's examine what that cost her: If I like a hairdresser, I stay with them. If I have 10 haircuts a year for five years at $65 each, she'd make $3,255, not including tips! Nor does it include the other customers I could have sent her way.

        Another one of Rhonda's Rules: “The hardest thing to get is a customer.” Once you've got them, keep them.

        It's difficult in the excitement and challenge of starting a new business to think about such mundane things such as sales, profits, and customers, but at the end of the day, that's what business is all about.

        Rhonda Abrams is the author of The Successful Business Plan: Secrets & Strategies. To get free business tips, register at or write Rhonda at 555 Bryant St., No. 180, Palo Alto, CA 94301.


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