The one big mistake of small business
Before your small business invests in too many big tangible assets, ask yourself whether you should leverage new technology to make them someone else’s problem.
The rise of the internet has opened up a whole new world of opportunities for the smallest of businesses, but it has also provided some textbook examples of what not to do when getting your business off the ground.
Two of the best cautionary tales of the dotcom boom were online grocer WebVan and pet food retailer Pets.com.
Excited about the potential of the internet and flush with investor funds, both burned through mountains of cash buying delivery vans, building warehouse space and establishing other expensive infrastructure to support the expected wave of customers.
This “build it and they will come” business model is risky, even if you have deep pockets.
Their gambles didn’t pay off, with WebVan and Pets.com becoming two of the most spectacular disasters of the dotcom bust.
Were you starting those businesses today, you’d certainly think twice before rushing out to spend a fortune on upfront capital expenses like delivery trucks. Instead you might lease the trucks, or simply strike a deal with FedEx.
The idea is to keep your small business nimble and lean – turning many hefty “capex”
Expenses, like delivery trucks, into ongoing operational or “opex” expenses.
Outsourcing to the experts where possible smooths out your expenses, improving your all important cash flow while you concentrate on what you do best. A good accountant can help you crunch the numbers to decide when you should buy, lease or outsource an asset or skill.
If you’re not a trucking company, why buy and maintain delivery trucks? Why add drivers and mechanics to the payroll?
Apply the same litmus test to any major small business investment – whether it be infrastructure or personnel. Are you buying metaphorical delivery trucks when you should lease or outsource instead? At this point in time, do you really need to bring them in-house?
The modern small business might not even need a physical “in-house”.
If your small team can work and collaborate effectively online then you might not need the overheads of expensive office space. Building a virtual office is much easier in the age of cloud computing, with services like Microsoft’s Office 365. You can scale as the size of your business waxes and wanes.
Don’t blindly follow the “virtual business” mantra, you need to think strategically as you grow.
Be careful you don’t outsource your core competence along the way – the thing you’re best at and the reason why you went into business in the first place.
If you run a bakery then you might not need to own delivery trucks but you don’t want to end up paying someone else to bake your bread.
The trick is to stay lean and know when it’s worth spending a little dough to hand over a job to the experts.