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Welcome to the September 2019 edition of our Small Business Tips.

How To Use This Update

Our Small Business Tips Updates are a mix of the practical – a summary of technical updates from the previous month – and articles which we provide as food for thought.

For this second section, find a quiet corner, grab a coffee, and use it to generate some quality contemplation about your business. The aim is to provide enough varied content to give you the opportunity to think differently about your business, to think about the future and to generate some of your best ideas.


Technical Updates


MARGIN PRESSURES SET TO CONTINUE?

Following a brief period of respite last month, the latest ONS data shows more challenges to the bottom line. Consumer inflation in the month of July rose by 2.0% compared to July 2018, whereas wages for the three months from April to June rose by 3.7%. This was at least partly driven by the new higher rates for the National Minimum Wage and the National Living Wage which came in to effect in April. Be sure to double check that you are complying with these new rates – as an example, the NLW is now £8.21 per hour which is an increase of 4.9% on the previous rate of £7.83 per hour.

The ONS also reported that factory input inflation was 1.3% in the month of July compared to the year earlier. This figure was actually lower than it might have been due to a fall in the price of crude oil (-6.5%) in the month. All other materials, food, and equipment used in the manufacturing process continued to show significant increases.


Q2 GDP CONTRACTS

Figures for the economy for the second quarter of the year were even worse than the pessimistic expectations of flat growth – showing a contraction of 0.2% vs quarter 1. This was the first contraction since 2012. This decline in output was driven by the production and construction sectors shrinking significantly in the quarter, although the growth in services was also notable for being the lowest for three years.

As previously discussed, the stockpiling by firms in quarter 1 ahead of the original Brexit deadline has had the effect of shifting growth from Q2 to Q1. When looked at as a whole, the growth for the first six months of the year averages 0.5%.


THE PRODUCTIVITY CHALLENGE SHOWS NO SIGNS OF EASING

Productivity is a subject very close to our hearts at Corner Finance, with our view of its sheer importance expressed here. We continue to be disappointed, then, to see how hard it is for firms to improve their productivity in the current climate. Figures this month from the ONS showed that output per hour fell for the fourth successive quarter – by 0.6%. In other words, whilst the total number of hours worked in the period from April to June rose by 1.8% the output produced rose by only 1.2%. When combined with the relative inflation figures above, it is easy to see how company finances will come under increasing strain if these trends cannot be reversed.


SMALL BUSINESS CHALLENGES

The latest Business Confidence monitor, published by the Institute of Chartered Accountants in England and Wales, highlighted the main challenges facing small businesses. Business confidence continues to look negative, and the main concerns highlighted are: regulatory requirements (still the main area of concern despite falling from previous quarters), customer demand, and late payment from customers (notable for the consistent growth in this issue over the previous 5 quarters).


Food For Thought


MARVELLOUS

Digging in to the incredible success of the Marvel films franchises, this fascinating article highlights some valuable insights in to the key ingredients. There were two standout observations here for me.

Firstly, it is important to be constantly challenging and evolving the formula/product to not only keep things fresh but also to build that understanding and expectation amongst your customers that things will evolve. It may sound counterintuitive, but keeping people on their toes by adapting your offering needs to be coupled with keeping people informed that you will be keeping them on their toes. Trying to surprise people too much when they have not become accustomed to change can have the opposite effect – as witnessed with large sudden changes like the Star Wars franchise or New Coke.

The second insight that stood out was the concept of “inexperienced experience”. That is to say, deliberately taking on people from outside the specific area of expertise but who are experts in another field – to help introduce creativity and new ideas. At Marvel, this is coupled with maintaining a core of people with relevant experience to maintain continuity and a fine balance within the project. What that perfect balance is will be a case of trial and error, but this concept of refreshing talent and deliberately widening the pool of relevant skills can lead to ever greater innovations.

As a small company, this introduction of new experience and viewpoints does not necessarily have to come from hiring new people – it can just as easily come from you. Reading around a subject, taking learning opportunities outside of the obvious fields, and generally broadening your horizons can have a huge impact on the success of your business. It can also mean bringing in an outside expert to provide a fresh perspective – whatever it takes to generate your “Marvel Moment”.


ESCAPE TO VICTORY

Whether you have been to an escape room or not, chances are you will have come across them one way or another given how quickly they have grown in popularity. This article on the brief history of the phenomenon gives some valuable insights in to the secrets of their success.

As the market for escape rooms has grown, the ones that have not survived have been those outfits that got left behind in terms of quality. In this marketplace as in any other, customers can tell when a product or service is delivered for the right reasons and with genuine passion – and they respond to it. It is vital to always ask yourself why you do what you do, and what people are getting out of it – this will always guide you to producing the most relevant product you can. Producing the bare minimum or an imitation of others is never a sustainable business model.

Those that have thrived have done so because they have recognised what their customers are looking for. The “escape” in an escape room is not just about the literal problem itself – it provides a very real distraction from the pressures of everyday life, and a very real experience in a world that is more and more virtual. Above all, it provides an environment where you can see your actions produce direct results – and this feeling keeps people coming back for more. In fact, it could well be why you started your own business in the first place. So put yourself in your customers’ shoes – what are they getting out of your product or service? What would you get out of it? If you struggle to answer this, chances are they might too.


PLAYING THE LONG GAME

Traditional Economics, and traditional decision-making in general, focuses on weighting the potential outcomes by their likelihood in order to assess the overall impact of each course of action. What this ignores, as this article explores, is that each outcome can vary significantly over time. In other words, if you only consider the immediate potential result of a decision then you miss a huge amount of relevant information that can greatly impact the quality of that decision.

What this article argues is that, when considered over time, a policy of cooperation is far more important than one of competition. Chiefly this is because every business will face a different challenge at a different point, and by working together you can diversify your risk at each given point and ensure you all survive. Always looking for the win-win in business relationships and key decisions is something I firmly believe in – and is something that can really help to unlock trickier negotiations.

This article also highlights the huge importance of forecasting and scenario planning for your business. If you are to make as smart a decision as possible, you need to consider all of the possible outcomes over a period of time – and for that you need relevant forecasts for each potential scenario. Only then will you have all the information you require to make an informed and sensible decision.


AN EXAMPLE FROM THE BEAUTIFUL GAME

As if to illustrate the previous point, this example comes from the unlikely world of football. This article about the unexpected consequences of a football club’s transfer dealings perfectly encapsulates the problems of short-term decision making.

Being tied in to long-term commitments is bad enough, but when it has subsequent implications such as denying you other opportunities then it is a double blow. In this case, investing in players with high wages creates a barrier to exit, as other clubs may not be able to afford to take them from you. As a result, in order to release funds, other players need to be sold to make up the shortfall. In any business, it is imperative to consider the implications not only of the direct decision being taken but of how it can impact the other investment opportunities – both now and in the near future. As before, full scenario planning and the means to exit unsuccessful decisions are essential to avoid a vicious circle spiralling out of control.


A BALANCED APPROACH

Not before time in my opinion, the Business Round Table organisation in the US issued an update to the traditional approach of the purpose of a business. Conventional wisdom has it that a business should always be run to maximise the return to shareholders, but this new suggestion makes it explicit that all stakeholders should be considered when making business decisions.

Thus, shareholders become just one of five stakeholders to be factored in to decisions – along with customers, employees, suppliers, and the environment/community.

To my mind this just formalises something that any good business owner has always known – to be successful you need a successful network of stakeholders all around you. As an Owner-Managed-Business, you will not survive for long if your only motivation is to maximise your own return at the expense of everyone else – and this should hold true for any size of organisation.


If you’d like to benefit from a sounding board for these – or any other – ideas for your business, why not contact Corner Finance at info@cornerfinance.co.uk or visit us at www.cornerfinance.co.uk


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Article by Ian Corner

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