When Saying No Can Save Your Hide, an Approach to New Ventures

Sometimes it’s the opportunities you don’t take that end up being your best decisions.

A new line of business.

A large new client.

A partnership with a competitor or supplier.

All of these can be very exciting propositions. But which is the wrong decision that will put you out of business?  Here are a few possibilities.

The one that leads you too far astray from your core business.

You’ve heard it before. Stay focused on what you do best and avoid the allure of extending your company and brand into adjacent territory. The worst thing you can do is try to be all things to all people, or lose your ability to differentiate in the market. If one day your customers wake up and aren’t exactly sure what your company stands for, it’s too late. Aside from branding and positioning, branching out too far can have serious operational consequences as well. New lines of business often require completely different skill sets, types of people, capital requirements and more. The strain created by adjusting to the new business environment can cause your business to lose focus, sales and profits.

The one for which you haven’t accurately assessed the entire potential financial downside.

So you’re considering taking on a new project or business line, and of course you’ve put together financial projections (if not, check our tutorials section on building a basic budget) showing the fantastic possibilities. But what you really need to do is project the doomsday scenario. If the new venture falls completely on its face, will you be able to survive? What if your revenue projections are 80% high? When planning for a new project, venture or initative, few leaders are willing to confront the fact that they could be wildly mistaken in their projections. Yes, it happens all the time. Smart business people are aware that it can happen and they model their projections to assess this risk.

The large new customer that will represent a huge concentration for your business.

The problem with this is twofold. One, you never want a single customer to represent a large chunk of your business. It’s a potential cash flow problem and a business continuity problem at minimum. Two, new customers have to be properly scrutinized for credit worthiness. Don’t get all starry eyed at the revenue and profit potential. It’s not worth anything if they don’t pay you, and trust me it happens. It is what it is, larger businesses take advantage of smaller businesses all the time. They know you want what they have and that you’re willing to take some chances to get it. Don’t be one of those that get burned. Be sure to perform your due diligence, review their D&B info, negotiate favorable payment terms and contracts, fully understand the cash flow implications, and be willing to walk away. Remember, they want what you have too.

Maintaining patience, caution and thoroughness is always the best approach to these kinds of business opportunities. Stay focused, be conservative, plan realistically, and be willing to walk away.

  1. [...] Dane. I just posted up a new article that I thought might be of interest to you, given your site’s focus on new business [...]

  2. [...] I recently wrote an article at GatewayCFO.com called “When Saying No Can Save Your Hide, an Approach to New Ventures.” [...]

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