The Small Business Check-up

Once entrepreneurs successfully surmount the difficult process of building startup capital and writing out a business plan, many believe that their company has the straightaway to success. If a roadblock appears, they seem to think it came out of nowhere, when actually, if they had done a little more planning, the problem could have been avoided.

“No one says ‘I’m going to start a business and mess it up,’ ” says Marcia Pledger, author of My Biggest Mistake and How I Fixed It: Lessons from the Entrepreneurial Front Lines (Orange Frazer Press Inc.; $19.95) “But you can go out of business as quickly as you went into business if you don’t take care of the basics.”

It’s hard enough to stay in business without the U.S.’s sluggish economy making it more difficult. Consider that in 2008 the U.S. government wrote off a record $2.1 billion from small business loan defaults, according to an Associated Press investigation.

Those remaining in or choosing to start businesses must be ever more diligent at avoiding preventable setbacks. diagnoses four common ailments in small business growth and our experts provide prescriptions for remedies to help them recover.

Ailment: The competition always out-prices your merchandise.
Prognosis: The targeted clientele is too broad.

Prescription: Develop a well-established product or service, market to a niche customer, and communicate to that customer the unique qualities of your product or service. Small business owners can’t compete on price points with large, national brands, but they can compete when it relates to value, says Jerome Edmondson, president of the Entrepreneur Development Network, a small business incubator. Convince your customers that even though your prices might be higher, your product or service provides a better benefit and thus a better bargain.

Ailment: Your company is expanding too quickly.
Prognosis: The owner lacks knowledge about how to grow and profit simultaneously.

Prescription: Now that you’ve created a well-established brand, do your homework before you try to take it to the next level. Take time to understand the industry, your product, and your customer. Pledger recalls a story about a pretzel company owner who, in an effort to expand her business, took a large order from a grocery store chain but was not prepared for the challenge. Her distributor ran out of packaging, she did not know how she would deliver the product to the store, and she lost money when the pretzels didn’t sell.

“She should have done some research to find out what the grocery industry entails,” says Pledger. If the owner had sought advice from a larger company that sold a similar product, she might have learned that the profit margin for her specialty product was very thin.