Four Legal Mistakes That May Be Harming Your Business

One of the most important and most overlooked things that help make you business a success is your ownership structure.

You might think it is of no importance, whatever it happens to be you can sell stuff, right? Kinda, but that’s not the important part.

Maybe you need to have something registered in more than one geographic region. What would happen if a competitor registered a business in an adjoining State that meant you couldn’t trade there with your existing name? Nothing, if you registered yours first.

You may not want to trade in many countries, and the internet can make it easy to actually trade in a single jurisdiction while servicing the planet – but if you want to avoid the same issues then you may want to own a number of country-based business registrations. For example: you have a .com business and somebody registers the same name but with a country-specific suffix: yourname.com becomes yourname.com.xx. People in that country might look for a local branch to do business with, which means all your advertising is building their business too. The same can be true for .biz, .tv and all the other suffixes.

A second often overlooked feature is the contract you have with those in your employ. Think you’re friends and don’t need one? Think again – a falling out can damage your business and cost you the friendship. (But please don’t ask me how I know!) You don’t need a 20 page document that prescribes how often they breathe per hour, but you do need a clear description of what you want them to do, what you will do in return – and that can be more than just salary, their authority and responsibility, and any ownership share that they have or may qualify for.

Your premises need to be somewhat guaranteed for the duration, you don’t want to be moving every couple of years. Your customers may follow you for the first couple of moves but after that you will start to look a bit, well, shifty. A typical lease has an initial period that is under lease, with a second period that is offered on a ‘first refusal’ basis. Maybe you have a “3 x 3” meaning you have a lease for 3 years, plus an option on the next 3.

Likewise your contracts with your suppliers (and your customers) need to cover more than just a single transaction. Your needs will change over time, so you will require different service from your suppliers, even if that’s just double or triple the quantity you now need, or for them to service the additional premises you have just expanded into. By the way: the contract works both ways – you get guaranteed delivery and service levels, they get guaranteed sales. It’s a win/win, as long as the signed contract exists.

All legal agreements should be locking a win/win into place. If they are too one-sided then somebody is at risk of being forced out of business. That’s bad if it’s you, and it’s bad if it’s the other business: do it often enough and you have nobody to do that trade with, and that puts you out of business anyway.

Successful businesses are about solving somebody’s problem: Hungry? Buy this food. Need transport? Buy this car. Cold? Buy these clothes. Need premises? Rent this space. Need help? Hire this person. If your business does nothing except solve other people’s problems, and they pay you for doing so, then your contracts will reflect the right balance, and if you look for the same kind of connection when it is your problem being solved then you have a solid foundation for a long term business.

Wrapping Up Production

Earlier posts have discussed many aspects of your production, or what your production process needs to handle. Here we cover the rest of the topic.

You know what to make, your suppliers are under contract, you know your cost of production and your logistics are getting the product to your market in good time. Sounds like a recipe for profits.

Unless your cost to support your market is not also under control. You provide a guarantee, and a 100% success rate just isn’t possible. So what does it cost you to support your warranty?

Maybe your product works better if the buyer uses it with more skill – so you need to provide some training. Unless you can turn that into a value-add product and charge for it, you will have to cover that cost. Even if you can charge for some parts there are likely to be things that you can’t charge for. Did you include those items when you calculated your margin?

Can your team keep up as  your production levels grow? Perhaps you bring in updated equipment, or new techniques with the older equipment – are your current staff trained in order to maximise your investment in the new technology? The cost of excessive failures or hiring new staff could far exceed the cost of providing some training.

Have you considered what quality you will deliver? Rolls Royce aim to deliver the very best, regardless of cost. Others like Mercedes Benz, Ferrari and the like aim for the best and pay scant attention to cost. The companies that manufacture the vehicles most of us drive are constrained by cost – they deliver the best they can within the assigned budget. That’s not suggesting that the popular manufacturers don’t deliver a quality item – there are plenty of 20+ year old cars driving around to illustrate that. What it does illustrate is that you don’t need to aim for 100% to be successful.

For example I’m told that in a country near Europe a few years ago the law was that on vacating he home at the end of the lease it was common that the now ex-tenant was required to paint the building. One enterprising paint company produced a low-cost, low-quality paint that cornered this market by allowing the tenant’s contract to be fulfilled at the lowest possible cost.

You have to understand your market, what problem it has and how you solve it, and there is only one way to really understand it.

You need some way for the market to give you feedback – before they vote with their money and stop buying from you. You can ask them after every purchase, you can establish loyalty programs and quiz your members, you can hold competitions and give prizes for the best new idea, you can establish an online meeting place/forum and monitor comments – you can do many things, the only thing you can’t do is “Nothing”.

By the way – if you already do all of these things and more: you still need to do better next year. Why? Because your competitors will. You have to do better to maintain your market leadership position, or even more than that if it is you that needs to catch up.

Production Basics

Continuing the story of your production – the previous post begins the story, you may want to read it first if you haven’t already.

Your business is producing what the market wants to buy, you have great connections with your suppliers and customers. But of course the rate at which the market buys isn’t always the same as the rate at which you produce. So you need storage.

The question is: how much storage? You could have a month or two of supplies so that your factory never runs out, and the same month or two of finished product so you can always immediately serve your customers. That would be expensive to have that much space, and it would require a substantial profit margin to over the storage costs when you sell, so maybe that’s not the best way.

You can reduce your storage needs by buying on a Just In Time basis. That requires you to communicate the relevant parts of your production schedule to your suppliers so they can deliver just before you need what they provide. That can be via a comprehensive system that plots your production and sends requests to every supplier, taking into account their lead time, every time you need additional material.

Or you could just have a public version of your production schedule that your suppliers have access to, and allow them to decide what to produce and deliver, and when. Won’t work? This is what Walmart does. It is up to each supplier to ensure that each store has their product on Walmart shelves. If Walmart ever run out they simply look for a new supplier who will deliver on time.

Or if you don’t want or need to manufacture then maybe you can arrange to drop ship someone else’s product. You won’t need any storage at all, though you need to trust that your supplier will deliver in a timely manner to your customers.

Depending upon the business model you choose you will need different software to support it – you might need a warehousing system that tracks every item and another to control your manufacturing, or you may only need a good communication system to you can order and have the product shipped directly to your customer.

The point is: what do you need your software to do? Establish your required functionality, then look for a program that does what you want. Once you have that, buy the hardware that the program runs on.

If you can’t find a program to do exactly what you want then either slightly adjust your requirements (if you can do so without compromising anything important) or find a developer who will create a bespoke system for you.

The next post will complete the production posts for now.

How To Make What They Want To Buy

People talk about “Balance”. Work-Life balance. Nature is said to be “in balance”. Or you can have a “balanced outlook”. There is balance in business too: between what you like to create and what your market likes to buy.

Obviously if what you create isn’t any part of what a market likes to buy then you don’t actually have a business. Not long term, anyway. Not many people buy Pet Rocks any more, though we knew that was a fad from the start. Not many people buy film for cameras, cassette tapes, VCRs and a huge list of “no longer popular” things that were once considered vital.

It starts right at the beginning, when you are developing your product – as much fun as it sounds to get paid to have fun you need to make sure that there is a market first. Not many people bother to check, and most of those who do just ask their mother and their best friend “If this is a good idea”? What I mean is people who will say “Of course it is”, not matter how bad an idea it is because they don’t want to offend you.

That just condemns you to join the ranks of those who start a business, put all their money into it for a couple of years (until all your money is gone), then they shut the doors and walk away. That’s the most expensive way to discover that there is no market for what you sell. There are other posts in this series about doing market research that is very cost effective, so I won’t duplicate that here (It can be no financial cost, just a few hours of your time).

Now you know that you are producing something that there is a market for. Where will you source your raw materials? These are the building blocks for your product, and by the way: if you provide a service then the team you have that helps you deliver those services can be seen as your Suppliers, its just that they supply you with trained people.

You need to treat your suppliers well – pay a fair price, and act as though they are partners in your business. That’s because they are partners. Without you they have no place to sell, without them you have no place to buy. Yes, there may be other sources for the same thing, but if you treat them badly and they stop trading with you then eventually you run out of people to do business with.

That leads to the question: what production facilities do you need? Imagine a boom starts – can you supply everybody who wants what you sell? What if a bust comes along – can you survive?

It helps to have a plan for the business and to monitor that plan in action. That gives you controlled growth, and if you are monitoring the right metrics you get an early warning of any slow down. That then allows you to scale up or down without any panic. Other posts in this series discuss planning (even if you don’t like planning, or maybe especially if you don’t like planning!) and which metrics you should measure, why and how. It’s easier than you think!

The next post will continue looking at your production: your storage requirements, your team and the technology you need.

Show Them That You Care

People can be strange creatures, at times. We prefer to buy from those we know, like and trust for example. Sometimes we are happy to pay more than their competition charges, just to keep buying from our favorite place.

And that’s good news if you are in business. Here’s why.

If you get to know your customers and they get to know, like and trust you then those dynamics are working for you, not against you.

Being friendly and likeable is a good start when you are dealing with your market, and behaving in ways that deserves their trust.

So how do you let them know who you are and what your core values are? Let them know about your social responsibility program. Be a visible part of your community.

Before we go further – you can’t just do this as a means of promotion, and maybe feature it in your advertising! The public would figure that out and they’d stay away in droves. There has to be a genuine, compelling reason for you to be helping those you help, and once you “allow the public” to find out that will give you the presence you are looking for.

As an example: If you read the first post in this series you will know why I am writing these posts. You have been lied to. I don’t like it when people lie. (Telling your significant other that you forgot their birthday and didn’t get a chance to go shopping so you can surprise them on the day with a great present doesn’t count!) I am also a co-founder of a charity that helps to feed children. Yes, there are lots of those, but we have connected to a UN program, and we believe that feeding them is just the beginning. Now that they are being fed they can also be educated. That might only mean a basic education, or it might mean a University degree. Once someone is educated to their satisfaction they need an outlet for their new knowledge: a job, a research idea, a business of their own, or any of a number of possibilities that you may have thought of. If they choose to start a business them some seed funding and mentoring would be of assistance to them and we don’t ask for a share of the outcome in any way.

That resonates with me because history is full of people who nearly didn’t survive and then went on to achieve greatness – maybe the child that is about to succumb to starvation is the one we need to cure cancer (my father died of cancer and several friends as well).Or maybe they will be the one to enlighten the population of the planet so we achieve real and lasting peace. Or maybe they will invent a faster internet, a cheaper computer, a sustainable vehicle, or reduce world temperature change. OK, world peace might be a stretch since so many make a profit out of the current situation, but you get the point!

Imagine one day being able to say that you helped give that child their start in life. That’s a legacy I’d like to leave. Don’t misunderstand – I doubt that more than a half dozen people will ever know, should that ever come to pass. It would be enough that I know. In the meantime I’ll just keep on walking down that road.

What can you do that would make a difference? What can you do that tells your market something about you, your values and what you stand for? Share your social vision and get them on board, and they will step up to support you in that aim if it resonates with them.