Business IQ

Surviving the wrecking ball: Learn from Steve Jobs and Alannah Hill to avoid failure now

Alexandra Cain
Business Journalist

Alexandra Cain writes regularly for the small business sections of The Age, Sydney Morning Herald and Australian Financial Review

Alexandra Cain
Business Journalist

Alexandra Cain writes regularly for the small business sections of The Age, Sydney Morning Herald and Australian Financial Review

At face value, you wouldn’t think tech icon Steve Jobs and Australian fashion designer Alannah Hill have much in common. But both have been hit hard by the business wrecking ball, having been unceremoniously ousted from companies they founded.

They also both lived to fight another day, successfully re-establishing themselves after the storm. Before disaster strikes, take a leaf out of their book with 5 expert tips to guard against business failure. Failure is part of business success. It happens to almost every dynamic entrepreneur or CEO. Far from indicating a lack of talent or vision, failure can often indicate an appetite for risk. That was certainly the case for the late Steve Jobs, fired from his own company, Apple, in 1985 after a series of commercially disappointing product launches. Undeterred, Jobs would go on to spearhead the release of some of the most important technology devices of our time, including the iPod, iPhone and iPad.

Similarly, few doubt fashionista Alannah Hill’s chops when it comes to creativity and business acumen. Until late 2013, she helped lead a partnership that saw 40 of her eponymous boutiques opened across Australia. But when the partnership ended, she lost control of the Alannah Hill name. Not one to accept defeat, Hill has gone on to establish a new label, Louise Love. As Jobs’ and Hill’s experiences demonstrate, reinvention is more than possible after a major fall.

Let’s take a look at some of the steps you need to avoid disaster, or make a comeback.

 

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1. Protect your intellectual property

Ashley Newland is a patent attorney and the inventor of the Scrubba wash bag, the world’s smallest washing machine. He says ideally, keep your personal brand and your business brand separate to avoid losing your name à la Alannah Hill.“If your brand is your own name, typically to protect it you will have trade marked it. But if you sell or dissolve your partnership the brand will tend to go with the business – it’s unlikely you’ll be able to sell the business without giving up your brand. Once that happens, it can be a costly exercise to set up and establish another brand in the market,” says Newland. To protect your personal brand, establish a trading brand that’s not your own name, let’s call it Brand Y, then use a personalised descriptor such as ‘Brand Y, designed by Joe Bloggs.’  So if you lost control of the trading brand or sold it, the trademark should only cover the brand and not your name, potentially allowing you to use it in another venture.”

2. Work out your exit strategy when you start the business

No-one wants to think about the end of a business when you’re just starting out. But if you agree on how a business partnership will be dissolved at the start, you’ll save yourself considerable pain if the union sours. To do this, says David McKellar from Allied Business Accountants, put in place an appropriate partnership agreement at the start that covers how the end of the arrangement will be handled.“If the relationship fails due to the partners wishing to take the business in different directions, there is often a way to split so both parties can continue operating separately and take their own direction. But this might not be obvious to the owners as they are too emotionally involved. The introduction of an independent third party consultant can assist in identifying these possible solutions,” says McKellar.

3. Get a handle on your net profit margin

Cash flow is a common reason for business failure; often, a business might be nailing the sales, but if it isn’t profitable, it won’t survive and thrive. Business adviser Tim Stokes from Profit Transformations says there's an often overlooked aspect of business that is absolutely critical to focus on if you want to solve your cash flow issues: net profit margin.“Your business's net profit margin can be found on your profit and loss statement. Find it by looking at the bottom line net profit figure on your P&L and divide it into your yearly income. So if your business has $1,000,000 yearly income with $50,000 net profit, then the net profit margin would be five per cent. When this figure is below 10 per cent poor cash flow will always be an issue. So make sure your net profit is above this figure,” he says. Stokes adds, “ideally you want your net profit to be above 15 per cent as that's when you start to generate surplus cash flow.”

4. Implement an invoicing schedule

Having enough working capital to cover day-to-day expenses is critical to a business’s longevity. If your business invoices customers after a job is completed or part way through then you could end up with a cash flow crisis, says John Corias, senior partner at MAS Accountants. “Any delays in getting the invoice to the customer will directly translate into delays in getting paid for the job. So invoice your customers up front for at least a percentage of the final invoice,” advises Corias.“Keeping on top of the invoicing means cash will then flow in, allowing you to pay your suppliers on time. The key is to invoice as soon as the job is complete or part way through, depending on your circumstances. If you aren't currently doing this then find time to make it happen,” he says.

5. Focus on what matters 

There’s so much to do in your own business, it can be hard to prioritise the really important things. All too often, you can be distracted by tasks that aren’t actually making you money. But there’s a solution for that. Stefan Kazakis, author of From Deadwood to Diamonds, suggests using a ‘default diary’ to work on your most important tasks every day. “A default diary is where you block out 50 per cent of your time in the week for doing the tasks you’ve identified as being the best use of your time. Those tasks are predominantly the ones that make you the most money,” says Kazakis.

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Often, long term business survival depends on getting your legal setup right. with the Federal Court's list of cost effective legal options.

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Prevention is better than a cure
  1. Protect your intellectual property - for today, and the future. Investing in comprehensive trademarks is worth the effort.
  2. Plan your exit journey from day one. Not only is this good business planning, it also prepares you for what you need now, to be successful at the end.
  3. Make cash flow an absolute priority. Profitability is a critical factor in keeping your business' head above water.
  4. Be relentless and vigilant with invoicing. Implement a system and automate invoicing if you're particularly time poor.
  5. Make time for the important stuff. Block out a regular time for activities that grow the business.
  6. Remember sales is the only activity that puts money back into your business. Ensure you prioritise time for activities that drive sales, every day.
Legal advice need not cost an arm and a leg.

The Law Society's Pro Bono Scheme can put you in contact with law firms willing to provide their legal services for free or at reduced rates.

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