How not to collapse your own business

How not to collapse your own business

Beata Drzazga, founder and president of BetaMed SA, business mentor, talks about the most common mistakes of Polish entrepreneurs.



Do you agree with the statement that the number of possible business ideas is unlimited, but the catalog of mistakes made by entrepreneurs is very short?


In simplified terms, we can say that the most common mistakes made by entrepreneurs are losing focus on delivering value to buyers or losing control over costs. In the first case, the point is that buyers must have some reason to buy a certain product. It could be a low price, brand loyalty, or the belief that this product is the best solution to their problems. In turn, thanks to the consistent control over costs, the company becomes more resistant to attacks by competitors. Let us remember that the price battle is won not by the one with the lower price, but by the one with lower costs.


I am talking about very simple mistakes that an experienced business advisor will notice immediately, but I encounter them practically all the time.


How should value creation be understood?


It is the process of changing resources such as raw materials, knowledge or human work into something that responds to the needs of the environment. It should be remembered that the enterprise creates value not only for buyers and consumers, but also for employees, contractors and investors. The idea of ​​how to create value, i.e. a business model, is the most important element of the company’s strategy.


The value we are talking about should be built on the basis of several principles. First, it should always aim to meet customer needs. Secondly, it must arise in the context of the competitive situation on a given market, it should also be based on innovation, i.e. unique solutions that we are able to offer to buyers. And the last thing, probably the most important, the business model based on the value created must be validated, i.e. we must have evidence that it really works and is able to generate the assumed financial flows.


It’s very easy to lose control of the value generation process. As a rule, a moment of inattention and a few rash decisions are enough. Errors are cumulative and it becomes increasingly difficult to understand where the error has arisen. After a few months, it turns out that customers are queuing for competitors’ products.


The second piece of this puzzle is costs.


Paradoxically, it is very easy to deliver value. It is enough to stand on the street and start handing out bills. The problem is that such a business model would be extremely ineffective. After all, it is about the relationship between revenues and costs. The process of delivering value should be more agile than that of competitors. Then we can safely assume that we have some advantage over them.


Here I would like to highlight a few phenomena related to cost reduction. The first is automation. Today, it applies not only to production processes, but also to logistics, office, financial and sales processes.


The second thing is customer involvement in business processes. Instead of queuing at the supermarket checkout, customers can use automatic checkouts. They do the work that cashiers previously had to do, but they are served faster. The store lowers costs, thanks to which it can offer customers lower prices. The idea itself is not new, IKEA understood it decades ago, shifting the costs of assembling furniture to customers. It quickly turned out that the customers did not mind. However, today the technological possibilities are incomparably greater. More and more processes can be handled by customers, which lowers the costs of service providers. A dozen or so years ago, entrepreneurs had to go to the bank to make transfers. As a rule, they did it once a week and often wasted half a day traveling and standing in queues. Please note how huge savings are associated with the introduction of financial applications, thanks to which transfers can be made without the involvement of a bank employee. Similar savings are generated by bots contacting customers or automatic translations performed with the use of artificial intelligence.


Whenever we have the opportunity, we should automate whatever we can. In the long run, machine operation is always cheaper than human labor, leading to lower costs and improved processes. However, this requires constant vigilance, the search for methods of reducing costs should be a constant process, which requires a great discipline from the entrepreneur. Unfortunately, not everyone can do it.


It can all be quite complicated for budding traders. But it certainly shouldn’t be difficult for large companies and corporations with well-developed market research departments. How is it possible that they too make huge mistakes?


I keep wondering how it is possible that a company like Nokia could not notice that customers want smartphones and not phones. Smartfon dostarcza użytkownikowi zupełnie inną wartość niż telefon i na tej wartości należało się koncentrować. Nokia, which managed to create the most valuable brand in the mobile phone market, had great opportunities. However, it was unable to do what Apple and Google did, which is to create an operating system that would provide users with the value they were looking for. In the end, Nokia was not even helped by an alliance with Microsoft – a company that knows operating systems like no other.


Another example is the process of sending and delivering courier items. With the growing importance of e-commerce, it has become very important to many entrepreneurs. Please compare the costs of the shipping process in the post office and in the parcel locker. In the first case, handling the process requires the costs of remuneration of the employee receiving the parcel and the costs of operating the entire post office along with bills for electricity, heating, depreciation of various devices, etc. The sender of the parcel wastes time standing in the queue, which is also important. However, sending a parcel in a parcel locker takes a few seconds, and the variable costs of the parcel locker operator are close to zero. It is absolutely obvious which process is more effective, yet Poczta Polska is still reluctant to invest in parcel lockers, exposing itself to attacks by increasingly aggressive competition. It is very possible that she will lose her dominant position on the parcel market forever, although the mistake she made seems very simple.