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Managing Risk Through Better Business Practices

Posted On: 6/21/2013

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TAGS: bulk vending, coin machine, coin-op machine, coin-op industry, vending machine, bulk vendor, coin-op business, small business, vending, vending operating, Vending Times editorial, Hank Schlesinger, business startup, business risk, risk management

According to conventional wisdom and enduring statistics, about 50% of small business startups fail within the first few years. It would seem that small businesses are a coin toss that hardly seem worth the time and effort. While the odds are certainly better than the lottery, they certainly don't inspire confidence. There are few endeavors most people would undertake with those odds. But, as old gamblers used to say, "You should make a bet every day, otherwise you could be walking around lucky and not know it."

Granted, starting a small business like a bulk vending operation is risky. But the 50% figure always seemed a bit high to me. As it turns out, there are some common causes for business failures. Not all sources are in agreement about the causes, but there is a pattern. For instance, the Small Business Administration lists the Top 10 reasons for small business failure as:

1. Lack of experience
2. Insufficient capital
3. Poor location
4. Poor inventory management
5. Over-investment in fixed assets
6. Poor credit arrangements
7. Personal use of business funds
8. Unexpected growth
9. Competition
10. Low sales

These reasons are consistent with what we hear on trade show floors and through the grapevine. There is nothing surprising in the list until you start looking at it closely. Clearly, the majority of the contributing factors can be controlled by good management. A bulk vending operator just starting out cannot control every variable, especially competition, but he or she can control inventory, cash flow, the rate of expansion, and other items on the list.

What becomes obvious after studying the list for even a short time is that most of the problems stem from a basic lack of understanding of best business practices. Some are easily solved, such as No. 7. (Keep your darned hands out of the till! It ain't your money until the bookkeeping is done and the bills are paid.) Other items require what could be called a higher level of expertise, such as creating a coherent plan for expansion or effectively managing inventory.

Despite the established poor odds of success, virtually every survey ever conducted ranks entrepreneurs among the most optimistic groups in the U.S. population. Even when they have nothing but gloom and doom to predict for the larger economy, they tend to view their own enterprises optimistically. The picture that's regularly painted is one of eternal optimism and a steadfast belief in hard work.

What is almost always missing from these sunny, flattering portraits of businesspeople is the belief in smart work -- small business owners actively improving their skill sets to mitigate and manage risk. In bulk vending this is particularly tricky territory since outwardly the business appears so simple. Yet, the bulk industry is every bit as complex as managing a chain of tiny retail stores. Each rack of machines and each location is its own retail outlet.

If the industry is to survive and remain vital with the addition of new operators, then it is going to have to rethink how it views the concept of hard work.