Is it time to buy business improvements, not more property?

If you are a business owner and have been taking advantage of low interest rates to improve your property portfolio it’s time to think different.

Right now is possibly the best time ever to invest in your business. The government is very concerned about the high price of property, especially for first home buyers, so the pressure is on to find levers to get the business people of Australia to start investing in their businesses rather than their homes or investment properties.

So along the lines of “invest where investors are fearful”, the place people have been fearful to invest is in business. Plenty of business owners are hanging on hoping the economy will change. It is now clearly time to innovate and give the business you have a new lease on life.

Let me share a true story of the demise of a real business and then reflect on some innovation that could be done there.

Missing parts

The business is an auto parts business selling components to auto repair shops and panel beaters. The model has been very simple and in the past very profitable.

The Asian owners started up 20 years ago and started importing after-market products from Asia. They got away with huge mark-ups at first as it was a new market. They started with a very small warehouse and moved two or three times, each time to larger premises.

Most recently they purchased a huge warehouse and continued to fill it with stock of parts common to vehicles on the Australian roads. They built a national reputation for having the right part at a relatively good price. Because the parts were cheap, the businesses they sold to put up with mistakes in delivery and poor quality products.

It did not take too many stock turns to pay off the warehouses and pay off the stock, so with debt minimised the business could add more stock items (currently over 20,000 items in stock.) Over time the quality of manufacture improved and today is not an issue. The business, however, is in dire straits. Their revenue is decreasing.

Why?

Lack of innovation.

The company became complacent and did not innovate on business processes or marketing strategies. They became an inbound sales organisation who sat and waited for the phone to ring with a “part request”.

The strength of the business is in the sheer number of bits they have and a few long-time employees who know the stock items and can help the buyer to determine if it is the clear lens or the orange lens needed for that model of flasher they are fixing or whatever the part is.

There has been no investment in the company website; the buyer cannot select the part they want online.

There has been no investment in a stock management system, so they are not sure what is in stock and not in stock, leading to large inventories and a high cost of ageing and dead stock.

There has been no investment in outbound marketing or sales effort. So they are losing to more aggressive competition.

The rate of returns has been high, driving company costs up. When clients order a part they very much rely on the sales guy having understood what the client was asking for. There is no way for the client to see what will be sent out before it arrives.

To say the internal company culture and morale is on the floor is of course an understatement. They just keep waiting for the phone to ring and can’t understand why their business and revenue is contracting. It must be the economy. Right?

Wrong.

It is time to invest to re-invigorate this business.

Now for the fix-up

Getting an online catalogue up is a no-brainer. Sure it is a big job but it leads nicely into the next step, which is to turn the online catalogue into a shopping cart so customers can log in to their customer account and buy the exact part they are looking for with all doubts removed.

The next step is to integrate that website shopping basket with a smart CRM system that primes the clients with specials via email marketing each week. Then integrate the website with the finance and stock management systems so that the website knows stock levels and the financial system knows sales volumes and the stock management system knows what products to re-order based on lag time for delivery of each component.

Now add RFID tagging or at least a bar code scanner to improve speed and accuracy of stock management. With a connection between the scanner and the stock management and invoicing systems, you can look forward to further productivity gains and some great management reports out of the dashboarding software to see how it is improving and find the bottlenecks.

Now the business can promote itself via SEO to attract new clients, can market out to registered prospects and clients, can sell without  the cost of staff on the phone, can track stock more accurately, reduce the overheads of excess stock and can get the right product in the hands of the client first time, every time. Customer satisfaction will go up and business will be revived.

Next step could be a robotic pick and pack system to reduce the cost and improve the shipping time when a part is ordered. Of course an even larger warehouse might be needed for that. Call it the cost of success.

How consumers and businesses alike do business has changed and is changing more. Old businesses need to invest in new technology solutions to remain competitive in this market place.

Now any home-based business with a double garage can import car parts from China and sell them via a cheap website or via eBay. The clients buying these parts are smart shoppers and can discern a good deal from a bad deal.

While the home trader has lower overheads they also do not offer product range or any kind of reliable warranty, so they will not completely take over the market, but the old model of “stock it and they will come” is dead.

How is your business like the car parts trader?

What should you invest in now to protect the business you spent years building or what should you invest in as a startup to blow the ageing competitor away completely? Perhaps it is time you moved out of the double garage into a warehouse to expand your digital business by carrying a broader range of stock.

Plan your investments to drive growth while the cost of borrowing funds is low. That way you will be the next boom business as the economy is re-invigorated, which will happen as it must in any cyclical system.

David Markus is the founder of Combo – the IT services company that is known for solving business problems with IT. How can we help?