Is your small business a zombie business?
Zombie businesses are out there, and whilst they aren’t exactly coming to eat your brains, it takes brains to avoid sharing their fate. Your small business may even already be a zombie business — or slowly becoming one, without you even knowing it!
If that doesn’t sound healthy, that’s because it isn’t.
What Is a Zombie Business?
A zombie company is a business entity that barely manages to stay operational. It may earn just enough to keep running or may rely heavily on lenders to stay afloat, but isn’t earning enough to pay for its own growth, or to reduce its debts. That often puts it just one unlucky event away from collapse — making it a high-risk proposition for investors.
To be fair, most businesses start like that. The danger lies in staying like that — as many self-funded startups do. It’s a simple mistake to make, and even large firms can fall back into that state. So why does it happen, and how can you avoid it?
How to Create a Zombie
Creating a zombie business is easy. All you have to do is start it up, then starve it near to death. The less you invest in growth, the more you’ll struggle to recoup that investment, and the sooner you’ll have a zombie. Just focus on the price of investments. Ignore their potential benefits — and the opportunity costs of not investing — and you’ll have a zombie business in no time.
…but why on Earth would you do that?
Well, because most businesses take a year or more to become profitable. So by then, the temptation for sole traders and small partnerships to take every penny it makes over its running costs as personal income can be unbearable. Whilst understandable, that’s often where the rot sets in.
Early Warning Signs
Even a zombie business might generate an income you’re comfortable with. What it can’t do is pay down its debts, afford marketing to increase that income, or survive adverse events without incurring more debt.
If you’re struggling, those are obvious problems — and you’ll be tempted to groan that you “can’t afford” marketing. Which, as we’ll see below, isn’t true — and as you can’t grow without marketing, you actually can’t afford not to do it.
If you’re comfortable though, that early-warning groan can be replaced by sighs that you “don’t need” marketing. Still, even if you don’t need to grow any more, your business does, just to protect what you’ve already achieved. Without growth, your market share will gradually wither away, whilst inflation will increase your costs and reduce the value of that “comfortable” income.
Sure, after all the effort of starting a business, it can be a relief to reach what feels like a comfort zone again. It’s fine to take a breather, but remember — nothing grows in a comfort zone. It’s a place where businesses stagnate and slowly decay. So beware the sedative lure of comfort, at least until your business is debt-free and healthy enough to grow on its own.
How to Avoid Becoming a Zombie Business
Your business is a money-making machine. So investing in growing it to the point where it can pay down debts and become more stable should be a no-brainer. That’s all you need to do to avoid business undeath.
Sadly, first-time entrepreneurs are often too focused on cost-cutting to see that the money they save won’t achieve anything unless they invest it. It will either just get eaten up by day-to-day expenses and frivolities, or languish in “savings” accounts whose interest may not even keep up with inflation. That just turns taking a risk for a potential reward into accepting a certain loss.
Naturally, when you’re struggling, it can be hard to find the finances — or confidence — to invest in growing your money-making machine. Still, “hard” is not “impossible”. So first, figure out which of those you lack. Then focus on fixing that.
Curing Zombification With Braaains…
If the problem is just finance — and even if you can’t afford more debt — the good news is that you can probably fix that. You’ll need to invest time and effort instead of money, and growth may be painfully slow. Still, low-cost and no-cost strategies like blogging and networking can help if you do them well enough.
Otherwise, you may need to take a part-time job for a while to refinance your dream — but this time with more clarity. You’ll need to keep investing in it until it can pay for its own growth. Until then, don’t take more out than you need to survive.
If the problem is confidence — it’s time for a re-think.
“Gut instincts” are worthless here, as those are already telling you to quit — and possibly to persevere at the same time. There’s no way out of that without stats — aka “metrics” or “measurements” if you don’t like maths. Either way, you won’t get anywhere without them. Luckily, professionally built websites generate loads of them.
Doubts Fear Facts
Now, stats can seem overwhelming, but here’s the key — you’re looking for trends that appear over several weeks to several months. Day-to-day changes rarely mean anything. So you need to see the stats as graphs, and to be able to drill down into details to see what you need to fix. Again, professionally built websites generally provide these features. Still, it also helps to get comfortable with analysing stuff in spreadsheets — or to get help from those of us who are.
For instance, the two most critical “Key Performance Indicators” (KPIs) for websites are:
- How many visitors your site gets — if this is low, plan more promotional marketing (SEO, content marketing, paid ads etc.)
- How many visitors make enquiries — if this is under 1%, either improve your offer or how it is presented
Stats can often lead to different conclusions depending on how you look at them, so don’t just let them confirm your assumptions. Can they disprove them, or reveal things to fix? Are your KPIs really trending down, or are you just being impatient? Persistence is a huge part of success, so have confidence in your business unless you can identify problems that you cannot fix.
Either way, justifiable confidence is far more sustainable than gut instinct — and with enough confidence, financial problems can often be solved.
Don’t Risk Becoming a Small Business Zombie
Businesses of all sizes can become zombies. Companies like General Motors, American Airlines and Macy’s are often cited as big-business examples. The good news for small businesses is that it generally takes less investment to grow a small turnover than a large one. A common rule of thumb suggests investing about 5% of turnover in marketing to maintain your market share, or around 10%-20% to grow it. For big firms that look high-risk to investors, those are big numbers.
Still, zombie companies are just one misstep away from collapse. So it’s best to be aware of how easily the rot can set in and not risk that at all!
