The Most Important Thing For Survival

by  Martin L. Hammond, Ph. D.

What is the most important thing a company needs to survive?

This might be a nice thing to know, especially if you are part of a small company where the right focus might make the difference between survival and failure. When you are setting priorities, it is probably a good idea to spend a good part of your time making sure of your company's survival.

The most important thing is not cash, although cash is certainly useful. Cash alone will sustain you for awhile, but when you run out, it may be difficult to get more.

It's not customers, although that they are part of the survival requirement.

The most important thing for the survival of a company is a four-part concept:

Bookings
of products
that can be shipped
at a profit.

Well, of course. What a stupid thing to say. Everyone knows that!!!!

But often, they don't act like they know that, and the result can be the failure of the company.

Bookings mean that you have someone capable who is focussed on forecasting and booking orders and that there is someone (a customer) who is interested in the product. Without a dependable forecast, there is usually not enough time to manufacture the product to be shipped. Without bookings, there is no on-going business, and the company will fail when it runs out of cash.

A Product means that you have spent the time and brain power necessary to define what it is you have for sale, including a system description, a price list by option, and a quote form which includes a brief description of what is for sale and the terms under which you plan to sell it.

That Can Be Shipped means that you have a bill of materials and the ability to obtain and assemble the components into a product that can be shipped.

At A Profit means that you have made a reasonable estimate of the cost of doing business and believe that there will be money left over from an expected number of transactions to allow you to continue in business.

Just about all company failures can be traced to missing one element or another of this 'most important thing' necessary for survival.

Often, companies fail because they have not made bookings a priority. "Our product is (will be) so good, people will rush to give us orders." This sentiment is often heard in start-ups that are technology or engineering driven. The product concept may be wonderful, but if someone did not define and make sure the market requirements would be met and others are not out there doing a good job of making sure prospects are aware of you product, can differentiate your product from others, and prefer your product over others, you will fail.

Sometimes companies fail because the product is not as desirable as the founders believed. Customers don't buy a product because of its features; they buy because of their perceived need and because they believe that a certain product will provide the best benefit(s) to them among the choices they are aware of, can differentiate, and learn to prefer based on the information made available to them. One makes sure that the product will be desirable by accurately determining the requirements of the market at the time the product will become available. This analysis is called the Market Requirements Statement.

Sometimes companies fail because, in fact, they do not have a product. The way you determine if you have a product is to have a written description of what is, what it does, what it includes, what it costs, how to order it, and some form of proof that it actually does what you say it will do.

Sometimes companies fail because they cannot make a timely shipment of the product against an order. Reasons for failure to ship include:

The forecast was not accurate, and therefore, the necessary inventory was not available

Technology and engineering was not finished on time, and the product does not meet the requirements so it cannot (should not) be shipped

Order Entry was unable to provide clear information to manufacturing about what was ordered

Manufacturing did not have adequate information or parts necessary to permit assembly

Finally, companies fail because they are not profitable, and in a capitalist economic system, capital efficiency demands that unprofitable operations become profitable or eventually cease to exist.

What is the lesson here? The lesson is that senior management (which includes marketing) must take time out on a regular basis to ask: Do we have a plan that is being successfully implemented that provides:

Bookings
of products
that can be shipped
at a profit.

‹‹ Martin L. Hammond, Ph. D.
[About the Author]

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