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The things small businesses can learn from the collapse of Dick Smith

THREE years ago, popular retailer Dick Smith was worth $520 million. In January this year it was placed in receivership and its 301 stores in Australia and 62 outlets in New Zealand have now closed.

The famous Australian entrepreneur and adventurer, whose name the electronics stores carries, says he’s “incredibly angry” about it, despite not being involved with the business for more than 30 years.

Dick Smith has accused the private equity group that listed the retailer in a $520 million public float of “destroying” the business and rendering around 3000 staff jobless.


In November 2012, Anchorage Capital paid Woolworths $20 million upfront for Dick Smith, with around $80 million promised later. A year later, they floated it on the stock exchange for $520 million. In January this year the retailer was placed in receivership.

What lessons can small businesses learn from such failures? Surveys indicate that more than 50 per cent of small businesses are estimated to fail in the first year. A whopping 95 per cent of ventures are said to fail within the first five years.

Why does this happen, and what can you do to avoid this happening to your enterprise?

Losing focus with your customers

Your customer is king.

Was Dick Smith the retailer in alignment with its core customer needs?

Dick Smith the businessman, who has not been involved with the enterprise named after him for 30 years, himself expressed bewilderment at the direction of the business.

“When I owned Dick Smith it was a company selling electronic components. I’ve never been involved in consumer electronics I don’t know how anyone could make any money out of it,” Mr Smith told Fairfax Media recently.

Small business owners have to stay totally focused on their customers’ needs. Staying on top of market trends. Studying your competitors and the industry in which you operate. Sticking with changing technology and using it well to communicate with your clientele.

These are the key factors in a successful customer strategy.

Managing the value of your inventory

Writing down the true value of your goods to subsequently sell them at a “profit” is one of the methods employed by the failed Dick Smith, according to records.

The books show “fair value adjustments” of $58 million to the value of Dick Smith’s inventory in 2012.

No small business would contemplate doing such accounting. Poor accounting practices can lead a business down the rabbit-hole to failure.

To ensure that you don’t become a failed company, it is important to employ expert help in managing your business financials. That includes all aspects of your inventory, tax, GST, accounts receivable and payables.

Proper business strategy is key

The importance of a solid business plan cannot be underestimated.

Lack of proper business planning and strategic thinking can undo your enterprise in the long run. This was seen by some commentators as an Achilles’ heel for Dick Smith.

Running a business on a day-to-day or month-to-month survival plan is simply the wrong way to go. Lots of small and medium business owners have no idea what their level of cash-flow and profitability is. Often, they operate off huge levels of debt and credit.

With proper strategic planning, an entrepreneur learns how to grow a business to scale and lead it to profitability.

If you lack the right expertise, find a business coach who has skin in the game, having offered strategic advice to previous clients on how to grow a business. Adapt that knowhow to your business planning.

Leadership sets the tone

A good business has a great leader in the frontline.

In January when Dick Smith’s future was under a cloud, the 3000 staff must have been sick with worry. Were they kept in the loop on where the company was headed?

Your staff need to buy into your vision for the business and, when that happens, the sky is the limit.

Often, a small business will fail in the early stages because of a lack of direction and poor leadership from the owner.

With a sound strategy and proper planning, you can empower your staff to manage and grow the business.

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