Top 60 mistakes made by Small and Medium Businesses and how to avoid them

Marketing & Salesategy
Finance & Indicators
Human Capital
Operations
Strategy
Opera
Marke
eting & Sales Operations Financ
nce & Indicators Human Capital
Human Capital
Operations
Strategy
Opera
Marke
Human Capital
Operations
Strategy
Opera
Marke
Human Capital
Operations
Strategy
Opera
Marke
HECTOR D. DEBERNARDO
MARGARITA HURTADO HERNANDEZ
Top 60
mistakesmade by
Small and Medium
Businessesand
to avoid them
how
To get the e-book, either in English or
Spanish, e-mail us to
info@puenteempresarial.com

1
Copyright 2014 by
Hector D. Debernardo y Margarita M. E. Hurtado Hernandez.
All rights reserved.
No part of this book may be reproduced and transmitted in any form
and by any means without the written permission of the publisher,
except in the case of brief quotations used in book reviews and critical
articles.
Published in Mexico by
Hector D. Debernardo. Empresa 113-5, Insurgentes Mixcoac, 03920
Mexico DF, Mexico. hector@puenteempresarial.com.
First edition. March 2014.
ISBN: 978-607-00-7773-9
Original title in Spanish: “Las PYMES. Principales causas de fracaso y
cómo combatirlas”, by Hector D. Debernardo and Margarita M. E.
Hurtado Hernández, Ediciones Fiscales ISEF, 2008.
Translated by Cecilia Martinez Lavin Castañeda.
Cover and layout design by Ana Cecilia Flores Calderón.
Intellectual property advisor: Jorge Molet Burguete.
Top 60 mistakes made by SMB and how to avoid them

Senior management consultant and independent board member.
Mentor to executives and family business successors. Writer and
lecturer.
Hehascollaboratedwithmorethan100manufacturing,commercialand
servicecompaniesinMexico,ArgentinaandSpain.
Expert in the areas of operations and project management, strategy
design and commercial planning, innovation, change management and
familybusinesses.
Author of the books "El Puente. Mejore los resultados de su empresa
aplicando el pensamiento sistémico" and "Top 60 mistakes made by
Small and Medium Businesses and how to avoid them". Guest author of
the book "Contabilidad y gestión" by Ph.D. Enrique Herrscher. He
presented articles at international congresses on practical applications
tobusinessesofthesystemapproach.
Founder and CEO of www.puenteempresarial.com, which was
conceived as a means for the fast publishing of contents and tools for
executivesandbusinessowners.
Hector D. Debernardo
hector@puenteempresarial.com
www.puenteempresarial.com
2

Graduate studies professor and advisor in the areas of Operations
Management and Project Management, at Universidad Panamericana
(Mexico). Collaborator at Instituto Panamericano de Alta Direccion de
Empresa-IPADE(Mexico).
He occupied several executive positions at the Centro Panamericano de
Investigacion e Inovación, which was owned by Universidad
Panamericana and IPADE, and was responsible for the Goldratt
Institute'sactivitiesinArgentina.
Former associate professor at Universidad Tecnologica Nacional
(Argentina) and at Universidad de Navarra (Spain). Gave workshops for
excecutives at Universidad Austral (Argentina), Universidad de La
Sabana(Colombia)andEscueladeNegociosIDEA(Argentina).
He has a degree in Nuclear Engineering (Instituto Balseiro, Argentina), a
Ph.D in Industrial Engineering (Universidad de Navarra, Spain),
graduated from the Innovation and Technology Senior Management
Program (IPADE, Mexico) and from the Independent Board Members
DevelopmentProgram(UniversidadAnahuac,Mexico).Heisanexpertin
allTheoryofConstraintsdisciplines(GoldrattInstitute,USA).
Member of the Theory of Constraints International Certification
Organization (TOCICO) and of the Universidad de Navarra's Alumni
Association(AlumniNavarrensis).
3

Margarita Hurtado Hernandez
margarita@puenteempresarial.com
www.puenteempresarial.com
Academician oriented towards the application of knowledge in order to
obtainpositiveresultsinorganizationsthroughbusinesstrainingandthe
highereducationofyoungprofessionals.
Agro-Industrial Engineer (Universidad de la Sabana, Colombia), Ph.D. in
Industrial Engineering (Universidad de Navarra, Spain) and graduated
from the Executive Management Program (IPADE, Mexico) and the
Developing Women Leaders in University Administration Program
(UCLA,USA).
Current Director of the Industrial Engineering Bachelor and Professor of
the Operation Management Department at Universidad Panamericana
(Mexico). Leader of research projects on how to improve the
performanceofanorganizationthroughthesystemapproach.
In collaboration with Ph.D. Hector D. Debernardo, she founded
www.puenteempresarial.com as a means for the fast publishing of
contentsandtoolsforexecutivesandbusinessowners.
As a consultant, she has participated in improvement projects for
companiesinColombia,Spain,ArgentinaandMexico.
4

As an academician, she has participated in undergraduate and graduate
programsatuniversitiesinColombia,Spain,ArgentinaandMexico.
Co-author of the books "El Puente. Mejore los resultados de su empresa
aplicando el pensamiento sistémico" and "Top 60 mistakes made by
Small and Medium Businesses and how to avoid them". Technical
content reviewer of the Spanish translation of the book "Supply Chain
Management", by S. Chopra, P. Meindl. She presented and published
articles on the practical applications of the system thinking at national
andinternationalcongressesandmagazines.
Faculty Advisor of the Institute of Industrial Engineers (IIE) at
Universidad Panamericana - Mexico City Chapter. Member of the
evaluation committee for articles presented at the System Dynamics
Society's annual congress, sponsored, among others, by the
MassachusettsInstituteofTechnology(M.I.T.).
5

To those who are always with us,
even though we are not near them

Table of Contents
1 Not planning the company's future.
2 Not understanding the natural variability of the business
and of the environment.
3 Serve markets with a high probability of crashing
simultaneously.
4 Segmenting resources.
5 Not having clear what are the elements that determine the
company's ability to make money.
6 Not having clarity about the company's priorities.
7 Engaging in businesses that demand large amounts of
capital before generating revenues.
8 Believing that continuous improvement consists in doing
the same things with less resources.
9 Mix up growth with development.
10 Limited innovation.
11 Believing that any new technology can help the company.
12 Not taking advantage of the favorable effects of
globalization.
13 Not taking advantage from strategic alliances.
14 Not taking advantage of subcontracting.
STRATEGY
Why did WE write this book?
Why should YOU read this book?
7
CHAPTER 1
19
22
24
24
28
25
27
28
29
33
34
31
30
35
pag.
13
11

MARKETING & SALES
15 Lack of clarity about who the customers are.
16 Lack of clarity about who the competitors are.
17 Lack of clarity as to why does the market buy what our
competitors and our company supply.
18 Not listening to customers, potential customers or non-
buyers.
19 Supporting the market offer only on the sale price.
20 Having an erroneous idea of market segmentation.
21 No brand ownership.
22 Establishing prices based on costs.
23 Carrying out an unsuitable promotion for the target
market.
24 Accepting collection terms longer than the ones
the business can manage.
25 Using an unsuitable sales process.
26 Not being familiar with the skills, knowledge and attitude
that salespeople must have.
27 Underestimating the duration of the sales process.
28 Underestimating the repurchase cycle.
29 Selling to customers more than what they need in the
short term.
30 Depending on a very small customer portfolio.
8
CHAPTER 2 pag.
37
38
38
43
39
40
42
43
44
45
46
47
48
49
51
49

FINANCE & INDICATORS
53
54
55
57
58
59
61
62
63
pag.
31 Not planning or executing plans.
32 Underestimating the importance of quality.
33 Not honoring the commitments acquired with customers.
34 Assuming that reality will be the same as forecasts.
35 Having a wrong inventory profile.
36 Believing that the company is losing money whenever any
resource is inactive.
37 Buying more than needed in the short run.
38 Depending on a single supplier.
39 Having an unsuitable post-sale service.
OPERATIONS
40 Not measuring or following up on results.
41 Always give more importance to more expensive resources.
42 Erroneous calculation of the required working capital.
43 Mixing up profit with liquidity.
44 Using an unsuitable method to determine product
profitability.
45 Add value beforehand.
9
CHAPTER 3
CHAPTER 3
65
65
66
68
69
70

46 Not having the right person at every position.
47 The entrepreneur and the director.
48 Allow oneself to be guided by feelings instead of results.
49 Mixing up property, operation and family.
50 Performing tasks that should be carried out by
collaborators.
51 Not creating a motivating environment.
52 Having unsuitable people training and retention processes.
53 Measure collaborators' performance using the wrong
indicators.
54 Not giving feedback to collaborators.
55 Not being honest with collaborators and hide conflicts.
56 Believing that the solution to problems is out of reach.
57 Allowing other people's negative influence.
58 Letting fears paralyze.
59 Not taking advantage of other people's experience.
60 Not being honest.
The triumph of a new “SPECIES”.
AN AFTERTHOUGHT
HUMAN RESOURCES
10
CHAPTER 5 pag.
73
74
77
79
81
82
84
85
86
86
87
88
89
91
92
90

Why did WE write this book?
If you, dear reader, are an entrepreneur, you have our admiration. It is
not easy being one. It is necessary to have a proper understanding of the
environment and of the customers' needs, to know your competitors, to
ensureareliableoperation,totakecareofthefinances,andtoobservea
numberofgovernmentregulations.
Companies, either very small or very large ones, are systems comprised
of material resources, information and people that interact among
themselves in order to achieve goals. They are complex, given the
amount of elements and connections between them and with the
environment.
On the other hand, progress in the areas of telecommunications and
transportation contributes to a greater integration of the world. In
consequence, the difficulty to understand it and to decide how to
performwithinit,increasesconstantly.
Finally, China and India are following the path along which Japan and
SouthKorea,amongothers,passedthroughdecadesago.
What should be done in this context? Is it possible that small and
medium businesses (SMB) can survive? Can they continue being the
country'sgreatestjobcreators?
In our job with SMB, we have found that most times, their failure is due
to internal and not external causes. The increase in the environment's
complexity and foreign competition contribute to the amplification of
the negative consequences of the mistakes made, but they are not the
underlyingproblem.
11

Thestatementsintheprecedingparagraphsaregoodnewsindeed,even
though they can sometimes be interpreted as negative facts. They are
telling us that in most cases, success or failure depends on the company
itself,and not on factorsbeyond itscontrol.Itispossible,then,to survive
andgrowintheinternationalcontextenvisagedforthiscentury.
Although many of the concepts that will be presented in this book have
proven to be very effective for companies of every size, the main goal of
this book is to contribute to ensure the survival, development and
growthofSMB.
Our current way of thinking and acting is the result of the exchange of
ideas and experiences shared with friends, entrepreneurs and
distinguished authors. Angel Baguer Alcala, with whom we worked
during the years we were living in Spain, and Eliyahu Goldratt, with
whom we have interacted several times, have had a significant influence
onus.
Dear reader, we would be delighted to receive your comments on how
didthisbookhelpedyouimprovetheperformanceofyourbusiness!
Mexico City, December 2007.
Margarita Hurtado Hernandez
Hector D. Debernardo
margarita@puenteempresarial.com
hector@puenteempresarial.com
12

Why should YOU read this book?
In a small city in a country which economy is mostly agricultural, there
were three electronic engineers who were college classmates and who
shared the dream of developing and selling hardware. Their revenues
only allowed them to live modestly. They were having trouble finding a
waytosucceed.
At that time, a single company provided telephone services to the entire
country. Its quality was very poor: communication was frequently lost
while speaking, it was difficult to get a home line and most public
telephonedevicesdidnotworkproperly.
Oneday,oneofthetelephonecompany'semployees,Dan,wasstayingin
a hotel and had an idea. He imagined a device capable of showing the
user the duration and cost of the call while speaking and, at the same
time, was able to indicate the receptionist how much to charge for such a
call.
Since he knew nothing about electronics, he began searching for
someone who was able to design such product, and that was when he
metthethreeyoungengineers.
The first meeting was not very productive. They were tired of investing
timeinprojectsthatproducednorevenues.Theydoubtedtheideacould
be a commercial success and decided that this time they would not take
the risk. They asked Dan for the money equivalent to several months of
their revenues as their fee to design the device. He did not have enough
cash, but he did have two things: his car, which market value was
approximately the amount requested by the engineers, and the
convictionthathisideawouldbeagreatbusiness.
A couple of weeks later, Dan came back, on foot, and gave them the
money. He had sold the only asset he possessed in order to make his idea
come true. The message was convincing. The engineers were impressed.
13

That is how a partnership between these four people was born. Let's call
itIngevision.
When the national government decided to privatize telecommunica-
tions, it demanded the winning companies to significantly improve the
public telephone service. Ingevision took advantage of this situation in
ordertoobtainaprofitablegrowthforseveralyears.
Howdidtheyachievesuchasuccess?
The technology developed by Ingevisión for hotels was also useful to
manage groups of telephone booths. They created a simple business
model:
The owner of a commercial area made all of the necessary
investment in order to turn it into a public telephone center, best
knownastelephoneboothortelecentre.
One of the telecommunications companies provided the
telephonelines.
Ingevision sold to the owner of the commercial area all the
electronicequipmentnecessarytomanagecalls.
Itwasarealwin-winsolution:
Telephone companies were able to meet national government's
requirementswithaverylowinvestment.
The owner of the commercial area obtained a significant
percentage of the retail price of each call, at a time when rates
werehigh.
By manufacturing and selling the devices and equipment to
operate each commercial area, Ingevision obtained excellent
profitability.
14

As every time a win-win solution is found, all parties involved exceeded
their initial expectations. Ingevision achieved a market value that only
one of its partners could have imagined several years ago, when he sold
hiscar.
This story illustrates one of the ways in which a SMB starts. It is referred
to as proactive start up and it is comprised of three key elements: vision,
know-howandopportunity.
The other way to start up a business is the one we refer to as reactive
start up, in which circumstances provoke the creation of the company. It
happens, for example, when a person or a group has specialized know-
how which starts being highly demanded by a growing market sector. It
may also occur when someone who was employed for most part of his
life is laid off and, as a result of the pressing economic situation he was
experiencing, and after several failed attempts to find a job, decides to
startabusiness.
Regardless of the way in which they are created, all SMB experience
similar problems. In the next pages, we will analyze the ones that, in our
opinion, are their main causes of failure and we will suggest ways to
avoid them in order to significantly increase the likelihood of survival,
growthanddevelopment.
In order to facilitate the reader's permanent consultation, we have
grouped such causes according to the five functions that are common to
everyorganization:
Strategy, which main purpose is to establish the company's
direction.
Marketing & Sales, which main purpose is to create a bigger and
betterdemand.
Operations,whichmainpurposeistosatisfycurrentdemand.
Finance and Indicators, which main purpose is to support and
monitorthevaluegeneratingareas.
15

Human Resources, which main purpose is to ensure that the
companyhastherightpersonateveryposition.
The approach of this book is from the market to inside the organization.
The proposed methods are closely related among themselves and their
purposeistosolveproblemssimultaneouslyandnotinanisolatedway.
We are human beings and it is natural that we make mistakes, even
though we do not like it or do it unintentionally. Maybe the biggest
difference between a big company and a SMB is the lower ability to
recover from the negative consequences of bad choices. This is why it is
importanttolearnfrommistakesmadebyothers.
5 functions common
to every organization
Strategy
Marketing
& Sales
Operations
Finance
& Indicators
Human
Resources
16

“The only human being that does not make
mistakes is the one who does nothing”
Anonimous
“With so many mistakes to be made,
why do we always repeat the same ones?”
Anonimous
To get the e-book, either in English
or Spanish, e-mail us to
info@puenteempresarial.com

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