What can your online business learn from the credit crunch?

Bankers are not sleeping easily these days. First, the “subprime” problems emerged in the USA, then French banks took a cautious approach, before the debacle of Northern Rock hit Britain. Clearly, all around the world banking is hitting troubled waters.

Even though we hear lots of technical terms like “subprime” or “the interbank rate”, what’s going on is simple. The banks were greedy. They lent to people who were not in the best position to pay them back and they also lent more money than they actually had in their coffers.

This is just plain daft – and is dead against the advice you’d be given by any of these bank’s business managers. “Don’t borrow more than you can afford,” they’d tell us and “Don’t look for quick buck, plan for the long term.” Well perhaps we wouldn’t be in the financial pickle we are now in if the banks had swallowed some of their own advice.

However, the credit crunch as it has become known provides some useful lessons for anyone running their business online. It shows clearly that being greedy and being tempted by all those “make a million before tea-time” adverts is likely to end up in trouble. Plan, instead, with a long-term view and your online business is much more likely to be financially viable.

However, nine out of every ten online businesses fail within the first three months. Indeed, I’ve spoken with several people who have set up an online business, only to discover a few months later that it hasn’t worked for them. Why? Because in every case they cobbled together a web site and looked at it as a short term fix to cash flow problems.

This is just the same as Northern Rock. They could not afford to lend as much as they did, so they borrowed it from other banks. This is focusing on the short term cash flow, rather than the long term; clearly that’s not a sustainable business model in the world of banking.

The same is true for online business; by focusing on short term, cash goals your business is less likely to succeed than one that looks at the five years ahead. Long term business planning for most Internet businesses is still but a dream. It shouldn’t be.

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