“Running a small business today is so risky – so much can go wrong.” According to Dun & Bradstreet, over 90% of all small businesses that fail, do so due to common management pitfalls, inexperience in leadership, lack of money management skills and/or insufficient marketing expertise. Yet, small businesses can be successful. An obvious but important factor is that businesses need to realize that they can learn from each other.
The Qualities of Leadership
Any business organization or (investor in one) needs to know where the business is going, how it is going to get there and who is going to lead the way – the individual business owner, the executive director of the management committee or a collective. Democratic leadership includes a developed vision, an appreciation (and non-abuse) of power and an understanding the responsibilities of ownership. Good management requires several skills including a careful consideration of viable alternatives, decision-making abilities and follow-through.
An owner of a small display manufacturing business tried to delegate more decision-making responsibility to a department manager. The delegation was unsuccessful as the manager did not consider long-term effects or pay enough attention to results. The owner realized that he had tried to delegate additional responsibilities without providing appropriate training and support.
It is so important to realize that the leadership issue can be solved only when you have the right person in the right place. The wrong person (even a friend or loyal employee) may have to be removed, regardless of how awkward that may be, or the business itself may be at risk. Many small businesses are managed by people with little previous management experience or industry specific management experience. For example, the executive director of a non-profit often does not have the expertise to manage a for-profit activity. It is so important that the skills of the business manager match the complexity of the business.
Starting a business, although time consuming, is relatively straight forward. However, as the business grows and becomes more complex, different management skills are needed. The manager needs more skills in order to match business growth. Sometimes, the only solution is to hire the experience from the outside.
Peter, a successful plumbing contractor, expanded quickly and promoted himself to business manager. However, he was inefficient and had never developed management skills. His bookkeeper convinced him that it would be more profitable if he remained in the field as a plumber. He hired an experienced business manager to oversee growth and was able to turn his full attention to the aspect of the business that he was best at doing.
Doing it Alone
A common management pitfall is making decisions in isolation or without sufficient information. Support can often be found at no cost by developing peer support systems with another small business owner or group of owners/managers or by creating a voluntary board of advisors.
Sara, a self-employed psychotherapist, has used a support partner for several years. Her partner is another therapist so they are able to both give and receive encouragement and objective feedback on a weekly basis. If more time is needed, they schedule telephone calls or send e-mails and at times, can set-up another face-to-face meeting.
Another successful support technique is a direct support group, set-up to give feedback and advice for all group members. One such group includes four women and two men, all of whom own small businesses, including in-home care, landscaping, dog training, publishing, counseling and used book sales. They meet every two weeks to give/get feedback, report on their progress from the previous meeting and set new goals. The regular support and mutual commitment has reduced their isolation and motivated improvements.
One final suggestion for support with a decision-making component is using a voluntary board of advisors. These are could be colleagues, friends and business associates who meet regularly to give advice and feedback to a business owner.
Recently, a small book publisher set up her own board of advisors. They meet every 6 months and assist with specific issues. She is rewarded with encouragement and clear directions. They have a good time together and are available to help as needed.
Managing Your Time: “Too Much To Do…Never Enough Time to Do It…”
This is a common problem that affects the managers and owners of almost all small businesses. To be effective, managers need to manage their own time well. This means learning to prioritize, schedule and monitor as well as develop effective work habits. Many businesspeople appear to be very busy, and seem to never have the time to get down to the business of management. This often means failing to recognize or solve problems, implement solutions that make systems run more efficiently, or to fully monitor business activities.
John is the marketing manager for a small distribution business. He uses daily “to do” lists, weekly checklists and a monthly sales plan. As a salesperson, he spends a great deal of time prospecting but he still needs to be efficient with his marketing efforts. He prioritizes his messages by what he calls the “hassle factor”. A top priority means to do it now or it will only get worse. A time priority means that a deadline must be met or quality will suffer and a financial priority means a message should be answered because it is a sure sale. His work is directed by precise criteria with specific benefits and a corresponding time priority.
There are many theories of management – from hierarchical to cooperative. For a socially responsible business, it is important to have a clear vision, open communication and a management style that is accessible and transparent.
Managing people, however, is a very personal issue. As the business grows, more people are usually needed. As more people are hired, new management skills need to be introduced for both the collective and the owner-directed business. Staffing the expanding business is a big issue. Paul Hawken, the former owner of Smith & Hawken has remarked:
“To get good people to work for your business you want to provide a place where good people want to be. Therefore being a good human being is good business, for both the employee and the customer.”
There are many common mistakes made in expanding the personnel of a business. This includes hiring the most available person (not necessarily the best candidate,) not matching the person to the job and not giving adequate training and support to existing employees and new hires.
Louise has a successful weaving supply store. The store is expanding and she needs more professional sales assistants. After several hiring mistakes, she is learning that careful selection and training is simply essential.
Small business employers need to understand how important it is to pick people who fit the culture of the business, accept the vision and feel comfortable with the management style. Employees must also really identify with the products and be able to make the same commitment to service and quality. Employees are, after all, the direct reflection of the business to its public.
For most business organizations, the process is the same. Money comes in from revenues; it stays in the business as inventory or investment, and then goes out again for operating expenses and purchases. This flow of money in and out makes recordkeeping a necessity, yet it is frequently avoided. This is another common management mistake.
The best defense is an effective financial information system. An investor in a business should insist that this include a bookkeeping system that generates accurate and timely financial statements and a manager who reviews and interprets the data regularly.
A small co-op food store, recently reorganized, discovered that its historical financial information was incomplete. The system had not been maintained. A new record-keeping was immediately installed and they were able to make realistic projections that informed both management and co-op members.
Predicting the Future
Historical business data has a very practical application for the future. It is a foundation for projecting income and expense. The financial projections become future objectives. As the business progresses, management can compare the actual results to the projected objectives, adjust if necessary, and then make more informed decisions based on these comparisons.
A non-profit food business prepares a budget for each year in advance. Every month, the actual results are compared to the budget. If there is a large variance, a new projection is produced and monitored carefully. The bookkeeping system makes it possible to keep track of management objectives.
Watching Cash Flow
The cash flow statement compares the actual flow of cash into the business with the actual flow of cash out of the business. A careful business manager uses this statement regularly so that excess income can be re-invested or used to take cost-effective discounts. Many cash shortages can be predicted and avoided by borrowing money or trying to increase short-term sales. It is interesting to note that even when sales are increasing, there may still be a cash flow problem.
A small cable manufacturing business sold several contracts to one customer at a substantial discount. The supplier then re-ordered excessively. Sales soared but the narrow profit margin forces the cable business into a cash flow crisis. They had to fire their first client to stay in business – but it worked.
Marketing Issues & Techniques
Another small business pitfall is the tendency to ignore the marketplace. Research is important in order to discover new opportunities and resources. The research can be simple, such as talking and listening to customers, and still be effective. It is important to have open relationships with vendors and even competitors as they can also provide very useful information. Most small businesses need to focus on a specific “targeted” market. Narrowing your focus allows one to know ones market well, identify with customer needs and respond to market changes quickly.
Mike sells household products by targeting independent grocery stores. First, he narrowed his product line to specific, related products. Then, he imitated sales techniques other distributors had successfully utilized. Finally, he convinced store managers that his products and commitment to services was superior. This approach has built a very successful wholesale business and has been able to grow and expand each and every year.
Customers can be fickle and even annoying at times, but they are the lifeblood of the business. Loyal customers support your business with their patronage, provide excellent new product ideas and can even bring you new customers. Word of mouth is an effective marketing tool!
A growing on-line and mail order business was totally committed to one specific goal – repeat business. Their most loyal customers, the ones who created the most word of mouth business, were the customers whose problems were solved by the company’s dedication to customer service. This focus on finding solutions to customer problems created a satisfied and fiercely loyal customer base.
Maintaining Quality Control
While price often seems to be the most important thing, it can be a mistake to compete on cost alone. A better approach is a commitment to quality products, high standards of service and direct, personal attention. Customer loyalty comes from providing helpful information, giving extra service, and offering recourse for repairs or replacement when a problem arises. A commitment to consistent quality control will build loyalty and reinforce word of mouth.
Occasionally, a specialty cheese store would have a customer return a cheese because it was “too strong.” Even though this would seem to be a matter of taste, and cheese is a perishable item, the cheese store would grant a refund or credit without question. They would then offer the customer samples of items that might be more to their liking, and use the occasional return as an opportunity to display their commitment to customer service. This resulted in a very loyal customer base. For this business, the adage of “the customer is always right” proved to be the best marketing advice that they ever followed!
If the business isn’t any fun, why do it? The attitude of owners and management will always be reflected onto the employees and eventually to the customers. If people are enjoying themselves, the good feelings are infectious. Michael Phillips, author of Marketing Without Advertising, expresses it well:
“In order for the business to grow and flourish, you must love it. To love a business is to make a total commitment to its needs, and requires a dedication of your time, attention and passion…You have to love the business in order to put up with the trials that it brings you.”
A positive environment means you get to have fun in business, you attract quality people to work for you and they, in turn, attract loyal customers. A ‘business is fun’ attitude is a successful and proven small business solution!