Ever feel like you’re getting in your own way?…
Like sometimes your business decisions don’t work out as well as you planned?…
Growing your business isn’t about having all the right answers before you start.
These are the most common decision points where I’ve seen several would-be successful entrepreneurs get in their own way. You’ll come across several of these issues as you grow your business and my hope is to get you through the learning curve faster than most, and where possible, to avoid these errors altogether.
Problem #1: You’ll lose track of your personal core competency.
When you start out, you’re building your business on the back of your unique talent(s); your personal core competency. The point where your personal strengths and what you love doing come together is where you’ll have the greatest impact in your business. Make sure you know where those two meet.
Every business owner is taken away from the part of their business they enjoy the most because they need to cover several other bases until they can afford to hire the right person to fill the role(s) they don’t enjoy. Remembering what it is that you enjoy about your business will help you stay focused on your real goal.
The other side of the coin is getting away from your personal weaknesses. For me, things I don’t like to do and my biggest weakness come together in the sales function. I can close a sale, but I don’t enjoy knocking on doors or cold calling. So for me, I always back-fill the sales function with a very good sales person, and I do it early on. Over the years I’ve become much better at hiring sales people. This lets me focus on what I like to do, and work with my personal core competency.
Know your biggest weakness and work to get someone in that role as early in your business as you can afford. Find someone who knows how to hire that role the first time you need to fill it and get their help. This will free you up to do what you love to do and what you’re best at.
Problem #2: You’ll let yourself get stuck as a job owner.
Whether it’s financial security for your family, delivering a product that you love, or serving your clients in a particular way, you start out with a certain vision for what your business will become. And in order to get it done you’ll need to make the transition from job owner to business owner.
For many business owners the frustrations of being a job owner discourage them from growing their businesses because they fear how hectic things will be when their business gets bigger.
So the question is: Is Bigger really better, and just exactly what problems are you going to come across as you grow your business?
First, realize that as you build your business you’ll build a team to support the business and take care of the things that you don’t enjoy doing.
When you’re a job owner, you’re a jack of all trades. You do everything that needs to be done. If you miss a day then productivity either drops or stops entirely. As a business owner, you’re surrounded by a capable team, productivity doesn’t stop just because you’re not in the office for a day. So in this sense, bigger is definitely better because this means that you’re building the ability to deliver on your vision.
A business owner has a capable team supporting them. A job owner has a couple guys helping them out.
Problem #3: You’ll blindly choose the wrong strategy or market.
Moving into the right market at the wrong time can devastate you or have long-term negative financial impacts. Before you decide to move into a new market segment or pursue a new strategy you need to back that decision up with solid data. Hope is not a strategy. Here’s a handful of key questions you should ask yourself:
- Which competitors are already in that market segment and how are their businesses doing?
- What are your best competitors doing to raise the bar each year and how successful are they at getting results?
- What have you done in the last year to improve your business and make your offering the obvious best choice for your clients, and how successful are you at getting results?
- If you were your competitor, what strategy would you use to put you out of business? (Pro tip: make a plan to fix this – regardless)
- List three actions you can take during the next year to be your competition’s worst nightmare? (Pro tip: pick one and start working on it)
Do not answer these questions casually. Don’t blindly trust your competitor when they tell you how awesome they’re doing. Do the legwork and research on your own and get real answers. Make sure the answers stand up to critique.
Problem #4: You’ll try to be all things to all clients and markets too soon.
As you grow your business, it’s important not to stretch your resources to thin. I understand the temptation, believe me, I’ve been there. But stretching your focus, finances, and skills over too many markets or product lines before you have the skills or financial resources can be fatal, or lead to years of growth at a snail’s pace.
Think of how Toyota entered the luxury car segment. First they became known for reliability, quality and fuel economy in the small car segment. Once they dominated that segment they branched out into the luxury car market with a quality and service promise that nobody was offering at the time. Then after they became a major player in the luxury car market they launched into the full size truck market.
Early on, choosing one, or a limited number of market segments to pursue allows you to focus your business and build your brand reputation. Once you become a strong player in that market segment you can branch out.
Deciding where to focus should be a meaningful conversation with your leadership team or advisers. It may be a series of conversations over time. For many companies, it’s one of the first strategic planning tasks they ever take on; How/where do we grow next? This might be a frustrating process, but in the end you’ll actually feel quite liberated because you won’t feel the pressure of chasing opportunities that are outside your core competency.
From time-to-time before you’re ready, your commitment is going to be tested. At least a couple times while you’re following your plan, and your brand and reputation are growing, a potential client is going to try to lure you into a project, or into providing a service that you’re not yet prepared for. You’ll be partially ready and you’ll be tempted. You’ll justify doing the work with phrases like “if we don’t take it now then a competitor will get the job.”
Take each of these opportunities seriously even if you don’t wind up doing the work. The bidding process alone is excellent training for your team. It forces critical thinking.
When you decide to turn work down, be sure that you competently and completely explain to your potential client why you’re turning down the work by using specifics. They’ll respect you for it, and they might even learn something from it.
When the time is right and you chose to jump in, you won’t be blind. You’ll have done your homework and you’ll know the risk-reward math favors you. Ask yourself two questions before you decide to grow your business in a new market segment:
a) Are we prepared to make a long-term (two years) commitment to this segment?
b) What resources do we need to have access to to make sure we’re successful over time?
Problem #5: You’ll place high value on the wrong people and promote them too early in your business.
Several years ago I met with a small business owner who was looking to hire an operations manager to free himself to focus on sales. When we got to defining what the compensation package would look like for the skills and experience that he wanted to hire he said he wouldn’t be able to offer that much salary because it was more than what he paid his bookkeeper.
I asked if his bookkeeper was capable of running operations. To which he replied, “No”.
I asked if the bookkeeper owned a piece of the business. To which he also replied, “No”.
So he had a person on staff that he’d placed on a pedestal; whose future contributions were limited; who didn’t own any part of the business; and he was letting his fear of losing that person control the future of his business.
If you find yourself in this position then you must be willing to own the problem you created and have a heart-to-heart with the person that you’re allowing to slow your business growth. You’ve made the mistake of giving them elevated status and now you have to fix it so you can grow your business.
If you’re not sure how to have this conversation I suggest reading Fierce Conversations by Susan Scott. It’s an excellent primer on how to have tough conversations that need to be had.
Often business owners chose someone internally because it’s the quick and easy choice and they’re pressed for time. They chose someone who they view as loyal, reliable, and technically competent. These are all admirable qualities but they aren’t everything on the grocery list. When you start to create management positions, ask yourself 3 key questions:
- Why am I creating this role?
- How will this role change and grow with growth in the business?
- Does the person I’m thinking of putting in this role have what it takes to grow and change with the role and the business?
Problem #6: You won’t remove the people you need to when you need to.
Anyone that doesn’t embrace your vision for your business and receives a paycheck without being responsible for making payroll isn’t the best fit for your business.
Several months ago I spoke with a small business owner who described a situation where two of his now former employees attempted to mastermind the stealing of every one of his clients. This was a massive undertaking that required forethought, knowledge of the clients, and access to the client data.
As I listened to him speak I couldn’t help but think that he had to have seen some clues before it happened. So I asked and sure enough he admitted that if he had fired at least one of the two employees six months earlier when he first knew it needed to be done, none of this would have ever happened.
Now obviously this is a dramatic example of what can happen when you don’t remove someone you know you should remove, but it’s a real example none-the-less.
In my career I have found that employees who need to be fired, demoted, or moved, know it. I’ve been thanked by former employees minutes after firing them as they suddenly felt the stress fall away. I’ve been thanked by already understaffed departments for firing employees that weren’t a good fit.
Failure to remove people who aren’t the right cultural fit or don’t perform, will limit your business in several ways. A poor cultural fit hurts morale, quality, productivity, and client relationships. Your other employees will begin to lose confidence in you as you put off making the decision that everyone knows you should make.
Follow three simple rules when terminating an employee.
- Be honest with yourself and the employee who’s leaving.
- Always preserve the person’s dignity, period.
- If you’ve been open and straightforward with the employee about their performance or attitude up to this point, this isn’t a long conversation. Keep it under 15 minutes.
Problem #7: You won’t add the right people at the right time.
As your business grows you’ll need to add some overhead positions. Businesses run better when people work within their core competency and let others do the rest.
The question is, when? How big does your company have to be to support these added roles? Some business owners add too early and some wait too long. Your business moves through stages where you’ll need to add skills in accounting, marketing, sales, human resources, Information Technology (IT), and quality.
For a fast growing business, I suggest that you take a look at your staffing needs and where your employees are spending their time every quarter.
Early on, functions like accounting can be outsourced. I suggest that accounting be one of the first functions you bring in house so you can speed access to your data and metrics. It’s common to see this role filled with a bookkeeper when a company has less than 10 people and then move to a CPA/CFO type when headcount gets around 30 to 35 – this is a guideline and not a hard and fast rule.
When it comes to IT, I suggest outsourcing this function to a competent service provider. Don’t hire this function internally until you hit 40 or more employees, and maybe not even then. There’s a lot to learn and understand about how networks and servers are built out and how they connect and talk to the outside world. Many IT service providers can provide this for you and keep the price well under the annual salary that a full time employee would require.
Generally speaking, when your business grows to between 35 and 50 employees there’s a definite need for overhead roles such as Operations, Human Resources, and Quality Management. The good thing about this transition is that you’ll enjoy real efficiencies when you introduce these roles as the employees responsible for what your clients buy begin to spend more time focusing on what they do best. It’s possible when your business is between 20 and 35 employees to find a good operations generalist who can be your right hand and help with this group of functions until you can justify introducing the remaining roles.
When you start to think you need more people, take a look at various tasks that your employees are performing. Look at what each person is doing, how they’re spending their time, and which “time-sucks” they’re complaining about. Track the hours being spent in each functional area (sales, general operations, quality, HR, IT, marketing, and accounting).
Here are some of the questions you might want to ask yourself. Trace each problem back to a function:
- Do you only focus on sales once you run out of projects and your team is freed up to work on sales?
- Is the fact that you don’t have current financial information about your business, projects, or product lines preventing you from making good decisions?
- Are you suffering from too many quality problems that cause rework, overtime, backlogs and upset clients?
- Are too many of your employees spending time on tasks that aren’t really part of their core job descriptions?
So what do you do with yourself in all of this? As the founder or owner of the business I suggest that you gravitate toward the role you enjoy the most regardless of which role that is. Fill the other roles with people who enjoy those functions even more than you do.
The keys to making your first leadership hire are trust and separate leadership roles. The two of you must develop a trust between you in order to fully execute on your respective roles.
You must also know, understand, and respect each other’s responsibilities. If you aren’t able to do that, you’ll undermine each other and your team will be confused about which direction to move and who to ask for guidance when they need leadership input.
The other reason for separate leadership roles is overlap. If your skills, abilities, and interests overlap too much with your first leadership hire then they will likely feel as if you’re micro-managing them when you continue to give input instead of letting them do what they do best.
Problem #8: You’ll decide to develop your own software.
Unless you’re a programmer developing your own game to unleash upon the gaming industry, or developing the next awesome app for mobile, you really have no business developing software for your business.
Developing your own software to operate your business will consume an awful lot of time and money. These are resources better spent on your core competency, especially when there’s commercial off the shelf (COTS) software available that will solve your problem.
If you didn’t personally write the code or know how to fix it when it breaks, you’ll find yourself handcuffed to an IT guy and his whims. When he tells you that you need a new piece of hardware, or another software package to interface with, how will you really know?
When your only IT guy, who also happens to be the only person in your company who knows how to keep your software beast running demands a $10,000 raise, you’ll give it to him out of fear, after all he’s the only form of warranty and service on your software. And when everyone else finds out about his huge raise (don’t fool yourself – they will), you’ll lose their respect and your ability to lead.
Over time you’ll end up stuck with a legacy system because it’ll be “too expensive and painful to switch now.” Never mind the expense of keeping that IT guy on board forever and the reduced morale.
If your custom system taps into another commercial off the shelf software such as your accounting package and that software company makes a change that doesn’t work with your system, you’ll be scrambling to recover. And according to Murphy’s law, this will happen at the worst possible time.
My wife worked for one of the largest chip manufacturers in the U.S. for seventeen years. And even large companies get unintentionally stuck with these monstrosities. They had no less than 3 legacy software programs (acquired through acquisitions of smaller companies) that had been connected in a confusing spider web to newer enterprise software to get newly launched products to post to their website.
Out of 30,000 people in the company less than 100 people in the business actually understood how these systems connected. And out of that 100 only a handful were real gurus. My wife spent hours and hours dealing with system linking issues at every new product launch.
Don’t give in to the fantasy of building your own enterprise software. Go with commercial off the shelf software whenever you can and focus on your real core competency. Invest the time up front to find what you need in already commercially available software. Many of them today can be tailored to do what almost any small business needs, and they come with warranties, support, and upgrades that are far less expensive than that prima dona IT guy.
Problem #9: When times are good, you’ll spend like they’ll last forever
I love the stock market. It’s where we issue a report card on businesses every day. One of my favorite stock operators from market history is a man named Jesse Livermore. He is practically required reading for anyone who wants to make a living on Wall Street. He made, and lost (keyword: lost), four fortunes in the stock market between 1895 and 1935, and in his book Reminiscences of a Stock Operator he stated, “I prefer the habits of a poor man over the habits of a rich man. It’s easier to break the habits of a poor man.”
Livermore died penniless because he never followed his own rule about setting aside money for a rainy day, and because he invested and spent like he couldn’t lose.
When times are good, that’s great! That’s when you make the moves that help you get to the next level. That’s when you pay down debt and store cash like a tree squirrel storing nuts for winter.
Having excess money around can allow managers and leaders to make poor decisions. Excess cash covers a world of sins. Don’t forget what it was like when times were lean or you’ll wind up back there.
Establish some rules for how you and your managers spend money. Rarely invest in a piece of equipment that takes longer than two years for the project or the program it supports to return the investment. I promise, you’re crystal ball is no better than that.
Require a return on investment (ROI) that’s good for your business. Don’t just spend on anything you want. Tie each purchase back to your strategic plan. Spending requests that tie to your strategic plan take priority over those that don’t.
Have rules for paying down debt. You may want or need to make some salary adjustments. Keep salaries low in the early years and pay one time bonuses with small increases. That will help everyone feel like you’re sharing the wealth and won’t create a long-term financial stress that comes from prematurely inflated salaries.
Before you move to bigger, better facilities, do you really need them or is it just a want? Another famous personality from Wall Street, Peter Lynch, who managed the Fidelity Magellan fund for many years, commented that he loved it when he walked into a company that was doing well and saw that the offices weren’t extravagantly decorated. He liked this because it told him the business owner was more concerned about performance than appearance.
Frugal and cheap aren’t the same thing. Take care of your people and spend your money wisely. When you spend this way your team will notice. It shows them that your actions and words are aligned and your company culture will begin to reflect that attitude about protecting the company’s resources.
Problem #10: You won’t monitor your financials in real time.
Ask a small accounting firm when their clients talk to them about their financials and they’ll give you one of three answers:
- At the end of the quarter;
- Every year at tax time;
- When they want to borrow money from the bank.
While these are all good times to care about your financial performance, they fall far short of what you need to do in order to really grow your business.
You can’t possibly make the right decisions in real time by looking back at numbers that are two, three, six, or twelve months old. You won’t be able to borrow a meaningful amount of money from a bank if they think you only look at your financials two or three times each year.
In order to make real progress in your business, you must be looking at your financial statements at the end of every month and continuously monitoring you key performance indicators. Not only that, you must start running each client account, product line, or project based on its own financial performance. You can only do that with real-time financial data and KPIs.
Sit down with your accountant and find out if they’re prepared to start providing numbers back to you by the 10th of each month. If they can, great! Now you need to make sure that you’re getting the expenses to them in real time. If your accountant isn’t set up to do this and can’t make the adjustment, find a new one or bring the function in-house.
How do you find a new accountant? Talk to other business owners you know who run larger businesses. Can they refer you to someone? Call around and interview some firms.
Remember, you’re not trying to get them to take you on as a client. You’re taking steps to grow your business, and you’re looking for a firm that can and will help you with that. They’re the ones being interviewed, not you.
Building a good business is as much about avoiding the wrong decisions as it is about making the right decisions. I’d love to hear your thoughts on any or all of these. Chime in with your comments.
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