The rise and fall of a small business

Approximately 20 years ago a relative passed away and we assumed ownership of a small business he owned.  Even though we received offers from individuals interested in purchasing the business I decided to keep it.  It had a long history in our community, was profitable, and had great employees who wanted to remain.  Like many Americans I had long desired to own my own business, and this looked like the perfect opportunity.  The problem was I had no experience as a business owner nor did I understand the technology of the business.  Due to the experience of our employees I knew the tech part would be covered, and I felt I could learn the nuts and bolts of running a small business.

The first several years it was everything I had hoped it would be.  Sales were good, profits were solid, we were banking money and moving forward very well.  I made management mistakes during that time, but our level of profitability enabled us to cover those. However, when the economy began to weaken our sales slowed down dramatically.  Our clients would have us repair equipment that normally would have been replaced in an effort to protect their finances.  We started going through our savings rather quickly to cover costs.  Year after year we lost money.  I stopped taking a salary hoping that would allow us to survive the economic recession, but no one understood just how deep this recession was at that time or how long it would take to recover.  My inexperience led to more mistakes which cost us more money, money we could no longer afford to lose.  Although I learned from those mistakes they were costly to the business.

Many small businesses have failed during this recession, and most will blame those failures on the economy.  While there may be a measure of truth in that it is also true that many small businesses continue to do well during this downturn.  It is also true that businesses fail during more prosperous times.  It is not the economy that is solely at fault for the failure of small businesses, it is how those businesses are managed during those times that make the difference.  Good economic times will cover up a lot of management mistakes, but slow economic times magnify the mistakes we make in leading our businesses and make those mistakes much more costly to the company.

I learned a lot about leading a small business from the mistakes I made and from resources I began to gather about leadership and small businesses.  Unfortunately, I did not learn them in time to save our company.  It eventually closed.  All the hard assets and our property were sold at auction for pennies on the dollar.  Fortunately, we made enough to pay off all our bills but there was precious little beyond that to show for 15 years of running a small business.  The first few years of owning our business was a dream come true; the last few years was a nightmare trying to find ways to keep it open.  It was an especially painful time for me in many ways.

Coming out of that experience I decided to write a book that would help other small business owners avoid the mistakes I made that could cost them their business.  Because the experience was so recent and painful it did not take a long time to write this particular book, certainly not as long as the other books I've written relating to pastoral ministry.  Mistakes: Avoiding the Wrong Decisions that will Close Your Small Business is available for NOOK devices.  In the book I detail several of the decisions that I made for our company that turned out to be wrong and led to its downfall.  If you avoided even just one of the mistakes I discuss in the book it could save your company thousands of dollars.

Avoid the nightmare of seeing your small business close.  Don't spend sleepless nights wondering if the decisions you need to make are the right ones.  Avoid having to tell long-time employees they no longer have a job due to your closing the company.  Do not live through the horror of watching others drive off with your inventory and equipment after an auction leaving you with bills to pay with no money coming in.  Learn from my mistakes and you may avoid making them yourself. 

How many options are there?

One mindset that often limits our success in any endeavor is to think that we must choose between two options.  As a church leader and as a business owner I would have people ask, "Do you think we should do this or that?" referring to two possible ways of addressing a situation.  Unfortunately, I seldom explored other options and suggested they take one of the options they suggested.  Had we spent more time examining the situation and thinking about other possibilities we may have identified a much better solution.

We need to automatically assume there are more than two solutions to any challenge.  There may not be, but our organizations would often be better served if we at least began with that assumption and spent some time brainstorming what those options might be.  How much better would it be if we could identify seven or eight possible ways to address the issues that challenge us?  We would have a much better chance of identifying the best possible way of dealing with it.

The flip side of this, however, can also be a problem.  We don't want to spend so much time analyzing a situation and pursuing different ways of responding to it that we suffer "analysis paralysis."  If I am on a ship that develops a major leak I am going to do whatever I have to in order to immediately slow down the amount of water coming into the ship.  We can spend time later deciding how to best correct the problem permanently and how to prevent future leaks.  Right now we just to make sure the ship doesn't sink.  If a major event threatens our business we need to throw an immediate fix on it and then take time to study how it happened and determine the best permanent fix.  Fortunately, most of our challenges are not so threatening or immediate, and they allow us the freedom to consider various options before dealing with them.

One of my favorite coaching questions that I use with my clients is, "That's one option; what are some others?"  It's a question you can use to self-coach or to ask members of your team when they come to you with issues.  Refuse to allow yourself to settle for one or two options to any challenge.  Intentionally see if you can find at least ten possible ways to address every issue.  Even if you don't get to ten you'll probably identify more than one or two, and that will make it more likely that you'll find the best solution to your problem.

Starting right

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A couple of weeks ago I mentioned that I had received my auctioneer's license and was preparing to start an auction business.  Today I met with my attorney to discuss how I should structure the business.  He advised me to create a Limited Liability Company (LLC) that would help protect our personal assets in case there were problems in the future.  It costs very little to set up an LLC and it provides a lot of protection.  He suggested that if I wanted to save money I could do it myself online as it wasn't that difficult, but when I asked what he would charge me to do it I found out it wasn't much more.  I asked him to do it.

I'm all about saving money, and like most small business start-ups I don't have a lot of money to put into this endeavor.  However, I think there is value in knowing that the foundation for the company is being laid correctly.  I could save money by doing my own dentistry too, but I doubt it would be worth it.  I want this company to be set up correctly so why not pay someone who has been trained for this kind of work to do it, especially when it is such a minimal amount?

One of the mistakes I made in my previous company was that I tried to save money in places I shouldn't.  Penny wise and pound foolish I believe the old proverb calls it.  I want this new business to be started right so I've asked my attorney to do the paperwork for the LLC to ensure it is done correctly.  I began today pricing liability insurance.  When the state approves the LLC I will set up two bank accounts for the business: one for business operations and the other for an escrow account as required by state law.  I have started printing business cards and brochures and began handing them out to close friends.  Later this week I will order contract forms and other paperwork needed in the auction business so when I am ready to launch the business I will have everything ready to start. 

And it will be right from the start.  I will not make the mistake again of trying to cut corners that should not be cut in an effort to save a few dollars.  I learned that lesson from my first business.  If you want to know what other lessons I learned from losing that business be sure to read my e-book Mistakes: Avoiding the Wrong Decisions that Will Close Your Small Business. 

If it ain't broke...break it.

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Many of us have heard all our lives  "If it ain't broke, don't fix it."  It was a warning that messing with something that was working well might create more problems than it was worth.  That may have been good advice at one time, but it's lousy advice now.  I encourage people that "If it ain't broke, break it because it will soon be obsolete anyway."

We live in a rapidly changing world that requires people to adapt quickly or be left behind.  Your business plan from 2007 is probably not as effective today as it was just five years ago.  Hopefully, you're not even using that plan any more.  If your equipment is more than five years old it's probably outdated and inefficient.  If the goods and/or services you offer your clients have not been updated in the past 2-3 years they are probably coming across as stale and unappealing compared to what your competitors are offering.  Have you taken a fresh look at your marketing strategy to see what's working and what's not?  Have you checked out new vendors to see how they can add value to your business?  How often do you change out your displays to showcase new items?

One of the mistakes I made when I took over our business was seldom changing anything.  You can read about that, and many other mistakes I made, in my e-book Mistakes: Avoiding the Wrong Decisions that Will Close Your Small Business.  You can order it for your NOOK reading device by clicking on the book cover on the right column on this blog.  I made very few changes in how we operated as a company, and the changes I did make were often too small and certainly too late in coming.  Our competitors ate our lunch because I didn't want to change things that had stopped working.

Several days ago I admitted I liked watching Bar Rescue on television.  One of the things that the rescuer does is change virtually everything about the bar.  He changes the name, the decor, the items on both the food and drink menu, the uniforms the employees wear, and the way they go about their business.  One of the reasons the bars are not profitable is that nothing has been changed for years, and he wants to help create a new brand for the bar.

When you walk into your business tomorrow take a long look around.  Try to imagine what it would look like to someone who had never been in your business before.  Would they find it vibrant and exciting, a good place in which to do business, with goods and services that appeal to them?  Or, would it appear to be tired and outdated with people who look like they would prefer to be just about anywhere but there?  You may want to ask someone to be a secret shopper so you can get an honest opinion from someone with new eyes who may see things you'll overlook.

Change just for the sake of change is stupid, but making changes that improve your organization makes a lot of sense.  Don't hold on to something just because it used to work or your employees (and you) find it a comfortable way of doing things.  Business is too competitive and customers are now too demanding to hold on to things that no longer make good business sense.

You need a great team

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I believe it was John Maxwell I first heard say that if your dream is too small for a team your dream is too small.  Many small businesses began as a one-person show, but eventually the owner of a one-person business will learn that he or she is still an employee...and the boss.  Soon after that recognition comes another awakening - unless you can expand the business to include more people it will never be what you first envisioned it would be.  It will never provide you and your family with the life you wanted when you became a business owner.  It is the failure to develop a team that causes many small business owners to eventually give up and return to the workforce.  It makes no sense to deal with all the headaches that go with owning your own business if you are the only employee and are not making any more money, or often even less, than you were when you were working for someone else.

But, just adding people isn't enough.  You have to be adding the right people.  Dave Anderson, in his excellent book Up Your Business!: 7 Steps to Fix, Build, or Stretch Your Organization, writes, "You can read books on strategy and attend courses on corporate vision but the fact is that without getting the right people on your team, nothing else you do will matter.  Your vision is worthless, strategy impotent, and values corrupt without the right people to execute them."  Later in the book he adds, "A great dream with the wrong team is a nightmare because bold goals pursued by mediocre people still result in mediocre results."  He spends the remainder of his book addressing good hiring procedures, the importance of ongoing training, setting high expectations for the team, and how to survive success by overcoming common temptations that successful companies face.

Adding team members is expensive.  If the owner does it right it takes an enormous amount of time.  The best people do not work for entry level salaries and benefits.  There is the cost of training new people in your culture and in whatever business you may be in.  It is very expensive to hire new people, but the cost escalates much higher when you hire the wrong people.  You have all the expenses the good people have plus you have the additional costs of lost business, a damaged reputation, and your own elevated stress levels while you try to contain the damage they cause.  Unless you begin to feel that you are taking too long to hire a new team member you probably have not taken enough time to do it right.

If you want your business to continue to grow you must be constantly developing team leaders.  You cannot wait until you need a new leader to begin searching for one.  The best companies always have people in the leadership pipeline at various stages of leadership development so when the need arises they can go to that pipeline and immediately bring someone in that is prepared to provide the leadership needed.  Without that pipeline a small business owner will often find that he or she is being held hostage by incompetent, mediocre people that the owner doesn't want to keep but can't afford to lose either.

One of the mistakes I made as a small business owner was not hiring quality people when I had the opportunity.  It seemed like those people always presented themselves during our slow times, and by the time we needed them they had already found positions with other companies.  If I had it to do over again I would hire them and create a position if I needed to so that I could keep them.  I really believe they would have easily paid for themselves and would have put us in a much stronger position for long-term growth.

If you want to read a very helpful book on the importance of having a quality team working for you I encourage you to read Anderson's book.  It is one of the best on the topic I've read.

Why change often fails

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It's the kind of problem that keeps small business owners up all night.  You know you need to make certain changes in how your business operates, but you also know the opposition that will come if you try to make those changes.  You're not even sure the changes you are contemplating will produce the results you want, but you are certain that your business will suffer if you do not make the changes.  You try to determine which of your team members will be supportive and which will be resistant.  Some of the ones you fear will be most resistant are critical to the success of the change, so how can you get them on board?

One of my favorite books on change was written by John Kotter, a professor of leadership at Harvard Business School.  The title is Leading Change.  In the book he provides an eight step process for implementing successful change in an organization.  They are

1. Establish a sense of urgency
2. Create a guiding coalition
3. Develop a vision and strategy
4. Communicate the change vision
5. Empower employees for broad-based action
6. Generate short-term wins
7. Consolidate gains and produce more change
8. Anchor the new approaches in the culture of the organization.

Let me briefly touch on just the first one: establish a sense of urgency.  Kotter believes the failure to do this is one of the primary reasons most change efforts fail.  That has certainly been true for me.  Most of the changes I've failed to implement could be attributed to my failure to create a sense of urgency around the change.

People do not want to change until they are convinced the pain of not changing is greater than the pain they will feel when the change is implemented.  As long as they are comfortable with the status quo they will be very resistant to change.  One quick illustration.  Everyone knows that obesity and smoking are not good for one's health, but how many people wait until they have a heart attack to begin to lose weight and stop smoking?  That initial heart attack creates a sense of urgency and suddenly they realize that they need to make major changes in their lifestyles if they want to enjoy a long productive life.  The same is true with any change that is needed.

Do not begin your efforts to introduce change with "what" until you have addressed the "why."  Explain why the change is needed and the likely results if the change doesn't happen.  If you can create the sense of urgency you are much more likely to get buy-in for your change efforts.

If you have not read Kotter's book I highly recommend it before your next effort to introduce change to your organization.

Working in vs working on your business

Many small businesses begin as one person operations.  Someone is led to leave their job to begin their own company, and often that company consists of the entrepreneur.  Much of that person's time is spent working in the business.  That is understandable, but as long as the owner is simply working in his or her business that business is not likely to grow.  It is very important that the owner of a small business spends as much time as possible working on the business.  What does working on one's business consist of?

• It involves developing a vision for the future of the company.  Such a vision will give you a preferred picture of what your company will look like 5-10 years from now.
• It involves doing strategic planning that will take your business from where it is today to where you envision it will be in the future.
• It involves keeping a close eye on your financials and responding quickly to any negative changes you find happening.
• It involves developing and improving your relationships with vendors, customers, and the stakeholders in your company.
• It includes you becoming involved in community activities that will provide your company with good exposure and provide you with an opportunity to give back to the community that is supporting your business.
• It involves you getting to know your competitors better than they know themselves so you can differentiate yourself from them.
• It involves you providing leadership to your team.
• It involves just about anything that will help your business go to the next level.

Obviously, if you are the person who stocks the shelves, cleans the restrooms, answers the phone every time it rings, runs the service calls, writes out the checks for the bills, files the invoices, installs the new equipment you are working in your business and unable to spend much time doing the above activities.  You may have to do all these things when you are starting out, and as a small business owner you will still do these things occasionally, but you must move from working in your business to working on your business as quickly as possible or your company will never become what you dreamed it would when you started it.  For more information on how to work on your business I encourage you to read my latest book on your NOOK or NOOK app.