The 7 Biggest “Costly” Mistakes Business Owners Make
And how to make sure your business survives and thrives
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Copyright Richard C Cooper 2011
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The 7 Biggest “Costly” Mistakes those Business Owners Make
And how to make sure your business survives and thrives
Smashwords Edition
ISBN 978-0-9871354-0-7
Richard C Cooper
Principal - Business Services
Level 1, 142-146 Elizabeth Street . GPO Box 392 . Hobart . TAS . 7000 . T 03 6210 2525 03 6210 2525 F 03 6210 2524
E richard.cooper@whk.com.au . www.whk.com.au better advice for a better life
www.the7biggestcostlymistakes.com/
Mistake 1: Trying to do Everything (or at least too much)
Mistake 2. Failing to Plan or having no Strategic Direction
Mistake 3. Neglecting Key Relationships (internal and external)
Mistake 4. Lack of Marketing (effective researching to avoid ineffective marketing)
Mistake 5. Failing to Keep Track (poor record keeping & KPI monitoring)
Mistake 6. Ignoring Changes in the Market
Mistake 7. Owner’s Attitude (toward capital, growth and spending)
First, we had Jim Collins with his ‘Good to Great’, then Steven Covey's ‘7 Habits of Highly Effective People’, followed by ‘E-Myth Revisited’ by Michael Gerber, and now, here we have ‘The 7 Biggest “Costly” Mistakes Business Owners Make’.
Why list my book with its predecessors, you may ask? Well, firstly, because I can – and secondly, they are all great books that I read (or have written) during significant times in my personal and professional life, and have changed me for the better.
I would like to point out that this didn't happen initially because I am, or at least I was, like most other people - perhaps like you?
This is why, when I first read ‘7 Habits ‘, I was initially inspired by what “effective people” do, but my view was that what effective people are doing is not what I was doing. I wished I was like that. When I first read ‘Good to Great’, I was interested to learn about the characteristics of organisations (and their leaders) that had gone from being "good " to "great", but wondered what could I realistically do about that in the organisation that I was in; if it was too much? If there were too many things to change – good is still not bad, right?
Here's the thing: you should read this book, and read the other books that I mentioned, because it is important that you learn something from what is in them, even with an attitude like mine above. If, however, you are ready to actually go ahead and do something, here is what I suggest - take little steps!
Grab a pen, pencil, highlighter; then underline, make notes in margins, and/or use a notebook, iPad, or anything. Don't read this book and then put it on the shelf. This book covers subject areas that most of us struggle with, and will highlight some very, very, very simple solutions. If you can recognise these for yourself and the people around you, you can take some actions or note things to discuss with others. Even if it is just one thing, do it you will be surprised what follows.
I find in the vast majority of cases that the only thing separating great leaders, great businesses, and their owners from others is a shift in the aforementioned hesitant and reluctant attitude to a desire for learning and change.
Once I recognised that there was in fact no difference between Richard and those who I saw as effective, and further that there was no difference between Richard and those people who I have seen fail, I started to take some little steps towards changing my attitude. We all make the mistakes that I discuss in this book at some stage, and we can all apply the simple solutions I will provide. Otherwise, if you have everything under control, all of the time, let me know how, because you are one up on me!
I will keep improving in these areas of discussion in my position as a leader within a large advisory business. As a CPA with over 17 years of business and advisory experience, I intend to keep helping my "business owner" clients to improve in the areas discussed in this book. We will keep discussing them, and learning from those who are doing certain things well, and helping others who are not. Big business, small business, company or sole trader; the mistakes are pretty much the same, and so are the solutions (with some modifications).
Please use the knowledge wisely and feel free to contribute your ideas and views by sending an email to:
rc7biggestcostlymistakes@live.com.au
Richard C. Cooper
January 2011
Trying to Do Everything (or at least too much)
Until McDonald’s first hit the market under the guiding hand of former milkshake machine salesman Ray Kroc, no one had previously unleashed the power of a business system so perfectly crafted that it required no tinkering, no debugging, and no trial-and-error; almost chimpanzee-ready, you could say.
Trying to do everything (or at least too much) is one of the great, potentially fatal mistakes that early stage business owners make. It’s hardly surprising because everything, and I mean EVERYTHING, does fall on the business owner’s plate. The challenge is, well, to challenge this commonality. Here we use McDonald’s to illustrate an idea accessible to all business owners, regardless of their industry or profession.
The McDonald’s Effect is a phenomenon made possible by the vision of Ray Kroc who saw that a well-oiled business, such as the one run by the McDonald brothers in San Bernardino, California, could be expanded into a viable franchise with thousands of different owners. Kroc perfected every detail of the McDonald’s procedure in a prototype store. Taken to its ultimate conclusion, a perfect system and set of procedures has the ability to replicate itself thousands of times – exemplified by tens of thousands of Mickey D’s worldwide.
For business people who are planning to grow beyond their personal management style or limitations, this concept is well worth appreciating and understanding.
Ray Kroc understood that, in order to make money out of McDonald’s, there had to be systems and procedures in place to allow replication of the proven operation. Neither Ray Kroc nor the McDonald brothers could become the key workers; there had to be a prototype, acting as a model for replication and expansion. For the business to thrive, Ray Kroc had to put in place not just systems and procedures, but employees and an organisational structure around them. Ray Kroc had to find other people to do the work, but once the prototype was effective and he had employees doing the technical work – both manual and managerial – the owners could be left to do the strategic thinking.
Of course, the Kroc approach is not restricted to a food retail store – it can be applied to virtually any business case. An effective prototype is not just a well-oiled machine; it is a business that finds and keeps customers – profitably – better than any of its competitors, and then grows within the context of a larger, expanding business.
The turnkey solution
When you buy a new car, you don’t expect to have to open the bonnet and fiddle around with the bits under the hood. You should be able to just turn the key and start driving. That’s what ‘turnkey’ means. In business, it’s a system so perfectly crafted that it requires no debugging or fiddling with, or any sense that things won’t work from the outset; just turn the key, and start making money.
If your business is starting to feel more like a rut than a business, it is time to take a turnkey approach – that is, any method or procedure that simplifies or automates part of the business, making it easier for ordinary people to operate.
This is the essence of what author Michael Gerber calls the “prototype”. Gerber is an entrepreneur guru and author of ‘The E-Myth’. He often talks about how 80% of businesses fail in the first five years. Most people become sick of working for their idiot bosses, as they call them, so they decide to start their own business, and end up becoming the idiot boss. Instead of working five days per week for a guaranteed pay cheque, they work six to seven days per week, often for no cheque at all. You may be able to relate to these sad statistics.
In his book, Gerber walks you through the steps of a business life cycle – from entrepreneurial infancy through adolescent growing pains, to the mature entrepreneurial perspective and guiding light of all businesses that succeed –showing how to apply the lessons of franchising to any business at any level. Most importantly, Gerber draws the vital, often overlooked, distinction between working ON your business and working IN your business. This is also core to our work in this book, which is ultimately about freedom, not servitude to business!
A true business is a profitable enterprise that will work ideally without you. Most people do not really have a business; they just have another job that creates a lot more stress. The idea of a real business, as Robert Kiyosaki describes in the ‘Cash flow Quadrant’ is becoming the owner of an organisation or business that will work without you having to be there. In other words, if you wanted to go away for six months, you could; it would still bring in a passive income. Most people do not know how to set up a business like that.
Just as McDonald’s stores have been replicated tens of thousands of times all around the world, any business can be run on a turnkey basis, if it has the right systems and procedures in place.
This ‘systems’ approach allows a small business owner the means to integrate his activities via a set of systems and procedures. For a manager, this approach provides the order and predictability that is so important to the running of his or her business. For a proficient technical specialist or business owner-operator, it allows you to have the systems and procedures attended to by other people, so you can be free to do the ‘technical’ or the strategic work that you love.
How do you build a business that works without you?
Every business has its own unique characteristics, but there is always a flow of work that makes up the overall concept. Your task as the owner is to identify and build your own systems, detailed in a ‘procedures/tasks manual’ (sometimes called an ‘operations manual’). Every segment of your business must have definite procedures that make up the workflow. These procedures are totally consistent with your strategic goals in the business.
Just being armed with a business plan or a set of strategic goals does not mean that running your business will be easy. Work must be done to get the systems, procedures, and organisational structure right. Ray Kroc sweated over this for a considerable time before he was confident that a franchise operator could come in, switch on the register and lights and stovetop, and deliver the same high-quality hamburger, time and time again. Every detail of the business must be handled, examined, improved and documented, and improved upon again.
Up until now, whether making a sale, negotiating with a supplier, or keeping track of expenses, it has been you, as the business operator, just getting the job done. This is fine, if the business is just you. But if you are ready to grow into developing your ‘systems and procedures’, then a change is needed.
This exercise requires all key people to be considered. Each person in the business must ask, ‘What would best service our customers here? How could I streamline or adapt the practices, in order to give the customer what they want most easily, while at the same time maximizing profits?’
To kick off this process, ask yourself: do you have the time, the skills and the capacity to execute these activities to develop your “perfect” business model? If not, you could plug into an existing system – which is, of course, already the domain of franchises, but also exist in many network-marketing businesses.
Steps to developing a procedures manual
Each business owner has their own style for implementing new initiatives, but there can be no better opportunity for a team effort than in identifying all the elements of the business. Once you have decided to go for your own systems, involve all personnel in this discussion and start with the business goals, breaking these down into a series of procedures and tasks, i.e.:
Set up a systems ‘office’. This can certainly be a virtual office to save costs, but there is also need for a central office or location.
List (or set) strategic goals.
Identify tasks necessary to achieve those goals.
Develop effective procedures for completing those tasks; that is, write the procedures manual that can be replicated from the prototype.
Build confidence; it’s important to get a systems design completed early to create momentum and confidence among management, staff and external stakeholders. Get some runs on the board from day one!
Identify transitional systems. More good luck than good management would get everything to go the systems way simultaneously across the organisation. There will usually need to be a staged transition to allow for slower segments to be implemented and for re-training to occur where necessary.
Create the desired turnkey environment. What worked in your pre-turnkey era may no longer work; there may be shifts, not only in job descriptions, but for working hours, flexitime, meeting times, etc.
Explain this new strategy. All key employees and stakeholders need to be told what is happening and when, especially if they will be affected as above.
This process is about both simplification – finding a better way of doing things – but also creating new roles. This may require a training effort. The ultimate goal of imposing structure and instituting systems and procedures is, of course, predictability. A system is any method or procedure that simplifies or automates part of the business, making it easier for ordinary people to operate it. As one business owner said, “I’ve set systems in place – the policies and procedures – documented down to every task so that staff know exactly what they are to do and how they are to do it, and how they are accountable for doing it well.” She went one step further to ensure the business invested in training, because some tasks would be totally new tasks. “Then we train, and train them all over again.”
Measuring the results
Unless a business owner can pinpoint where his business is at today and projects where it will be this week, this month, this quarter and this year, it’s not on a trajectory for growth. In fact, it might not be on track for survival at all.
Letting go
Going the systems way is more often than not the time for reappointing yourself as something other than the business owner or managing director. Sometimes letting go of your reins is the only smart choice – that doesn’t mean you will like it! The usual refrain is, “But this is my business. I’m the founder and the owner. I created the entire business out of nothing. I was the one who stayed awake at night in the early days, worrying about paying staff and collecting on invoices.”
When the decision is made to let go of controlling every aspect of the business, there are bound to be convulsions. Giving appointed managers the nod to run the business on their personal authority means no peeping over their shoulders as a way of keeping a tether between you and your ‘baby’. You too will need to learn to follow the systems and procedures that are to be put in place. It’s time to break you of old habits – and it may be hard to do so.
Don’t be surprised if you find yourself resisting or delaying delegating authority to the management team for as long as possible. After all, who wants to give up being the chief cook and bottle washer of their own kitchen? But if the business has grown well beyond the start-up stage, it will almost certainly demand tasks you aren’t able to complete. There will inevitably come a time to take yourself out of the chain of command, put a management team in charge, and where necessary, bring in consultants to help develop the systems needed to keep the business healthy for the long haul.
The fact is, like it or not, your business and your people will probably be ready for this change well before you are, psychologically speaking. Some thrive on the problem-solving side of being a business owner. It keeps you keen and activated; the challenge can be pleasurable to when you’re juggling a dozen balls and you run on pure adrenaline. It’s exciting and stimulating. But mostly, business has to be more predictable and organised to eventually sustain itself on its own cash flow. When it gets there, it moves from that critical infancy stage with all the problem-solving challenges, developing a whole new set of needs; management, stability and structure – in other words, delegation.
But delegating authority doesn’t always come easy: it’s very difficult to change your business from running under one-person rule to professional management.
The first challenge may well be to find someone to manage the transition to professional management for you. This is not to say you must seek a new owner, but new management. If your strengths do not lie in convening or facilitating meetings – for example, running a staff meeting with 10 people to discuss how things should be done – then it may be better for someone else to lead the process. This could be a manager or a consultant; some consultants specialize in such transitions. As an entrepreneur, a long-term plan tends to last a week; for a manager, a short-term plan is around a year.
The second challenge you may face over this transition is to redefine your role in the business. If you aren’t going to be running the day to day operation, how are going to spend your time? You will certainly want to stay involved, but you will have to get out of the way and moreover accept that people can make decisions without you.
The whole exercise is about making something more, not less, of you. It is vital to not lose track of what that ‘something-else’ role is in the business. Identify your strengths and play to them. If you are good at sales, be the face of your business to the key customers. If it is in product development, roll up your sleeves and become involved in sussing out market opportunities and check the customer base for its needs. Perhaps there’s an export market that needs some investigation? Get on a plane and speak to the key people.
Of course, there will always be temptation to interfere. If your goal is to hand over 100% of your authority to the management team, monitor this milestone. In some businesses, decision-making can shift from 100% to zero – where you don’t have to make any decisions at all! This requires a strong mindset: ‘As long as the managers stay within budget and meet financial goals, I should let them do it!’
Business owners usually find stepping back from the day-to-day running of their business more than pleasing. They may have a natural fear that things will fall apart and people will leave when the new management comes, but most employees thrive under a new regime, as they have been part of the process for change. Morale improves because people want structure. They want to know what the rules are, and they want the same rules applied evenhandedly across the board.
There is a bottom-line issue here. You may instinctively prefer a total control style of management, but however difficult transitions can be, what you prefer should not be the main point; rather the business, having reached this ready stage, demands that what it needs is more important than what you need.
Your people and the systems
Is your business just the sum of all the manuals of systems and procedures? Of course not. It’s a combination of that and your unique set of people; who they are, how they act, and what they are capable of achieving. For ongoing success, you need to allow people to reach to their capacity.
Mistakes are inevitable, particularly in the early stage of transitions. If people are trying hard to do new things, it’s inevitable that from time to time there will be mistakes. Mistakes – as one-offs – are actually an investment in the education of the team. One business owner summed it up to me as ‘The most important bit of advice I always give a new business manager is that I want to hear the bad news, meaning that I want to hear it from them, and I want to hear it early.’
Failing to Plan or having No Strategic Direction
Business should be simple: sell a product or service, and make sure revenues are greater than costs. Spend some of the money left over rewarding investors (including you!) and reinvest the remainder. However, the reality of business isn’t simple. Rather, we find ourselves lost in a labyrinth, lurching from winning business, to losing customers, to becoming fully dependant on one or two of them; all the time hoping that it will continue. Hope, however, is not strategy!
Is there a way out of this corporate maze? Can that which put you in business be stretched to fulfill your vision? Calvin Coolidge is right, of course, when he advocates persistence, but he didn’t say ‘be blind’. Persistence requires business to be done in a way that takes you from just being busy to a position of serious growth. The way forward lies in thinking and acting strategically. It’s really the only way to ensure that you remain – or get back on to – the right course.