Part three: How to grow your small business
In analyzing the growth rates of small businesses – every great entrepreneur has one salient quality – the ability to be an effective manager.
An effective manager efficiently allocates resources for achieving goals. Quality management usually results from an independent SWOT analysis – assessing internal strengths and weaknesses along with evaluating external opportunities and threats.
Self-employed people need to carefully inventory their own strengths and weaknesses as business personalities.
They should also assess how to maintain their good health because they’ll suffer if they don’t.
Larger companies should focus on several factors in a strength-weakness analysis of their human resources, such as recruitment, training and development, compensation, culture, leadership, reliability, and salespeople.
Once a business owner looks in the mirror to assess management strengths and weaknesses, then he or she is ready to analyze opportunities and threats for a strategic plan.
Even if a strategic plan is well-written, beware: Management practices that work well in the early growth of a small firm often cause problems later, according to a series of articles in the Harvard Business Review (HBR) by Dr. Larry E. Greiner.
“Creative activities are essential for a company to get off the ground. But as the company grows, those very activities become the problem,” Dr. Greiner wrote in a 1998 HBR article, “Evolution and revolution as organizations grow.” His thesis is still accurate.
The late business expert, Neil Delisanti, agreed that managers often fail to solve red flags:
“There are forces inside the organization that they control; forces outside the organization over which they have little, if any, control; and probably most important, red flags in themselves, about which they may or may not be aware. A good manager must be constantly aware of the impact of all these forces. One of the common failings in managers is that they blame all sorts of things for their failures, rather than admitting they didn’t have a good handle on what’s happening.”
Mr. Delisanti, who passed away in late 2018, had gifted insights because he spoke from both an academic and solid mentoring perspective. He was a faculty member at both the University of Puget Sound and The Evergreen State College. As the guru for the Small Business Development Center in Tacoma, he counseled more than 2,000 companies.
Quality management usually results from an independent SWOT analysis – assessing internal strengths and weaknesses along with evaluating external opportunities and threats.
Mr. Deslisanti believes too many small business owners micro-manage:
“Many folks start a business and believe it is their inspiration that made it a success. Although this is sometimes true, what we find on closer inspection is that it was their perspiration and natural management ability that was more responsible. They have invested a lot, money, time, and sanity, in their enterprise and find it hard turning it over, often even small parts, to someone else to possibly blow it. Any business can grow to where the owner just cannot physically, mentally or emotionally, do it all.”
Did he believe managers limit their business growth by poor human-resource management techniques?
“Often, yes,” he said. “This is particularly true of a company that starts with an owner and spouse sitting at the dining room table. Not only are there innumerable government restrictions on what is legal, we have to look at what the workforce expects from employers today. The management of people isn’t as simple as the old my way or the highway anymore. Diversity in all areas requires that SBOs have to look at differences in age, gender, race, ethnicity, education, background and experience – just to mention a few facets that have to be considered.”
So, one key step is to partner with your employees.
When to start HR function
“I strongly recommend that as a business gets above the 15-20 employee range, the owner set up some sort of human resource function, and get some assistance in designing job descriptions, recruitment policies, pre-tests, application forms and very importantly – interview policies and procedures,” he suggested.
To underscore his concerns about HR precautions, I agree. For example, I’ve been called upon to help two businesses:
1. A cable TV company was fined $15,000 by U.S. District Court for sexual discrimination of an applicant. The company’s law firm asked me to provide a three-hour seminar on Equal Employment Opportunity laws as part of the sentencing to close the case.
2. An interstate trucking firm was fined $100,000 and required to design a new wage and compensation plan (Note: the company’s pay system worked fine when it was smaller).
In both cases, the bosses were nice people unaware of the dangers in a litigious society.
Because small businesspeople often seem to feel they’re under siege, Mr. Delisanti suggested:
“Have a vision or goal and incorporate it into a strategic plan, which is different than a business plan. This can come in many forms, but it should be organized and written. Identify your vision and then develop a list of goals that will let you succeed, quantify them, put some time frames on completing them. Most important – assign some responsibility to someone to get it done. This will have you on a course of your choosing and let you become proactive instead of reactive,” he asserted.
He said some companies grow too fast:
“This happens when growth gets out of control when you can’t fill the orders, due to a lack of materials, equipment, people or cash. This can also happen when the company gets too big for the owner to handle.”
Mr. Delisanti believed others grow too slow to cover added costs and expenses:
“Usually, this is a result of overly optimistic forecasts that bring about expenditures that far exceed revenues. Many reasons cause this, such as an SBO’s enthusiasm; level of success with business on a smaller scale; and non-credible or insufficient marketing research,” he said.
Mr. Delisanti warned about unforeseen situations in the external environment:
“Even the best forecasting can’t predict a tsunamis, earthquake and the level of destruction that natural disasters can wreak upon an industry. Consider skiing in the Pacific Northwest some seasons – there can be a bad time to open a new ski shop.”
He said challenges result from miscalculating factors in what he calls an “uncontrollable” industry environment:
“When a business conducts an opportunity-threat analysis, it should look closely at a number of factors and make its decision, based on what it thinks will happen and how the chain of events will impact its goal attainment. If the business thinks incorrectly, it might lose the competitive advantage over somebody thinking correctly. Remember: Everybody can’t win. If you look at all the data and think that interest rates will go up 9 percent and take the actions that will best help you achieve your goals under those conditions, but if they only go up 2 percent, other companies will probably have an advantage over you.”
One other thought, here’s how and when you should develop an exit strategy.
So, there you have an overview – how to grow your small business – in a three-part series.
For the other two parts in how to grow your small business, see:
From the Coach’s Corner, here’s a must read: ‘The Book…on Business from A to Z’.
“I believe managing is like holding a dove in your hand. If you hold it too tightly you kill it, but if you hold it too loosely, you lose it.”