Authors: Charles L. Stewart and David J. DePorter
Brio Consulting Partners, LLC

INTRODUCTION

Many businesses are formed by individuals with great ideas, the tenacity and skills to bring the idea to market and the willingness to take the kind of personal and financial risks necessary to be competitive.  These same individuals also frequently possess a certain naivety that tells them that they can grow their business to a multi-million dollar company and run it the same way as they did when it was a small 1-2 person company with $200,000 in annual revenue.  Unfortunately, too many business owners fall into this “comfortable” trap and suddenly find themselves resenting each moment they spend in their business and reaping far fewer rewards than they ever dreamed.

As a company grows in size and revenue, it will generally hit a plateau or “thresholds” that frustrates the owner and oftentimes results in the collapse of the business.  However, a large percentage of businesses recognize that they’ve hit that “wall” and take the steps necessary to help their company grow larger in an orderly and productive fashion.  It really doesn’t matter what type of business or industry you are in.   The same signs and symptoms apply across the board.  The first major threshold or “wall” usually manifests itself somewhere around the $1 million revenue or sales mark.

The business owner usually starts out feeling that he or she “can do it all.”  When the company is small, they usually can fill and operate the following four major functions in the management of their company: 

·         Product or Service Management. The owner generally knows the product or service well.  After all, it was his or her idea and typically he or she excels at what they do.  That is why they considered going onto business because they felt, or someone told them, they were better than everybody else.  This is where the owner “shines,” because he or she is the expert.  He or she is a superb accountant, carpenter, plumber, dentist, florist, landscape designer, physician, general contractor, etc., but they do not understand basic business concepts. 

·         Administration Management.  The owner typically hates administration and the paperwork that goes with it.  Often, the owner “hires” a spouse, sibling or trusted friend to “keep the books.”   All too frequently, this leads to family disharmony because of the following:

A.	The owner feels he or she can’t fire the family member who doesn’t do a good job.
B.	The person may not enjoy doing what is asked of them, and resents the need to “help” without much reward.
C.	The person’s skills may not grow as fast as the company. This creates dysfunction and confusion in the business; and, it frequently results in poor communication between vital areas of the business.
D.	As more people are hired and the demands for time and skill increase, the once part-time or short-term job grows into a tedious full-time occupation.

·         Sales Management.  Many businesses get off the ground as a result of a relationship that the owner has with a friend or associate that has a need for the services.  As the company grows, the owner gets increasingly involved in the sales process.  He or she becomes the sales arm of the company.  However, as business picks up and demands on production or service delivery increase, the owner gets more involved with the operations of the company.  Sales are soon neglected and the business “tops out.”  This usually happens at very predictable levels.

·         Operations Management.  The actual building and completion of the goods or services are the operations.  It takes skilled workers to produce the product for which the Company is billing.  Early in the company’s history, the operations and product are the same, as are the demands on the owner; however, as the company gets bigger, the owner usually has no other alternative than to decide on what part of the business he or she should be focused.   The owner’s choice generally depends upon his or her love or comfort zone within the entire set of skills required to produce the product and bring it to market.

REACHING THE WALL

As small businesses grow, there are some consistent revenue benchmarks that bring about growing pains that cause owners considerable disharmony and dysfunction.  The first of these benchmarks occurs at about $1 million in sales revenue.  This is where the owner first encounters “the wall.”  And, sales is the area that is most impacted by the wall.  How sales are handled becomes an important issue because the owner discovers that he or she can no longer do everything in the company without becoming burned out.  Usually, the business owner either needs to hire a salesperson to help grow the business or the owner has to dedicate a specific amount of his/her time (over 75%) to sales. It is interesting to note that most owners feel the way over the “wall” is to increase sales; however, if the sales are not profitable, increasing them merely fortifies the “wall.” 

Frequently, owners have trouble letting go of clients, so they limit the salesperson’s autonomy to do his or her job.  To promote long-term success for the salesperson, the owner has to give the salesperson the authority to develop business with full knowledge that the sales process may not, and probably won’t, be “the same” way the owner would do it.  Pricing is a different issue; and with some exception, salespeople should almost never be given pricing authority.  To do so allows the salesperson to sell price over value (i.e., cheaper). 

Organizational effectiveness also becomes a key issue.  At this point, it is important to begin to establish formal “Position Descriptions” for all jobs, and clearly describe all tasks and levels of authority in the business.  This is where the owner MUST learn to “delegate.”  But in order to delegate you need to PLAN.  Prior to this point, most owners planning activities are reactive in nature.  When something happens, the owner reacts. 

Planning is the beginning point of being proactive.  It focuses on thinking about things before they happen to you.  You begin to take control of your own destiny by committing ideas and concepts to paper.

·         Scheduling of resources starts to become an issue.  The owner who keeps schedules “in his or her head” starts to lose track of people, receivables and equipment, causing huge inefficiencies in utilization.

·         Reporting must become a formal way of conducting business.  You should put cash flow reports, budgets, goals and objectives, and a formal business plan in place; and, you should begin using SWOT analysis of potential opportunities to make business decisions. 

·         Communications should be changed from a casual nature to written instructions and information that are passed on to the entire organization.  Rules and guidelines for employee expectations must also be memorialized and communicated.  The company should have a published Employee Handbook that covers all company policies and procedures.

CRASHING INTO THE WALL

Small business owners tend to get in trouble for similar reasons.  At the same time one business owner is in trouble, another one is starting up in the same business and often in the same area, usually with great expectations.  Business failure is rarely cause by the market place.  More often than not, it has more to do with how one runs the business and responds to market needs.  Business owners find themselves “crashing into the wall” for a number of reasons, including:

·         Procrastination.  Everyone finds reasons for not doing what needs to be done.  The usual excuse is, “I don’t have the time.”  The reasons are all just excuses for procrastination.  (Procrastination means: Not doing what must be done when it should be done)

·         Low Bidding.  As one grows, the competition gets tougher.  Some companies lower their prices in order to keep new business flowing in.  Every dollar taken off the price comes right out of profit!  You hear owners say, “You don’t know how crazy our competition is,” or “you don’t know the market around here,” or “we can be more efficient.”  But, low bidding is a trap that does not support profit or fair wages.  Many companies simply do not understand that you cannot claim to offer high quality and service and then try to compete with the lowest price in what they believe to be a price sensitive market.  The world may be price sensitive, but customers will pay for value.  If someone is the “cheapest,” they probably know what they are worth.  It is imperative for a business to determine what percentage of bids it expects to win, and then bid a sufficient quantity to produce the income it needs.  It is all arithmetic.  If you need to compete on price alone, you would do well to study Wal-Mart.

·         Can’t see the forest for the trees.  This is really a matter of being overwhelmed.  The skill set of the owner does not allow him or her to recognize and deal with the real issues.  In theory, (and ONLY in theory), it is why big companies hire MBA’s as managers, because they supposedly have a deeper pool of information from which to reach critical decisions.

·         Being reactive instead of proactive.  Responding to crisis rather than planning so as to not cause crisis is standard operating procedure for many small businesses.  Many small business owners are poor at planning.  It is common to hear them say, “I’d rather do it than talk about it.”  While their intentions are good, owners put off formal planning and they end up running the business by responding to crisis rather than planning to avoid it.  How can a business possibly grow if all the available time is spent putting out the fires caused by not planning?  It’s always reacting to the crisis and ignoring the future.  This is especially true in “family” owned businesses with “board” control when two generations sit on the board. 

·         Poor cash flow.  This is the biggest shame of all, since planning cash flow is so easy once a business learns how to do it.  Money/cash needs to be planned on and for, and recorded both in the short term (day by day, week by week) and for the long term (annually, month by month).  A company can avoid spending huge amounts of time solving cash binds by reacting early to situations that everyone knows are present.  Most small businesses have no idea what they can “afford” to do or not do.

·         Budget.  Many small business owners avoid this key-planning device.  Business owners frequently spend money when they have it, and try not to when they don’t.  While this sounds reasonable, in reality, it just doesn’t work.  By preparing a budget, recording and comparing variables, and planning for major expenditures, a company can keep solvent for a long time.  And the budget looks forward, while the rest of accounting is historical or retrospective in nature.

·         Administration.  Business owners as a group don’t like doing paperwork.  They tend to work from manila folders and memory.  Many trust handshakes and promises for business deals.  They don’t have “time” to do things in detail.  They enjoy taking unusual risks and “winning;” and, every time they “win,” they prove that they can do it better than the “system.”  But it limits the potential growth of the business, since clients really don’t like dealing with someone who isn’t organized enough to keep them as a top priority.  “Forgetting” promises destroys business relationships.  And while no contract is ever worth more than the word of the person who signed it, it does specify an agreement of goods and services to be delivered and the schedule for both receipt of goods and payments.  This applies to records, file systems, accounting and day-to-day documentation as well.

·         Can’t stay out of production.  This is usually the hardest one of all for the owner.  The owner got into a particular business because he or she loved it; and as the business grows, he or she gets farther away from what he or she loves.  Some business owners never let go; and they spend time every day working as a production person.  Every minute they are doing what a $10.00 per hour employee could be doing, they are wasting the prime asset of the company, themselves.  Either that or they should pay themselves $10.00 an hour and hire someone else at $500.00 an hour to do their real job for them!  This is a critical point to understand because this is where the carpenter returns to his or her comfort zone and puts on the tool belt and goes back into the field.  It feels good because it is what he or she knows, but it is absolutely the wrong thing to do.  This is when he or she should be picking up the phone and the calculator.

SURVIVING THE CRASH

Is there really any way to grow and avoid crashing into the wall?  Sure there is!  And that is why you are questioning the position you are in now and looking for assistance.  It is also about moving from your current reactive state to a proactive one through what is referred to as the MANAGEMENT PROCESS.

The management process is divided into the following four steps:

·         Establish goals and objectives.  (FORECAST)

·         Allocate resources that are under your control (people) – time, money, and other things (equipment).  (PLAN-ASSIGN)

·         Direct the attainment of the goals and objectives.  (IMPLEMENT FOLLOW-UP)

·         Measure the results of your efforts.  (REPORT-REVIEW)

This is a continually revolving process, a continuous repetition of each step.  The task of management goes on and on and is never completed.  Neglected or unskilled handling of any one of these four steps will lower the effectiveness of the management job that needs to be done. This will also result in a waste of resources and frustration for both managers and their staff.

Within the management process, there are 10 elements that typically affect the management and continuity of the work performed in a business.  More detail about these elements or tools will be discussed in another paper; however, a brief summary is as follows:

·         Gather information.  The gathering of information goes on more or less informally all of the time.  It occurs more formally when a manager purposefully seeks to collect all available data pertinent on a given objective or problem with which they are concerned.

·         Synthesizing information.  When the information is complete; or as complete as possible, the manager must use the information that is available to form an honest picture, or judgment, of the situation to be used as the basis for taking action in the allocated time frame.

·         Decide.  The decision is the result of having thoroughly performed the first two steps.  The decision results in the selection of an available course of action to meet the planned objectives or solve the problem.

·         Organize.  This consists of determining the resources (people, money and equipment) required to accomplish the objectives.  The manager organizes the activity or project so that the objectives are accomplished through the efforts of the people that they manage. 

·         Communicate.  Managers tell their staff in writing and verbally what they are to do and in what sequence.  They explain the objective and describe the operation and organization that is needed to accomplish the objective.  Clear communication is a must to maximizing the resources.

·         Motivate.  A manager cannot motivate people; they can only create the situation in which they will be motivated.  We like the motivational method that drives an athlete to the point of perfection and beyond their normal ability.  This motivation comes from the gut and is driven by personal pride of accomplishment.

·         Direct, Guide or Counsel.  This is the "how" stage of doing the work.  It consists of a guiding progress though giving instructions, suggestions and additional data, or by teaching how the objectives can be accomplished.

·         Measure, Evaluate and Control.  The measurement of performance is necessary for all managers in order to determine the effectiveness with which their plans are being carried out.  Evaluation takes place throughout the active phase of managing, as well as when the program or activity has been completed or abandoned. 

·         Developing People.  It is the responsibility of every manager to develop his or her staff through training.  A manager is no stronger than the weakest person on their staff.  If everyone on a manager’s team is adequately qualified through proper development, the results obtained by the manager will be better. 

·         Promote Innovation.  A manager must be the steady force behind innovation.  If managers want the company to progress, they must never permit themselves, or their staffs to become satisfied with the way things are. 

CONCLUSION

In order for a company to thrive once it gets bigger than the owner, formal business systems must be put into place, including financial systems, organizational and human resource-related systems, sales and marketing plans and systems and operational systems.  Additionally, authority must be delegated in an organized and documented fashion.  The owner has to select the tasks he or she wants to do (or is able to do) and assign the others to responsible staff that are held accountable for agreed upon results.  And last but not least, it is critical that you establish a formal means of communication throughout your organization.  Remember, you can avoid the wall with good planning, appropriate systems and solid communication. 

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