1. Business is simple; don’t make it more difficult than it needs to be. Having spent a lot of time studying organizations and business theory I am so surprised at how little of it makes its way into successful companies. This is especially true for smaller organizations. In the end a business fails because it can’t make money and a business succeeds because it can make money. To say it another way; Do the things that make money and quite doing the things that don’t make money. Simple enough?
The idea of making money is an odd subject and one that seems people either understand or see as smoke and mirrors. For some people making money is something that happens after a slew of things fall into place and “magically” money finds its way into their account. For others there is a linear correlation; provide value and collect money. I have to admit I began as the former with the idea that making money was much more complicated than it really is. Even after being on the receiving end of transactions that were lucrative I questioned “can it really be this easy?”…Yes it can!!!
The business theory side of me would communicate this as defining a value chain and operating lean. All that means is cut out the fat of your operation. Certain things you provide are needed and others are not. I would especially challenge you to question the things you see as adding indirect value. These would be the things that don’t make you any money but you feel are necessary because they are expected.
2. Effectiveness is more important than efficiency. This would be another area in which a small business can shine over a larger competitor. Often times larger organizations are so caught up in doing things perfectly that they lose sight of doing the right things. I have had the opportunity to work with a lot of big organizations and it would surprise you at how often they will forfeit their competitive advantage in the market place for the sake of their financial reports. In the article The Upside to Inefficiency I cover in a bit more detail where and when effectiveness should take precedence and when efficiency is needed. It may surprise you to learn that efficiency can at times do more damage than good.
As an engineer I ran into this with quality groups that would hold up production because something wasn’t perfect. They identified a measurement or characteristic that was out of line and as they were instructed rejected the part. The problem was the measurement or characteristic that they identified had nothing to do with the form, fit, or function of the product. So they were putting the brakes on production for something that had no tie to the value the product provided. Don’t get me wrong I am all for constant improvement but when a quality group is given full authority over the big picture they will find the perfect way to run a company into the ground.
As a small business one of your greatest assets will be the attitude to get things done. You may have to do things more than once or come back to the job site for a later fix. The sooner you can see it as an opportunity to strengthen your relationship with your customer the better. Being perfect is much too expensive for a small business. Your customers may not realize this but perfection was not what they were looking for when they called you up. They had a need and they simply want you to take care of that need.
3. Keep an eye on your expenditures. Have you ever known someone to start a business and turn around the next day and buy a new car? There can exist a mindset that owning a business automatically means you have money. Sadly this is often not the case. Starting a business and running a successful business are two completely different things. Out of the starting gate you need to keep an eye on every penny and ensuring that you are not spending more money than you are making. If you can do this it won’t take long for your organization to grow to the point you dream.
Don’t justify purchases because you can get a tax write off. We all want a nice work environment but buying a walnut executive desk would not be the best use of funds in your early stages. “ I can write it off” you say, well I don’t know what good a write off is to a company that doesn’t exist.
If you don’t own a business or are just getting started take a look at your checking account. How have you managed it? The answer to this is exactly how you will manage your business. You are your fist business and I hope you have taken the time to budget accordingly and don’t find yourself at the end of the month wondering where all of your money went. If you don’t control your money it will control you. Keep an eye on where you spend and eliminate any of the spending that is not adding value to your company.
4. Know your numbers. This may seem obvious but a lot of people don’t know if their product or service is making money. They are so caught up in putting out fires don’t realize they are the reason they can’t get ahead. When you do a quote or cost out your product you must know how much it cost and how long it will take to deliver. If you simply copied a number from the market or adopted what the other guy was doing you could be setting yourself up for failure.
Additionally the more intimately you know your numbers the more likely you will be able to improve your company. There is a great example of Henry Ford utilizing the boxes that were used to ship him supplies in his automobiles. This is a great example of recognizing value in what others likely perceived as garbage. If you are in lawn care, how long does each lane take to maintain? How many guys are needed to do a lawn? How much gas is used? How many times a month does that lawn need attention? In one day how many laws can be cared for? How much weed eater line is consumed in a week/month/year? These are all things I would expect someone in lawn care to know and I don’t know much about lawn care.
Knowing your numbers also allows you to make better judgments on the fly. In conversations with your customers you will be able to parse information very quickly and accurately to know when a job would be a winner or a looser. You will know when you are being competitive or when you are being conservative. If you have acquired a small business you will be able to identify the projects and customers that are loss leaders. One of the best business men I know could tell you more than anyone would care to know about his business because he minds the numbers.
5. Buffer everything. In the end you cannot account for everything. Human behavior has a funny way of inviting murphy to every party. Buffers are very important when managing your customers’ expectations. Being strategic with your buffers will allow you to remain competitive and allow room for variability. In every case you want to be able to under promise and over deliver while remaining competitive. In the world of project management buffers are key to successful execution. An aggressive schedule with strategic buffers will outperform a loose schedule with no buffers every day of the week.
Buffers can also help speed things up. If you know the amortized daily expense of an asset is say $98.60 you will be well served to quote at a cost of $100.00. This will speed up your quoting process and will give you a slight buffer on your expense estimate. This along with the prior point of knowing your numbers will equip you to cost things out quickly and effectively and in the world of small business this speed is key.
These 5 principles are invaluable to the small business owner. Learn them, test them, and lean on them. I can assure you everyone reading this will benefit greatly by exercising these. If you have an example or a principle you have found helpful send us a comment and let us know your thoughts.