4 Preventable Ways Money is “Burned” in Business

by | May 24, 2017 | Performance Management

 

 

Jerome has always been good with organizing spaces and increasing the functionality of those spaces. Several friends suggested he should try developing a business that would showcase his special talents. He agreed that he might enjoy this type of business so he began the process of building his own business. Jerome’s company was a business designed to provide home cleaning and organizing services to homes in a large residential area where both heads of household often worked outside of the home. The business became popular quickly and Jerome was swamped with orders. He found it necessary to hire two people to help him provide the services for the homes. After about ten months of operation, with orders continuing to increase, he learned he wasn’t able to make the payroll. He had spent money on supplies, gas and other operating expenses without doing adequate accounting and he wasn’t able to secure additional funds, so he scaled back to being the only one in the business and never grew to the great business he hoped for.

Can you imagine the feelings of disappointment, regret and embarrassment he experienced? He thought about all the money and time he wasted as well as the disappointment his new workers experienced. This failure will stay in his memory forever.

Why did this happen to someone with such great potential?

This is referred to as financial “burn” and is a common problem for new businesses. A study completed by CB Insights revealed 29% of the business failures they studied simply ran out of money. Of course a detailed analysis would show many reasons these businesses ran out of money. However, one prevailing reason is the funds were not matched with the operations and the use of the funds was not controlled therefore more money was spent than came into the business. Jerome had a nice sum of money from his savings that he thought would carry him to a profitable stage but he made 3 critical mistakes.

“Balancing your money is the key to having enough.”

― Elizabeth Warren

First and fundamentally, Jerome had no knowledge of business development requirements. He wasn’t aware of the management skills needed to build a successful business. He believed his special talent would automatically lead him to success. This is far from the truth. New owners must work on building the business, not just work in the business. They must do both. This is the function of management skills. Mission/Purpose design, strategic planning, systems design and employee management are just a few of the skills a growing business will require. A little time acquiring these skills would have helped Jerome build a successful business.

Second, Jerome didn’t take time to design a plan for building and growing his business. He had no idea about the service targets, financial targets or growth targets. Things just happened without him using any controls to guide him as he worked. Planning is essential to successful business development. The shape the business will take is up to you, the owner. Otherwise, it will go in any direction and eventually end up in failure.

Third, he assumed the money would cover his expenses because it was a fairly large sum of money from his savings. He really believed there was no way he would run out of money so soon. He assumed the money would always be there for what he needed. This may seem a little nonsensical, but it happens more than you might think. Entrepreneurs get large sums of money from venture capitalists and assume that the money will carry them through. In their heads, it just seems right. They may even have written financial projections but the reality doesn’t automatically match the plan, or they don’t actually control the money according to the plan. They make decisions based on positive or desired assumptions. According to Matt Mansfield, there are many administration tasks you can do in the cloud to help you make better decisions. Such as accounting, payroll and customer support using data from your actual operations.

Fourth, Jerome didn’t analyze the need or research the requirements for adding employees. He wasn’t aware of the additional finances or additional supplies needed when adding two employees. He didn’t do the appropriate homework. He didn’t realize the expenses required by IRS Federal and State guidelines. These required additional funds he hadn’t counted. There were transportation costs and equipment costs that were not accounted for.

The sad truth is, Jerome would have run out of money even if he had been able to secure additional funds. He would have run out of money because he didn’t have the skills needed to manage his business and consequently, balance his money. Unfortunately, many new ventures can get more and more infusions of money and still fail because the managers don’t have the appropriate skills. This isn’t necessary, particularly in this Information Age. Basic management skills can be learned easily. Be prepared to manage well.

See easy to follow management guides for business development: “20 Directives for Small Business Success: Do or Die”

14 Ways to Keep Focus to Grow Your Business

by | May 24, 2017 | Performance Management

Have you ever considered how the great masters contributed so much to our world? Think about beautiful art, grand buildings or great scientific discoveries. How did they get these things completed? Can you imagine these contributors being constantly interrupted by phones, emails, social media alerts or people with unrelated agendas? This would require the ability to multitask, the action many of us take on a daily basis. There is no way we can conclude that the great masters multitasked, because reputable research has shown how disruptive to accomplishment multitasking can be. It’s obvious, successful masters had the unsurmountable ability to focus. 

We are a population of multitaskers. Travis Bradberry in “Multitasker? It might be time to break the Habit” wrote “Research conducted at Stanford University found that multitasking is less productive than doing a single thing at a time. The researchers found that people who are regularly bombarded with several streams of electronic information cannot pay attention, recall information, or switch from one job to another as well as those who complete one task at a time.” He also reported that multitasking affected your IQ tremendously. It lowered the IQ sometimes as much as15 points. He says this is about the IQ of an 8 year old child. Can an 8 year old child build your growing business? I don’t think so. One of the most important effects of multitasking is it decreases your ability to pay attention to detail. This could be disastrous! Prepare now to eliminate multitasking from your activities, particularly if you want to be successful as you build your business.

Jeffrey Hayzlett in ”Why Focus Is The Number One Element of Business Success” stated “As a business leader trying to think big and act bigger, if you don’t relentlessly focus that ownership on what drives your business, create a culture that reflects who you are, and stay grounded as you make things happen, you’ll never see the true rewards of thinking big and acting bigger.” In other words, important business matters must be top of mind and given adequate attention. This is easier if your business purpose/mission is meaningful to you and you’re committed to it’s success. If you aren’t, you may be in the wrong profession or business.

Some ways to focus were offered by Dave Ramsey in “10 Tips to Maintain Focus.” I have interpreted some of Dave’s suggestions as well as others to make this list of 14 guides for developing the valuable habit of focus.

1. As related earlier, make sure your business purpose is meaningful to you.  If you are building a business that you really enjoy this will give you a great foundation for sustained focus. Are you excited about the contribution you can make to your industry? Have you discovered an exciting innovation to enhance, deliver, simplify or otherwise improve a product or service?

2. Design a personal system for achieving your goals. This will be unique to you. Some work in the mornings and some work better in the evenings. Some need complete silence for work while others like to have music playing the background. Your system for focusing will be unique to you.

“You can achieve anything you desire, but not EVERYTHING you desire. Concentrate your efforts and your energy on just a few.” Michael Angier

3. Create an objectives list. Understand where you are in the business building process and focus on what your next move should be. Create goals and objectives to get you to the next building point.

4. Set certain times of day to check social media. Its often necessary to check your social media to stay abreast of things that affect you. You can set aside a certain amount of time to complete social media tasks and don’t return to them until your major goals/tasks are completed.

5. Train your brain to focus. Know that is what you will need to do. Our brains have been trained to respond to a vast amount of stimuli in our technological environment. Therefore, we need to retrain our brains to focus. This will take some time. Your commitment to focus will help you develop a habit of focus. Practice concentration exercises.

6. Consciously ignore interruptions. This is a hard one. Your environment will play a big part in your ability to ignore interruptions. Plus, you must always make ignoring interruptions a conscious choice. If interruptions are from other people, kindly say, not now, or tell them this is important working time for you. Otherwise, concentration exercise will help.

7. Strengthen your support. Involve others in your goal. Let others around you know about your need to focus and how it can benefit everyone involved. If others know ‘why’, they are more likely to help you.

8. Do something toward your purpose/mission every day. Sometimes the simple act of making a list of what you want to do and prioritizing it works. As you make some accomplishments toward your purpose/misson, you will notice that your knowledge of your industry gets deeper and deeper. You come closer to becoming an expert. The internet makes it easy to stay up to date on what’s happening in your chosen industry.

10. Choose a task and complete it fully. Multitasking has helped us lose the valuable ability to focus. So, we must deliberately intend to work on one task at a time. If you have prioritized your objectives, you can systematically choose one aspect of an objective to work on until completed. Doing this will give you satisfaction and motivation to continue.

11. Learn something new about your objectives everyday. Put time in your daily ritual to research your industry and check on what’s new. This will help you determine the relevance of your objectives and motivate you to keep going.

12. Have excellence as your goal, not mediocrity. Aiming for excellence is motivating because it helps you to pay attention to detail. Paying attention to detail demands intense focus.

13. Keep track of your successes. Reviewing the past helps you realize the results and the value of your focus and encourages you to keep going. You can also reevaluate the time it took to get to the successful state and determine if the process should continue.

14. Reserve some of your focusing time for deep planning or big vision designing. This activity will also help you to sustain the motivation you need to accomplish big things. A big vision will pull you toward it.

Martin Boeddeker in “Powerful Productivity Approach from Jurassic Park” describes the inability to focus as the “Butterfly Effect”- a small change at one place in a complex system can lead to huge disasters in another place. He suggests that we avoid this effect by going the way of the Essentialist promoted by Greg McKeown.

“The way of the Essentialist means living by design, not by default. Instead of making choices reactively, the Essentialist deliberately distinguishes the vital few from the trivial many, eliminates the non-essentials, and then removes obstacles so the essential things have clear, smooth passage. In other words, Essentialism is a disciplined, systematic approach for determining where our highest point of contribution lies, then making execution of those things almost effortless.” Greg McKeown

In conclusion, Dave Ramsey pointed to some obvious benefits of acquiring the ability to focus.

“Instead of coming home each evening exhausted and wondering where the day went, you’ll soon be feeling that you’ve accomplished more than you could have ever imagined. That’s the power of focus. It can literally transform your business and rock your world.” Dave Ramsey

Commit to developing and maintaining the focus that will grow and fortify your business.

See also: “20 Directives for Small Business Success: Do or Die”

4 Qualities that Test the Feasibility of Your Innovation

by | May 24, 2017 | Performance Management

“Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.” Peter Drucker

The future is fast approaching and we are right in the middle of tremendous change and opportunity. The tools needed for creating a grand future are in the hands of almost everybody. The “Goggle Library” and “You Tube” university provide all the knowledge we need to create new products and services to benefit society.

 

If you have a big dream and vision it would help to test it against a few attributes to determine the viability of your idea. There are many ways to evaluate your project. Here are just a few attributes to consider. According to Branden Kelley in “Innovation is All About Value” “Innovation transforms the useful seeds of invention into solutions valued above every existing alternative..and [is] widely adopted.”

The first test could be to determine if your innovation falls within one of the seven areas of innovation as defined by Peter Drucker.

1. Unexpected conditions, such as natural disasters, an unexpected previously reliable national, local or industry system failure.

2. Incongruities in system process operation or efficiencies such as incongruities in an educational system.

3. Incongruities between expectations and results such as found in many customer service processes. These process needs can be exploited, simplified or redesigned for your particular industry.

4. Demographic changes. Opportunities are available because of changes in numbers, age distribution, education, occupations, location and technology. Such as millions of people being out of work because of artificial intelligence or robots.

5. A change in the way people perceive a service or product. According to Drucker “A change in perception does not alter facts, it changes their meaning…It [this perception] can be defined, tested and exploited for innovation opportunity.” Such as a change in the perception of the value of computers over time.

6. Rapid industry growth. Changes are occurring at a faster rate than large businesses can handle. This gives the startup or entrepreneurial venture a real advantage. They can enter the market without competition for long periods of time.

7. New knowledge, in the areas of science, technology or sociology offer tremendous opportunities for innovation. Customer awareness and acceptance are the basic challenges when implementing knowledge based innovations

Therefore, the second test is to determine if the innovation is valuable to its potential customers. All types of market research is available to help you assess potential customer value. For example, will your product or service simplify or improve the customer experience in an industry?

The third test is to determine if the innovation is simple enough and small enough to implement. According to Drucker “To be effective, an innovation has to be simple, and it has to be focused. It should do only one thing; otherwise it confuses people. Indeed, the greatest praise an innovation can receive is for people to say, ‘This is obvious! Why didn’t I think of it? It’s so simple!’ Even the innovation that creates new users and new markets should be directed toward a specific, clear, and carefully designed application. Effective innovations start small.”

The fourth test would be whether or not potential customers already know the value of your innovation or will you need to educate and convince them of the value of your offering. Example, many education officials may not realize the preeminence of the ability to read and adopt continuous learning (as a set of skills) because of the ever increasing speed of change. Consequently, they may not realize the inherent value of any innovation around this skill set

Change is an inevitable force in our dynamic environment. Don’t fight it. Knowing how to manage change as an opportunity for innovation as you grow your small business will be a valuable skill that will put you far ahead of your competition. If you are unprepared for change, you could face disastrous business results. Human nature resists change. That’s the first obstacle you must face. Now also consider this, when building a sustainable enterprise one of your priorities should be to consistently engage in Proactive Innovation. In other words, you’re causing self imposed change. This greatly increases the change your enterprise will encounter. So how can you survive with this much change surrounding you? First of all, you must adopt the perspective that you willefficiently handle the uncertainty in this dynamic environment while initiating Proactive Innovation considering the feasibility tests as described above. You can, if you keep a Change Management framework in mind as you move through these circumstances. Next, your Purpose/Mission must be strongly shared throughout your venture. Additionally, your Values must be the principles used to operate everything in your venture. If they are not in place, managing any kind of change will be difficult. For foundation building see “20 Directives for Small Business Success: Do or Die“

A final thought to ponder as you innovate:

Things to Do Before You Scale

by | May 24, 2017 | Changing Business for Growth

 

An unfortunate thing happens when an entrepreneurs launches a business and it’ s very successful. Often, the success is too much for the owners. They don’t possess the Management skills required to scale the business. They’re great with the technical skill, but have no idea about how to manage growth. Growth must be managed to become sustained. Before you are forced to scale or thinking about scaling to another level, have these four things in place.

1. Deeply ingrained Mission/Purpose

Your business Mission/Purpose is the supreme leader of your business vision, values and ultimately, your management strategy. It dictates the what, when and why of your business. According to current research ( see the Gallup Studies), the most successful businesses have Missions/Purposes that address three things: first, the promise to deliver services or products with quality and value to their customers; second, the promise to contribute to the growth and fulfillment of its employees and third, the promise to contribute to the welfare of society. Your Mission/Purpose is the force that will propel your business toward success. It is an important element of your business culture.

Chris Groscurth in “Why Your Company Must Be Mission-Driven”reports:

“In conducting a meta-analysis of 49,928 business units across 192 organizations representing 49 different industries in 34 countries, Gallup scientists discovered that margin and mission are not at odds with one another at all. In fact, the opposite is true. As employees move beyond the basics of employee engagement and view their contribution to the organization more broadly, they are more likely to stay, take proactive steps to create a safe environment, have higher productivity, and connect with customers to the benefit of the organization. Mission drives loyalty across generations. Understanding a company’s purpose helps employees answer yes to the question “Do I belong here?” Gallup’s research shows that ensuring employees have opportunities to do what they do best every day and emphasizing mission and purpose are the two strongest factors for retaining Millennials, Generation Xers, and Baby Boomers.”

2. Well practiced and applied Management skills.

Business research has revealed that many small businesses fail because of situations occurring in the business itself, not outside forces. Who controls the activities inside the business? The owner and the affiliates. A further analysis shows that the perspective of the owners, as he/she controls the operation, is hindering business development. The owner’s focus is on the technical skills he/she brings to the enterprise. For example, he/she may be an expert accountant, baker, computer scientist, plumber, or carpenter experiencing great success in their skill. However, as the demands of the business increase, various functions are not attended to such as planning and projecting resources for serving more customers. This also includes the negligence of critically important administrative functions. When this much is left undone, the business fails.  Critical functions must be managed and performed for fortifying and sustaining a business which makes basic Management Skills extremely important for entrepreneurs. It requires Management skills with artful application because Management is art and skill. The skills can be easily learned but the method used for the application depends on the personal qualities and intentions of the manager. Each situation will require artful application, unique to the circumstances.

 3. Clearly defined documented and working Systems

Small businesses that succeed develop systems of operation for almost every function performed. Your systems are designed to help you achieve each of your major strategic objectives. See “The E Myth” by Michael Gerber and “Stick With It” by Lee Colan. Business systems are activities performed in a consistent manner to achieve the organization’s goals. They are performed in several steps and the successful manager documents these steps for easy replication. To most, this will be boring and tedious but once the documents are completed, this will give the manager time to do what he/she enjoys doing and enable this owner to sustain and enlarge the enterprise. This is one of the great secrets of successful business that many small business owners avoid. Creating systems simply starts with documenting what you do and how you do it. It could be called an operations manual or a systems manual or some unique name that might come to you; but the object is to document the successful operations that you want to make routine.

How will these systems help you scale? You will be able to analyze each system, change or improve each system in a separate process while keeping others intact. Carefully plan to adjust or change relevant systems as you grow. For example, your financial system may require larger cash reserves before you scale.

4. Clearly defined targets for each System

Determine targets for all systems BEFORE you scale. Consider your marketing, product delivery, customer service, talent acquisition and all operations that are necessary for your business existence. For your financial system, you will set targets for cash reserves, profit, operating expenses and others. In fact, each component of each system will have targets.

Systems are what you create if you want to grow your business because it simplifies the process of growth or franchising. Working systems can be used at each stage of the business. No need to “reinvent the wheel”, just continuously ajust and improve them.

“Achievement comes to someone when he is able to do great things for himself. Success comes when he empowers followers to do great things with him. Significance comes when he develops leaders to do great things for him, but legacy is created only when a person puts his organization into the position to do great things without him.” – John C. Maxwell

Fundamentally,

I hope you’re convinced of the reason business owners need Management skills with an artful application of these skills when successfully scaling an enterprise. Your Mission/Purpose must be so ingrained in you and everyone involved that there is never a question about your basic business intentions. Management skills will help you reach your business targets efficiently and effectively. With these elements in place, you will strategically manage clearly defined systems at every stage of your business development. You can achieve your goal of continuos scaling to higher levels in your industry.

“Bobby Fischer, the great chess champion, once said, “Winning in this game is all a matter of understanding how to capitalize on the strengths of each piece and timing their moves just right.” ― Verne Harnish, Scaling Up: How a Few Companies Make It…and Why the Rest Don’t

Easy guide to basic Management skills: “20 Directives for Small Business Success: Do or Die”