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You know how the old saying goes, ‘you get what you pay for’. It’s true, you get what you pay for. This rule applies to anything you spend your money on, no matter how big or small it is. When it comes to business, your main asset, which is your credibility is on the line. Since your credibility is at risk here, you should never hesitate to spend on the best products and services, which will benefit your business. Of course this does not mean you should spend more than your budget can handle.
The main objective of any business is survival, and in order to survive a business has to grow. The key to business growth is branding. The easiest and fastest way to grow a business is to create a brand name and better yet a business logo, which people will easily remember. A great example of superior name and logo branding is google. It’s rare finding someone who does not recognize the multicolored google logo.
Choosing an easy to remember name is the first part in branding yourself as a professional. Even more importantly you got to choose a logo to match the name. Getting a professional logo designed is one of the areas where you want to look at spending a good amount of money. Getting the right designer to do the right logo for your purpose can be expensive, but this should be considered as an investment in your companies future. The right designer does not always come cheap and you should be prepared for that.
The earlier you begin branding your company with a logo, the better chance you have of forming a highly recognized and successful cooperation in future. So the earlier you make such an investment the better. The reason why all of the big corporate giants spend huge amounts of money on designing a logo, is because they know that people’s minds work with images better. Having someone remember a picture is far easier than getting them to remember a few lines of writing. Now that you know this take advantage of it. Sooner or later you will beat your competition in your market area, and they won’t even know it.
We live in a branded world, if you ask someone what they would rather have a cheap leather bag or an expensive Gucci leather bag, you will be surprised that most people will go for the expensive one, not knowing that both bags are the exact same, the only difference being is that one does not have the name ‘Gucci’. The sooner you take action and start your campaign of branding, the faster you will be on your way to a highly valued and sought after business.
The main objective of any business is survival, and in order to survive a business has to grow. The key to business growth is branding. The easiest and fastest way to grow a business is to create a brand name and better yet a business logo, which people will easily remember. A great example of superior name and logo branding is google. It’s rare finding someone who does not recognize the multicolored google logo.
Choosing an easy to remember name is the first part in branding yourself as a professional. Even more importantly you got to choose a logo to match the name. Getting a professional logo designed is one of the areas where you want to look at spending a good amount of money. Getting the right designer to do the right logo for your purpose can be expensive, but this should be considered as an investment in your companies future. The right designer does not always come cheap and you should be prepared for that.
The earlier you begin branding your company with a logo, the better chance you have of forming a highly recognized and successful cooperation in future. So the earlier you make such an investment the better. The reason why all of the big corporate giants spend huge amounts of money on designing a logo, is because they know that people’s minds work with images better. Having someone remember a picture is far easier than getting them to remember a few lines of writing. Now that you know this take advantage of it. Sooner or later you will beat your competition in your market area, and they won’t even know it.
We live in a branded world, if you ask someone what they would rather have a cheap leather bag or an expensive Gucci leather bag, you will be surprised that most people will go for the expensive one, not knowing that both bags are the exact same, the only difference being is that one does not have the name ‘Gucci’. The sooner you take action and start your campaign of branding, the faster you will be on your way to a highly valued and sought after business.
Making the transition
So you are contemplating growing your business? Perhaps it has been growing
rapidly in recent years and has now come to a crossroads; or perhaps you have
been focusing on internal efficiency and feel that, with a solid platform firmly
in place, the time is ripe to step up the pace and go for growth. In either
case, one thing is certain – growth from small, informal and simply organized to
medium-sized, formal and more complex does not come easily without undergoing
difficult changes to the organization’s fabric: to its structure, people, processes and
systems, and to its very core, the distinctive competences that set it apart from its
competitors and make it successful at the moment.
The responsibility for making a successful transition from small to medium-sized
falls on the founders, directors and key managers. No outsider can possibly tell
you what to do. Although the ultimate goal might imply a revolution in the way
you currently conduct your business, you have to strike a balance between stable
evolutionary change and the rollercoaster ride of rapid growth. While your longterm
goal might require a fundamental upheaval in your organization, the key to
sustained profitability and positive cash flow should be incremental, systematic
change led by disciplined, thinking managers.
So you are contemplating growing your business? Perhaps it has been growing
rapidly in recent years and has now come to a crossroads; or perhaps you have
been focusing on internal efficiency and feel that, with a solid platform firmly
in place, the time is ripe to step up the pace and go for growth. In either
case, one thing is certain – growth from small, informal and simply organized to
medium-sized, formal and more complex does not come easily without undergoing
difficult changes to the organization’s fabric: to its structure, people, processes and
systems, and to its very core, the distinctive competences that set it apart from its
competitors and make it successful at the moment.
The responsibility for making a successful transition from small to medium-sized
falls on the founders, directors and key managers. No outsider can possibly tell
you what to do. Although the ultimate goal might imply a revolution in the way
you currently conduct your business, you have to strike a balance between stable
evolutionary change and the rollercoaster ride of rapid growth. While your longterm
goal might require a fundamental upheaval in your organization, the key to
sustained profitability and positive cash flow should be incremental, systematic
change led by disciplined, thinking managers.
Consider for a moment a business organization in its formative years (it could be
yours). The early years are usually characterized by a sharp focus on the needs of
a small number of customers, a lack of formal structures, processes and systems,
and extreme informality of management style. Satisfying these customers with the
highest possible level of service is usually of paramount importance. Sales are
generated by the founders forging close relationships with a few key customers.
The founders understand the fragility of competitiveness and are prepared to bend
over backwards to provide high and rising levels of service. For them, nothing is too
much trouble; they see the creative possibilities in any commercial situation; and it
is their vision and drive that turn the germ of an idea into pulsating business reality.
Customer retention is usually particularly high in the early stages of growth, even
when standards slip a little and prices veer out of line with those of competitors.
The psychological and emotional resilience of the relationship between the founder
and the customer is one factor; it is quite another that the customer’s access to the
chief decision maker (the founder) makes it easier to secure a prompt response
when things go awry. The customer’s unrestricted access to this vital resource
is a major criterion of success in the early years, though few founders explicitly
recognize this as a key strength or plan for its perpetuation. Not being able to
‘clone’ the rare customer-satisfying qualities of the founder as the business grows
is a potential barrier to rapid growth, because it requires a high level of customer
retention and continuing development of key accounts.
Another major advantage in the early years is rapid transmission of vital information,
the outcome of short lines of communication. This is usually the result
of a) the absence of a reporting hierarchy; b) the physical proximity of most
staff to each other and to the boss; and c) a culture of consideration, of sharing
things and a willingness to ‘muck in’. Understanding the role of information and
how it oils the inner workings of the organization is necessary to ensure that the
smooth flow of information is actively nurtured in business development plans.
The founders are invariably the repository of all important information – they are
closest to markets, customers, bank managers, suppliers and employees – and to
ensure that ever-increasing quantities of information flow smoothly to key decision
makers other than to the founders (a requirement of effective delegation), the fact
that it might not has to be recognized and a solution found and implemented.
In the early years, systems and processes do not have to be formal. With the
founder in control and at the centre of the organizational ‘spider’s web’ (explained
in Chapter 4), and with all staff within easy proximity and on first-name terms,
informality is an advantage. Formality makes life more difficult because it imposes
costs and disrupts people’s normal relationships and working habits.
Where do the founders go from here? There are distinct advantages in remaining
a small, ‘lifestyle’ business, that is with a total complement of, say, 10 to 12
staff. Research has established that a small group finds it easier to function as an
efficient, coherent unit and that eight people constitute the ‘natural’ span of control
for a single boss. However, a small, ‘lifestyle’ business will not be a satisfactory
achievement for those entrepreneurs who relish the challenge ofmanaging growth.
Success in the formative years can establish a solid platform for development
and, combined with further market opportunities and the drive and management
skills of the founders, can soon lead to a complete transformation of the business as growth takes its course. Customer focus remains one of the keys to making
a successful transition from small and informal to medium-sized and complex.
Conflicts arise because the need to create and build new functions becomes
paramount and can be at variance with the concurrent need to remain strongly
customer oriented.Non-operational functions, e.g. accounts, finance and personnel,
become disproportionately important. The success of the business in negotiating
this transitional phase is dependent on the founders recognizing that the old
ways of doing things are no longer good enough. The area of greatest growth
is in staff numbers and the diversity of operational tasks, and all too soon the
strains begin to tell – they start typically with customer complaints and defections,
breakdown in internal communications, a collapse inmorale in parts of the business,
growing staff disaffection and high staff turnover. The founders might ignore these
problems, believing them to be temporary and leaving people to cope as best
they can; or they might attempt to deal with the symptoms without having the
relevant skills and knowledge to understand the root causes – essentially, problem
solving and decision making have entered a new plain outside their sphere of
experience. Their response might also be to avoid formality and to ‘muddle’ their
way through busy periods, preferring to cope with stress rather than investing
time and money in diagnosing the real causes and setting up new ways of doing
things – incrementally changing the shape of the organization and formalizing
systems, procedures and processes.
The transition from small to medium-sized requires the founding entrepreneurs
to adopt new attitudes, new modes of behaviour and high-level management
skills, without dropping some of their exceptional entrepreneurial attributes. Some
examples are:
• Being a visionary leader.
• Being a business strategist, not merely a tactician.
• Being an information disseminator rather than an information hoarder.
• Devising accessible, reliable management information systems to replace secretive,
partial, ad hoc sources (principally the founders themselves).
• Diagnosing organizational weaknesses and designing new functions.
• Introducing formal recruitment practices, rather than hiring someone’s best
friend through informal networks.
• Developing a nascent management team (who probably don’t have the skills or
knowledge for the job).
• Delegating responsibility for delivering outcomes to trustworthy people.
• Paying serious attention to human processes rather than solely to tasks.
• Putting emphasis on developing employees’ knowledge and skills.
• Being a mentor, coach and people developer.
• Dealing with difficult situations and underperformance.
• Handing over the biggest and best customers to a professional key account
team.
• Negotiating with and influencing people (some of whom you don’t really like).
• Achieving positive outcomes from meetings with key people.
How do the founders adopt new attitudes, behaviour and skills, thus mutating into
professional managers? Is it in fact desirable that they should do so? By making the change, they are bound to sacrifice some of their strengths. Would it not be
better to hire in a professional general manager, or even a new CEO? The ability
to identify weaknesses in their personal armoury of management competences and
set about plugging them with the right amount of skill and knowledge is a key
turning point in the successful transition from small to medium-sized. The founders
must recognize that they cannot ‘go it alone’ because they lack the competences
that will take the business into the next phase of growth.
yours). The early years are usually characterized by a sharp focus on the needs of
a small number of customers, a lack of formal structures, processes and systems,
and extreme informality of management style. Satisfying these customers with the
highest possible level of service is usually of paramount importance. Sales are
generated by the founders forging close relationships with a few key customers.
The founders understand the fragility of competitiveness and are prepared to bend
over backwards to provide high and rising levels of service. For them, nothing is too
much trouble; they see the creative possibilities in any commercial situation; and it
is their vision and drive that turn the germ of an idea into pulsating business reality.
Customer retention is usually particularly high in the early stages of growth, even
when standards slip a little and prices veer out of line with those of competitors.
The psychological and emotional resilience of the relationship between the founder
and the customer is one factor; it is quite another that the customer’s access to the
chief decision maker (the founder) makes it easier to secure a prompt response
when things go awry. The customer’s unrestricted access to this vital resource
is a major criterion of success in the early years, though few founders explicitly
recognize this as a key strength or plan for its perpetuation. Not being able to
‘clone’ the rare customer-satisfying qualities of the founder as the business grows
is a potential barrier to rapid growth, because it requires a high level of customer
retention and continuing development of key accounts.
Another major advantage in the early years is rapid transmission of vital information,
the outcome of short lines of communication. This is usually the result
of a) the absence of a reporting hierarchy; b) the physical proximity of most
staff to each other and to the boss; and c) a culture of consideration, of sharing
things and a willingness to ‘muck in’. Understanding the role of information and
how it oils the inner workings of the organization is necessary to ensure that the
smooth flow of information is actively nurtured in business development plans.
The founders are invariably the repository of all important information – they are
closest to markets, customers, bank managers, suppliers and employees – and to
ensure that ever-increasing quantities of information flow smoothly to key decision
makers other than to the founders (a requirement of effective delegation), the fact
that it might not has to be recognized and a solution found and implemented.
In the early years, systems and processes do not have to be formal. With the
founder in control and at the centre of the organizational ‘spider’s web’ (explained
in Chapter 4), and with all staff within easy proximity and on first-name terms,
informality is an advantage. Formality makes life more difficult because it imposes
costs and disrupts people’s normal relationships and working habits.
Where do the founders go from here? There are distinct advantages in remaining
a small, ‘lifestyle’ business, that is with a total complement of, say, 10 to 12
staff. Research has established that a small group finds it easier to function as an
efficient, coherent unit and that eight people constitute the ‘natural’ span of control
for a single boss. However, a small, ‘lifestyle’ business will not be a satisfactory
achievement for those entrepreneurs who relish the challenge ofmanaging growth.
Success in the formative years can establish a solid platform for development
and, combined with further market opportunities and the drive and management
skills of the founders, can soon lead to a complete transformation of the business as growth takes its course. Customer focus remains one of the keys to making
a successful transition from small and informal to medium-sized and complex.
Conflicts arise because the need to create and build new functions becomes
paramount and can be at variance with the concurrent need to remain strongly
customer oriented.Non-operational functions, e.g. accounts, finance and personnel,
become disproportionately important. The success of the business in negotiating
this transitional phase is dependent on the founders recognizing that the old
ways of doing things are no longer good enough. The area of greatest growth
is in staff numbers and the diversity of operational tasks, and all too soon the
strains begin to tell – they start typically with customer complaints and defections,
breakdown in internal communications, a collapse inmorale in parts of the business,
growing staff disaffection and high staff turnover. The founders might ignore these
problems, believing them to be temporary and leaving people to cope as best
they can; or they might attempt to deal with the symptoms without having the
relevant skills and knowledge to understand the root causes – essentially, problem
solving and decision making have entered a new plain outside their sphere of
experience. Their response might also be to avoid formality and to ‘muddle’ their
way through busy periods, preferring to cope with stress rather than investing
time and money in diagnosing the real causes and setting up new ways of doing
things – incrementally changing the shape of the organization and formalizing
systems, procedures and processes.
The transition from small to medium-sized requires the founding entrepreneurs
to adopt new attitudes, new modes of behaviour and high-level management
skills, without dropping some of their exceptional entrepreneurial attributes. Some
examples are:
• Being a visionary leader.
• Being a business strategist, not merely a tactician.
• Being an information disseminator rather than an information hoarder.
• Devising accessible, reliable management information systems to replace secretive,
partial, ad hoc sources (principally the founders themselves).
• Diagnosing organizational weaknesses and designing new functions.
• Introducing formal recruitment practices, rather than hiring someone’s best
friend through informal networks.
• Developing a nascent management team (who probably don’t have the skills or
knowledge for the job).
• Delegating responsibility for delivering outcomes to trustworthy people.
• Paying serious attention to human processes rather than solely to tasks.
• Putting emphasis on developing employees’ knowledge and skills.
• Being a mentor, coach and people developer.
• Dealing with difficult situations and underperformance.
• Handing over the biggest and best customers to a professional key account
team.
• Negotiating with and influencing people (some of whom you don’t really like).
• Achieving positive outcomes from meetings with key people.
How do the founders adopt new attitudes, behaviour and skills, thus mutating into
professional managers? Is it in fact desirable that they should do so? By making the change, they are bound to sacrifice some of their strengths. Would it not be
better to hire in a professional general manager, or even a new CEO? The ability
to identify weaknesses in their personal armoury of management competences and
set about plugging them with the right amount of skill and knowledge is a key
turning point in the successful transition from small to medium-sized. The founders
must recognize that they cannot ‘go it alone’ because they lack the competences
that will take the business into the next phase of growth.
The relevance of management theory to growing
businesses
In considering the management needs of growing businesses, we must take into
account the great diversity of business organizations and their individual situations
and characteristics. Can we simply apply the standard, large-company management
approach to smaller, growing businesses? In other words, are growing businesses
simply large ones writ small? No, there are distinct differences that give rise to the
need to modify standard management theory as it applies to growing businesses.
Motivation of the founders
The presence of the founders (or their progeny) provides a central clue to the
way the organization functions and how it behaves; its industry ‘personality’, so to
speak. Entrepreneurs are generally thought to be abnormal people – the black sheep
of the business community – whose autocratic management style and ‘Victorian’
business philosophy are considered an anachronism in the modern business world.
Box 1.1 lists some of the special characteristics of entrepreneurs and their putative
behavioural effects.
Some of these characteristics do not fit well with modern management theory. For
example, a ‘bias for action’ could be considered synonymous with a lack of analysis,
‘knee-jerk’ undisciplined response and whimsical decision making, leading to costly
mistakes. Management thinkers prefer a planned, orderly, systematic approach to
business decision making in order to control risks. Yet it is crucial to understand
the motivation, values and ethics of the founders. They constitute the dissatisfied
minority who are not usually tolerated in large organizations. Driven by a high ‘need
for achievement’ (managers in large organizations have a high ‘need for power and
affiliation’), they eschew hierarchical reporting structures (indicative of power) and
extra-mural social activities (affiliation), preferring to work long hours to ensure
that customers’ orders are fulfilled on time and quality standards are up to scratch.
businesses
In considering the management needs of growing businesses, we must take into
account the great diversity of business organizations and their individual situations
and characteristics. Can we simply apply the standard, large-company management
approach to smaller, growing businesses? In other words, are growing businesses
simply large ones writ small? No, there are distinct differences that give rise to the
need to modify standard management theory as it applies to growing businesses.
Motivation of the founders
The presence of the founders (or their progeny) provides a central clue to the
way the organization functions and how it behaves; its industry ‘personality’, so to
speak. Entrepreneurs are generally thought to be abnormal people – the black sheep
of the business community – whose autocratic management style and ‘Victorian’
business philosophy are considered an anachronism in the modern business world.
Box 1.1 lists some of the special characteristics of entrepreneurs and their putative
behavioural effects.
Some of these characteristics do not fit well with modern management theory. For
example, a ‘bias for action’ could be considered synonymous with a lack of analysis,
‘knee-jerk’ undisciplined response and whimsical decision making, leading to costly
mistakes. Management thinkers prefer a planned, orderly, systematic approach to
business decision making in order to control risks. Yet it is crucial to understand
the motivation, values and ethics of the founders. They constitute the dissatisfied
minority who are not usually tolerated in large organizations. Driven by a high ‘need
for achievement’ (managers in large organizations have a high ‘need for power and
affiliation’), they eschew hierarchical reporting structures (indicative of power) and
extra-mural social activities (affiliation), preferring to work long hours to ensure
that customers’ orders are fulfilled on time and quality standards are up to scratch.
Managerial competence
Business founders are not normally professional managers. They are typically
specialists in sales or technical areas; yet they still need the skills of general
management. Many do not understand the nature or relevance of key functions that could hinder successful growth, for example marketing (as opposed to promotion
and advertising) and human resource development (as opposed to personnel).
Paradoxically, they have an extravagant view of their capabilities, which can get in
the way of evolutionary change. Nor do they have a managerial role model to learn
from; in contrast, most managers in large organizations have access to excellent
role models in the shape of senior managers and directors, as well as to advanced
techniques of management development, including mentoring and coaching.
Business founders are not normally professional managers. They are typically
specialists in sales or technical areas; yet they still need the skills of general
management. Many do not understand the nature or relevance of key functions that could hinder successful growth, for example marketing (as opposed to promotion
and advertising) and human resource development (as opposed to personnel).
Paradoxically, they have an extravagant view of their capabilities, which can get in
the way of evolutionary change. Nor do they have a managerial role model to learn
from; in contrast, most managers in large organizations have access to excellent
role models in the shape of senior managers and directors, as well as to advanced
techniques of management development, including mentoring and coaching.
Sacred cows
Founders cocoon themselves in the cottonwool of unsubstantiated myths, assumptions
and beliefs, which they deem necessary for survival as independent business
owners. These flimsy beliefs can become ‘sacred cows’ that, if not challenged
objectively, will ultimately cause the demise of the business. Some classic sacred
cows are:
• An unsubstantiated but long-held belief in the profitability of the largest customer
or best-selling product (whereas if detailed records of profitability were to exist,
they might suggest differently).
• The suitability of tried-and-tested marketing and sales methods for existing
and new markets (whereas close inspection reveals out-of-date literature
and verbose copywriting more suited to the 1980s than to the twenty-first
century).
• The loyalty and therefore assumed effectiveness of long-serving staff (whereas
sane people consider them to be hopelessly out of touch and error-prone).
• The adequacy of quarterly management accounts as the main source of control
on profit and cash (when in reality accounts are late, do not reflect current
trading and are incorrectly and inconsistently presented).
Founders cocoon themselves in the cottonwool of unsubstantiated myths, assumptions
and beliefs, which they deem necessary for survival as independent business
owners. These flimsy beliefs can become ‘sacred cows’ that, if not challenged
objectively, will ultimately cause the demise of the business. Some classic sacred
cows are:
• An unsubstantiated but long-held belief in the profitability of the largest customer
or best-selling product (whereas if detailed records of profitability were to exist,
they might suggest differently).
• The suitability of tried-and-tested marketing and sales methods for existing
and new markets (whereas close inspection reveals out-of-date literature
and verbose copywriting more suited to the 1980s than to the twenty-first
century).
• The loyalty and therefore assumed effectiveness of long-serving staff (whereas
sane people consider them to be hopelessly out of touch and error-prone).
• The adequacy of quarterly management accounts as the main source of control
on profit and cash (when in reality accounts are late, do not reflect current
trading and are incorrectly and inconsistently presented).
Inseparability of ownership, investment and management
Proposals for managing the growing business should take into account the implications
of having owner-investors actively engaged in running the business:
• Business founders often remortgage their homes and invest their savings in the
venture, only to discover that in the early years net worth can actually decline
to the point of technical insolvency. This can render decision making unduly
risk averse, which is inimical to sustained growth. It does have the advantage,
however, of ensuring that major decisions are taken by shareholders who have
a lot to lose if things go wrong.
• Themultiple roles of shareholder, worker, manager and director, which give the
founders a special insight into the workings of their businesses, can limit their
effectiveness as business developers. For example, as a shareholder you might
have to relinquish outright control if an injection of external equity capital is
needed (even though this might threaten the very essence of your motivation
to go it alone, viz. the desire to control your own destiny); and as a director you
need to take a long-term view, which can conflict with the roles of manager or
worker, focusing on day-to-day tasks.
• The owners can view the business as a personal possession with concomitant
emotional as well as financial strings, which makes it difficult to drag
them away from day-to-day ‘worker’ tasks to take on a loftier ‘strategic leadership’
role.
• The family dynasty might depend on the business as its sole source of income
and wealth (and, indeed, social status), with implications for management
succession: the respective roles of the founders, their progeny and outsiders,
and the need for professional managers. It is not easy to fire the CEO when he
or she owns the business!
Proposals for managing the growing business should take into account the implications
of having owner-investors actively engaged in running the business:
• Business founders often remortgage their homes and invest their savings in the
venture, only to discover that in the early years net worth can actually decline
to the point of technical insolvency. This can render decision making unduly
risk averse, which is inimical to sustained growth. It does have the advantage,
however, of ensuring that major decisions are taken by shareholders who have
a lot to lose if things go wrong.
• Themultiple roles of shareholder, worker, manager and director, which give the
founders a special insight into the workings of their businesses, can limit their
effectiveness as business developers. For example, as a shareholder you might
have to relinquish outright control if an injection of external equity capital is
needed (even though this might threaten the very essence of your motivation
to go it alone, viz. the desire to control your own destiny); and as a director you
need to take a long-term view, which can conflict with the roles of manager or
worker, focusing on day-to-day tasks.
• The owners can view the business as a personal possession with concomitant
emotional as well as financial strings, which makes it difficult to drag
them away from day-to-day ‘worker’ tasks to take on a loftier ‘strategic leadership’
role.
• The family dynasty might depend on the business as its sole source of income
and wealth (and, indeed, social status), with implications for management
succession: the respective roles of the founders, their progeny and outsiders,
and the need for professional managers. It is not easy to fire the CEO when he
or she owns the business!
Undercapitalization
In combination with negative attitudes to third-party equity capital, undercapitalization
is a potent force for instability in the small growing business. It arises from inadequate founding capital combined with over-optimistic forecasts of profit
and cash (which don’t materialize). On top of this, there is a tendency to milk
the business when cash is available and to depend too much on short-term lines
of credit (overdraft and suppliers). The problem of inadequate capital can cause
decision making to focus unduly on generating or preserving short-term cash at
the expense of profit and long-term investment. Without the latter, there can be
little prospect of stable long-term growth, and none at all of building a delegated
management infrastructure, which is a necessary requirement for the founders to
take a more strategic view of the business.
In combination with negative attitudes to third-party equity capital, undercapitalization
is a potent force for instability in the small growing business. It arises from inadequate founding capital combined with over-optimistic forecasts of profit
and cash (which don’t materialize). On top of this, there is a tendency to milk
the business when cash is available and to depend too much on short-term lines
of credit (overdraft and suppliers). The problem of inadequate capital can cause
decision making to focus unduly on generating or preserving short-term cash at
the expense of profit and long-term investment. Without the latter, there can be
little prospect of stable long-term growth, and none at all of building a delegated
management infrastructure, which is a necessary requirement for the founders to
take a more strategic view of the business.
Customer, market or product dependence
This arises in part because of the relatively small number of customers needed
to sustain a successful business and produce a good living for the founders, and
also because of a lack of strategic marketing capability – the ability to identify
and evaluate opportunities and threats in existing and new markets and to take
the business into new growth areas with appropriate organizational competences.
Moreover, itmight not be realistic to move into new markets or widen the customer
or product base if the strength of the firm is its market focus.
Many small businesses are very successful at ‘keeping their eggs in one basket’
because of a sharp focus on a market niche where customers’ changing needs
can be closely monitored; or they are nimble enough to move into new areas of
opportunity when they emerge – a reactive approach to business development.
Whether nimble or not, financial performance can be highly volatile in the short
term, with the business moving from profit to loss in months. These consequences
have implications for forward planning: why plan ahead when a rapid change of
direction is practicable and within the scope of existing resources, or when you
can’t influence demand anyway?
This arises in part because of the relatively small number of customers needed
to sustain a successful business and produce a good living for the founders, and
also because of a lack of strategic marketing capability – the ability to identify
and evaluate opportunities and threats in existing and new markets and to take
the business into new growth areas with appropriate organizational competences.
Moreover, itmight not be realistic to move into new markets or widen the customer
or product base if the strength of the firm is its market focus.
Many small businesses are very successful at ‘keeping their eggs in one basket’
because of a sharp focus on a market niche where customers’ changing needs
can be closely monitored; or they are nimble enough to move into new areas of
opportunity when they emerge – a reactive approach to business development.
Whether nimble or not, financial performance can be highly volatile in the short
term, with the business moving from profit to loss in months. These consequences
have implications for forward planning: why plan ahead when a rapid change of
direction is practicable and within the scope of existing resources, or when you
can’t influence demand anyway?
Market powerlessness
Small businesses are unable to influence the market because of their lack of
market power. Their markets are often idiosyncratic niches and generally they
do not compete head-to-head with large competitors. An important consequence
of this feeling of powerlessness is that owner-managers do not consider business
planning to be a fruitful activity, in the way that large organizations do. Planning
is regarded as the preserve of large firms, which engage in it as a means of
reducing uncertainty and aligning resources with the needs of the market. Planning
and power to influence the market go together. If planning is to be useful as a
management tool in the smaller business, it should be seen to perform different but
still appropriate functions
Small businesses are unable to influence the market because of their lack of
market power. Their markets are often idiosyncratic niches and generally they
do not compete head-to-head with large competitors. An important consequence
of this feeling of powerlessness is that owner-managers do not consider business
planning to be a fruitful activity, in the way that large organizations do. Planning
is regarded as the preserve of large firms, which engage in it as a means of
reducing uncertainty and aligning resources with the needs of the market. Planning
and power to influence the market go together. If planning is to be useful as a
management tool in the smaller business, it should be seen to perform different but
still appropriate functions
Managing effectively and efficiently
Sustained, profitable growth cannot be achieved without paying proper attention
to the need for greater effectiveness (doing the right things, which ensures that everything gets done to an appropriate standard) and efficiency (doing things
the right way, which ensures that tasks are undertaken in the right sequence
and completed in the optimum time). While in the early years of a business
sheer enthusiasm and hard work will eclipse inefficient practices, the successful
transition to a medium-sized business demands greater attention to effective and
efficient management and to the formal systems and procedures that need to be in
place to ensure that this happens.
As complexity increases and an organizational hierarchy starts to emerge, the
founders can come under pressure to add new functions and roles (the dreaded
overhead!) to ensure that customers’ needs are met at high and rising levels of
service, while giving themselves space to stand back, plan the future and pay
more attention to leadership processes. A typical example is adding a marketing
department incorporating not only external communications, but also strategy,
market research, product development, customer feedback, etc. In the early years
parts of this function are performed by the founders, but to improve the effectiveness
and efficiency of marketing, full-time marketing professionals will have to
be recruited. The same overhead growth applies to other emergent areas, such as
human resource management, product development, research and development,
information systems and financial control activities.
At this point in the organization’s development, informal, word-of-mouth methods
of passing on working practices and procedures start to break down. When a
handful of people perform a task, it is easy enough to brief them about the goal
(desired outcome) and how it is to be achieved. When there are teams of people
performing diverse, interdependent tasks, briefing becomes more complex – one
or two key managers soon find it impossible to brief, train, monitor, give feedback
to, motivate and lead increasing numbers of new staff, most of whom are taking
on new jobs in unfamiliar surroundings. Thus task and team effectiveness starts
to erode as tried-and-tested working procedures are neglected or short-circuited.
If not nipped in the bud, these inefficiencies soon compromise quality, with the
consequent defection of long-standing customers.
There is a similar problem with efficiency: informal ways of communicating
information suit existing employees who have the ability to identify improvements,
i.e. short cuts in working practices, because of long experience in the job. But with
frequent infusions of inexperienced new blood, unless there are adequate safety
nets in place (training, monitoring, feedback, supervision, motivation, leadership),
high standards of service delivery can falter as the learning curve starts to take
effect (Figure 1.1). This can stall the process of falling unit costs (curve B) – caused
by errors and inefficiencies – when ideally the business needs to travel over time
down learning curve A to take advantage of lower unit costs.
Many small organizations try to plug this hole by shoring up the teetering informal
system with formal procedures such as those covered by ISO9000 accreditation,
which ensures that quality management systems are recorded and that people
adhere to them rigidly. In a curious way, formal recognition of quality systems can
corrupt the culture of the organization – its belief systems – because high-quality
service is ingrained in people’s beliefs and working habits, rather than conforming
slavishly to a quality manual. Rapid growth can undermine culture and managers should respond by reinforcing and building on the positive things that grew up
with the business.
Sustained, profitable growth cannot be achieved without paying proper attention
to the need for greater effectiveness (doing the right things, which ensures that everything gets done to an appropriate standard) and efficiency (doing things
the right way, which ensures that tasks are undertaken in the right sequence
and completed in the optimum time). While in the early years of a business
sheer enthusiasm and hard work will eclipse inefficient practices, the successful
transition to a medium-sized business demands greater attention to effective and
efficient management and to the formal systems and procedures that need to be in
place to ensure that this happens.
As complexity increases and an organizational hierarchy starts to emerge, the
founders can come under pressure to add new functions and roles (the dreaded
overhead!) to ensure that customers’ needs are met at high and rising levels of
service, while giving themselves space to stand back, plan the future and pay
more attention to leadership processes. A typical example is adding a marketing
department incorporating not only external communications, but also strategy,
market research, product development, customer feedback, etc. In the early years
parts of this function are performed by the founders, but to improve the effectiveness
and efficiency of marketing, full-time marketing professionals will have to
be recruited. The same overhead growth applies to other emergent areas, such as
human resource management, product development, research and development,
information systems and financial control activities.
At this point in the organization’s development, informal, word-of-mouth methods
of passing on working practices and procedures start to break down. When a
handful of people perform a task, it is easy enough to brief them about the goal
(desired outcome) and how it is to be achieved. When there are teams of people
performing diverse, interdependent tasks, briefing becomes more complex – one
or two key managers soon find it impossible to brief, train, monitor, give feedback
to, motivate and lead increasing numbers of new staff, most of whom are taking
on new jobs in unfamiliar surroundings. Thus task and team effectiveness starts
to erode as tried-and-tested working procedures are neglected or short-circuited.
If not nipped in the bud, these inefficiencies soon compromise quality, with the
consequent defection of long-standing customers.
There is a similar problem with efficiency: informal ways of communicating
information suit existing employees who have the ability to identify improvements,
i.e. short cuts in working practices, because of long experience in the job. But with
frequent infusions of inexperienced new blood, unless there are adequate safety
nets in place (training, monitoring, feedback, supervision, motivation, leadership),
high standards of service delivery can falter as the learning curve starts to take
effect (Figure 1.1). This can stall the process of falling unit costs (curve B) – caused
by errors and inefficiencies – when ideally the business needs to travel over time
down learning curve A to take advantage of lower unit costs.
Many small organizations try to plug this hole by shoring up the teetering informal
system with formal procedures such as those covered by ISO9000 accreditation,
which ensures that quality management systems are recorded and that people
adhere to them rigidly. In a curious way, formal recognition of quality systems can
corrupt the culture of the organization – its belief systems – because high-quality
service is ingrained in people’s beliefs and working habits, rather than conforming
slavishly to a quality manual. Rapid growth can undermine culture and managers should respond by reinforcing and building on the positive things that grew up
with the business.
- Status