“You need to work on your business, not just in your business.”
Made popular by The E-Myth Revisited author Michael Gerber, it’s advice I’m sure you’ve heard dozens of times over the years (I certainly have). But despite being told over and over again, many small business owners still don’t seem to truly understand what it means.
Let’s look at a common scenario.
Bill is into making things out of wood. He loved woodwork at high school, and was pretty good at it too. And while Bill has a ‘regular’ job during the week, he also does quite well selling his product at the weekend markets.
If fact, he’s been thinking about making a career of it for a while. And after a particularly bad day at work (which ends with him giving his boss some directions about “where he should go”), Bill decides to give it a go. He finds a place to set up shop, hires someone to deal with all the paperwork and other business stuff, and soon after Good with Wood is open for business.
At last Bill is ‘living the dream’ and ‘following his passion’. He’s earning a living doing something he enjoys and gets to be his own boss, which he loves. He doesn’t have to fill out timesheets or attend boring meetings. He can just spend his days sawing, hammering, planing and sanding to his heart’s content.
It’s perfect, right?
Bill’s situation is a classic example of what Gerber calls ‘an entrepreneurial seizure’. Someone gets the urge to ‘be their own boss’ but then (to quote Gerber) “goes to work for a maniac”—themselves.
The business owner ends up spending all their time working in their business. Now in Bill’s case he gets to do what he loves. But it isn’t long before he realizes there’s a lot more to business than just making and selling products.
And unless Bill effectively deals with those other aspects of running a business as well, he won’t have a business for much longer.
In his classic book The E-Myth Revisited (the ‘E’ stands for ‘Entrepreneurial’), Gerber describes this type of person as the technician of the business. They’re an expert in their craft, and love doing what they do. Unfortunately, it’s often at the expense of everything else associated with running a business.
Gerber describes three archetypes when it comes to business owners:
- Technicians love doing the technical work.
- Managers manage the technicians to ensure the work gets done.
- Entrepreneurs design a business that can work without them, and then hire managers to run it, who in turn hire technicians to deliver the work.
In Bill’s Good with Wood scenario:
- The Technician does the woodwork to create the products.
- The Manager does all the ‘stuff’ the technician sees as ‘necessary evils’, such as:
- ordering materials
- entering orders and doing the bookkeeping
- tracking the work-in-progress
- handling customer payments and banking
- paying the bills
- ensuring they comply with tax and other compliance matters.
- The Entrepreneur looks at the big picture, and makes strategic decisions about things such as:
- what the business should sell
- who they should target as customers
- how they should price their products
- what their business model should be
- how the business should be structured.
As you can see, technicians and managers work in the business and an entrepreneur works on the business.
An entrepreneur’s focus is to design a business that can work without their own personal exertion on a daily basis. Their objective is not to be ‘self-employed’, or to create a job for themselves. They think of a business as a machine that can be designed, built and eventually sold.
That doesn’t mean all entrepreneurs aim to sell their business in the short term. Some like to build and then hold onto their ‘cash cow’ businesses over the long term.
- Does your business rely on your personal daily work at the technician and/or manager level?
- Do you believe only you are capable of doing that work to the level required?
If so, you’re chained to your business. And it’s unlikely to become one you can sell when it comes time to move on or retire.
Let’s think about Bill’s Good with Wood business. What happens if he’s sick or injured for a month or more? Sure, some insurances will replace income and pay lump sums in certain circumstances. But what about the business? Orders need to be delivered. Customers need to be satisfied. The business would grind to a halt, and its reputation would be tarnished.
Clearly, being your business’ operational linchpin isn’t so great.
In fact, it’s the opposite of what you want. You want a business that isn’t ‘key person dependent’. You don’t want your business to rely on any one person— especially not you.
In Bill’s case, he needs to step away from the hands-on work. (He can still do some of it, but the business shouldn’t rely on him as a key technician.)
What are some of the things Bill could do?
- He could bring an apprentice on board, and get them up to speed on how everything is made.
- He could write procedures manuals and create training videos to explain the details of every item the business produces.
- He could document all the processes for managing the business.
By doing these things, Bill could get to a point where his business produces the same goods to the same quality whether he’s there or not. And quite profitably.
Bill would be working on his business, not just in it. He’d be an entrepreneur.
Other things Bill could focus on to build his business include:
- Marketing: Researching trends, looking at what competitors are doing, attending trade shows, speaking with customers and prospective customers, exploring ideas for new markets and new products.
- Operations: Looking at ways processes could be made more efficient, negotiating deals with suppliers, researching new technology, looking at what can be eliminated, automated or further delegated.
- Leadership: Mentoring the technicians and managers within the business, attracting high-quality employees to the business, ensuring new staff members are inducted and well trained, making sure team members have career paths and incentives that retain them long term.
- Financial Control: Understanding the business’ cash cycle, knowing which are the most profitable products and areas of the business, understanding which expenses are worthwhile and produce a worthwhile return, identifying areas of waste to be reduced or eliminated, managing debtors and improving processes for collecting payments.
As you can see, the things Good with Wood needs to do as a business go far beyond ‘making things out of wood’—the thing that motivated Bill to start his business in the first place.
This entrepreneurial perspective doesn’t mean Bill won’t get to enjoy the sweet smell of sawdust. On the contrary, by learning how to build a business—and a team—to create his products, he’ll enjoy success and satisfaction on a scale far more rewarding than (to quote Gerber again) simply “doing it, doing it, doing it” as the business’ main technician.
So, what about you? Are you still ‘on the tools’? Or are you designing and building a business that can eventually work without you so you don’t have to keep “doing it, doing it, doing it”?
If you want to build something great with your business, let’s talk. Make a time to sit down with us to map out your plan for working on your business so you don’t get trapped in it.
Starting a business is part science, part art, and a large part hard work! It can get lost in all the excitement but you need to get the balance right.
Approximately 20 percent of all small businesses fail in their first year; and your chances of your business making it to five years are around 50/50.
One thing is for sure: leaving your success up to chance is not an option. Get clear on where you want to take your business and how you are going to get there.
Reasons small businesses fail include the following:
- No market need for their products or services
- Lack of cash flow
- Not having the right team in place
- The competition doing it better
- Pricing and cost issues
- Lack of a business model to follow
- Poor sales and marketing ability
So what are the essentials needed for your business to thrive? How do you ensure your business doesn’t fall away due to one of the above — or any other reason?
By asking the right questions from the start. The following will get you thinking along the right lines from day one…
1. How passionate are you about this?
It sometimes gets lost in all the calculations but you should LOVE what you are about to start.
Is it something that you can see yourself doing in five or ten years? If not, maybe you need to look elsewhere.
Passion is what keeps you going through rough times. It sustains you and ensures the necessary energy goes into the venture. There will be difficulties in the years ahead but passion will see you though.
2. Do you really need to quit your ‘real’ job yet?
A healthy obsession with your business idea is fine. But it can blind you and cause you to make hasty and unnecessary decisions.
Some business owners give up their jobs before they start their businesses. They may be better advised to keep the job (and the steady salary) and start their business as a small side venture—often referred to these days as ‘a side hustle’—at first.
There are 168 hours in a week. If you’re passionate about your new venture, spending a few extra hours a week on it won’t seem like extra work!
Save the financial stresses caused by a business HAVING to support you from day one.
3. Who are you partnering with?
If you are partnering with someone in your business, make sure that it works for you both. If you complement each other and it makes the business stronger, great!
If not, then why are you going into business together?
A business is not the place for a ‘marriage of convenience’. If you take that path, it won’t be long before problems rear their head.
4. You can’t do everything — who is going to help?
How are you going to find the people that help you run your business?
Doing everything yourself might seem like a cost-saver at first but soon you’ll realize that it’s a false economy — and it will lead to burnout.
Hire professionals to ease the load: a business bookkeeper (not only a tax accountant), a legal contact, a personal assistant, and a marketing assistant are some basic requirements. To avoid paying full-time salaries, outsource to the right professionals.
5. Do you understand your competitors and the market?
Passion alone won’t sustain your business. You need a clear understanding of the niche you are entering.
Who are your competitors? Is there room for another business like yours? If so, how will you stand out — Service? Price? Quality?
If you are breaking new ground, have you established that there is a genuine need for what you offer? Be sure that it’s not just you who thinks it’s a great idea?
Be clear on your target audience and who is going to buy from you.
6. How will you structure your business?
Establishing the right legal structure for your business is also a basic requirement.
Your options will vary depending on the type of your business and your family situation, but seek advice from a qualified accountant experienced in providing structuring advice to get the fundamentals in place.
The business structure you choose will affect taxes, administration, liability, and employee setup, amongst other aspects of your business, so it can be an expensive mistake to not get this right from the outset.
7. How will you fund your business?
Mapping out the capital available to you should be part of any business plan: the start-up money may come from savings, friends, family, business partners, investors, venture capitalists, or through bank loans.
Get clear on how you will raise enough to get your business going, what your weekly and monthly ‘cash burn’ will be until you reach cash flow break-even point (after which the business funds itself), and then, establish how you are going to manage your cash flow in the coming months and years.
8. How will you market and sell your products or services?
Sales and marketing are two areas that will help to define the success (or otherwise) of your business. Take advice on the best marketing channels — both online and offline.
Also, if your sales skills are poor, make sure you hire someone who can close the deals that will bring new customers into your business.
Many new business owners have already established some relationships to provide initial wins — but what do you do when these dry up? You need a healthy ongoing pipeline of leads and prospects.
9. Are you getting the right advice from the right bookkeeper?
Business owners should be on top of their taxes, payments, and accounts; and keep a tight handle on outgoing expenditure.
A good bookkeeper can advise you on this, as well as helping you identify opportunities to grow your business as you mature.
Make sure you have chosen a bookkeeper you can work with and who has experience advising businesses like yours, as this will be a crucial relationship that shapes the future of your business.
Chances of success are actually relatively high if you ask the right questions before you start your new business venture. Many new business owners get caught out by the unexpected because they have not planned properly with cash, personnel, market research or other key factors.
Start by asking the above questions and go in with your eyes open!
The principles behind winning in business and winning in sport are similar in many ways.
Take tennis, for example. If you’ve ever watched a match on television, you’ll know that along with all the hitting, running and grunting there are a lot of numbers involved.
And we’re not just talking about the score here. Each player’s performance can be measured in other ways—percentage of first serves in, points won at the net, number of unforced errors on forehand versus backhand, and so on.
But while the statisticians may love all those details, everyone else is just interested in the score, right?
You might not be interested. But the players certainly are.
Admittedly they may not know the percentages down to the decimal place. But they’ll know if they’re making too many mistakes at the net or wasting their first serves. And they’ll change their game accordingly—by staying at the baseline or slowing down their first serves a bit—to fix the problem.
Yes, the score is important. After all, the players obviously want to win. But the only way the players can actually change their winning percentage is to change how they play.
And it’s the same when you’re a business owner. Your business may actually have several scores—number of sales, profit made, etc. But while they’re a great way to keep track of how your business is doing, you can’t do much about them once they’re available.
They are—quite literally—history.
They’re what we call “lag indicators” (or sometimes “results KPIs”). And apart from putting them in your reports and sharing them with your stakeholders, there’s not much else you can do with them. They’re done.
What you should be more interested in are the things you can change. These are what we call “lead indicators” (or sometimes “activity KPIs”) and can lead to improved results for your lag indicators (your score).
For example, if you want to increase the number of sales your business makes, you might want to measure things such as:
- Your website traffic
- Your website’s conversion of visitors to buyers or email opt-ins
- The size of your marketing database of contacts
- Email campaign open rates and click-through rates
- How many sales telephone calls you make each week
- How many sales meetings you have each week
- Your conversion rate of inquiries to appointments scheduled or sales (depending on your business model)
And for profits, you might want to measure:
- How much it costs you in materials to produce each service
- How much time and labor cost it takes to produce each service, and so on.
Once you know what your lead indicators are, you can tweak them to see how much they affect your lag indicators.
For example… Improve your site’s SEO to improve website traffic. Increase the number of sales calls you make each month. Give your existing customers an incentive to tell their friends about your business. Look for efficiencies in your production line so you can produce your items more quickly.
The beauty of focusing on your lead indicators is that when you improve them, then your lag indicators—the scoreboard—will improve as a natural flow-on effect.
And lead indicators are things you can control this month. This week. Today. With measurement of your performance in these areas you can refine your activities and feel a greater sense of control in ‘improving the scoreboard’.
Lead and lag indicators are both vital measures of how your business is doing. But by looking after the lead indicators you’ll be keeping your eye on the ball when it really matters, rather than looking at the scoreboard of what has already happened.
Ask yourself, what lead indicators are you focusing on improving this month? How are you looking at that data? Do you have real-time dashboards and weekly or even daily reports on these lead indicators?
If not, we should talk. We can set up lead indicator tracking for you which is the surest way we know to improve your business’ scoreboard.
Larger businesses have a Chief Financial Officer (CFO) on staff. But what can small and medium sized businesses do in this regard?
Clearly, larger businesses can afford an in-house CFO. But it goes beyond an affordability issue: Large, successful businesses also understand how crucial the CFO role is to their business performance.
The CFO in a business:
- Keeps a close eye on the numbers and trends,
- Alerts management when preventative actions are required,
- Helps management create sound forecasts and plans,
- Ensures the cash inflows and outflows are managed well so the business never runs out of cash or needs to borrow in haste,
- Reports on revenues achieved compared with targets,
- Gives solid information on a range of Key Performance Indicators (KPIs) to the business decision makers, and also
- Helps management with decision making.
This is management input that all businesses require regardless of their size. But how can small and medium sized business access CFO-level input and guidance?
The answer: You out-source it. You get a part-time, out-sourced CFO until you can afford one full-time.
That’s where we play a role for many of our business clients.
Our ‘Controller/CFO’ service has been developed with input from our clients to make sure it’s the ideal mix of support services and affordability.
As your CFO we roll our sleeves up and work with you in management meetings throughout the year on:
- Cash flow – Efficient management of cash flow to provide cash for saving or investing in growth
- Profitability – Identifying key drivers of profit and focusing on these
- Business value – Growing a valuable and saleable business asset
- Structure management – Staying on top of risk and taxation issues
As business owners we all need to measure and monitor Key Performance Indicators (KPIs). That is, the handful of numbers that really matter in running our business.
It is also important that you have a ‘KPI dashboard’ to display your KPI targets compared with your current KPI performance. This helps tremendously in monitoring and managing your business’ performance and, ultimately, hitting your targets.
As your outsourced CFO, we will bring to each meeting that we conduct with you clear financial reports, easy-to-understand KPI information, as well as our commercial experience to interpret the information, make suggestions and help guide your decision making.
Items we’ll discuss each meeting include:
- Profit (historical and future)
- Cash flow (historical and future)
- KPIs: A mixture of focusing on Lead Indicators which drive performance and Lag Indicators that measure the outcomes
- Marketing activity and effectiveness
- Operational efficiencies such as work-in-progress or workflow
- Financial indicators such as debtors, inventory, stock turn (depending on your industry and type of business)
- Team efficiencies, knowledge management, morale and safety.
By helping with your forward planning for achieving the next period’s targets, and by being a sounding board for you as you strive to meet your targets, our ‘Controller/CFO’ service and support gives you a crystal-clear focus for what needs to be done to achieve the goals of your business.
Your next step … Contact us for a no cost and no obligation meeting to discuss how we can work with you as your outsourced CFO. We’ll outline for you what’s included and what costs are involved so you can see how the service can be comfortably included in your budget.
As a business owner, do you or your managers spend a lot of time recruiting, conducting exit interviews, and onboarding new staff?
When the ‘revolving door’ in and out of your business doesn’t stop revolving, it can impact so many parts of the business that it soon becomes a priority to address the problem.
A high staff turnover rate doesn’t just impact those doing the hiring. It is damaging for general motivation, performance and productivity; it may lead to negativity in the workplace culture; the cost of hiring eats into profits; training and development costs go through the roof; and, worst of all, the chaos that can result from a constant flow of new faces in the business flows outwards to customers – and may cause them to look elsewhere.
So what can you do about this?
Well, say you want to improve performance in the workplace. It makes sense to understand the main reasons why employees are unmotivated and underperforming.
Similarly, if we want to improve staff retention, it makes sense to examine the reasons why people leave their jobs.
In recent years Gallup polls have found the same reasons for leaving have tended to come up again and again.
While there may be some unique circumstances in your own business that contribute to the problem, focusing on the following five steps will help address the main concerns…
1. Provide strong and inspiring leadership
Poor leadership consistently tops the list of why employees leave. There seems to be a lot of truth in the saying that people don’t leave jobs — they leave their bosses.
We’ve all had the experience: you’re feeling a bit under the weather, the alarm rings, and you’re faced with a choice: struggle out of bed and make it into work against your best judgment — or stay put.
Your choice is often determined by your boss. You’re much more likely to stay in bed if you don’t give two hoots about him or her.
So, unless you’re able to position inspiring leaders at the heads of your teams, this mentality spreads across the entire organization. Are your leaders providing the support, guidance, and mentoring that employees look for?
Do they have the emotional intelligence and people management skills to really lead people – or are they in a leadership position based purely on technical skills and experience?
It’s worth noting that it’s the perception of your employees that counts here. You may think you have great leaders in place but if people are heading out the door in droves, it could be the first place to look.
2. Pay strict attention to employee needs
Unless you have a system of gathering employee feedback, you probably don’t understand the needs of your employees. You may think you do but in reality it’s just guesswork.
An annual performance review is not going to cut it. Face-to-face meetings between leaders and employees need to be frequent, forward-looking, and based on constructive ideas for development; rather than infrequent, based on past performance, and only considering KPIs.
Unless there is an effective feedback system in place, you may never know when problems are brewing before it’s too late – and people start heading for the doors. In short, get closer to your employees.
3. Develop career paths and opportunities for growth
Unless you offer your employees a realistic opportunity of advancement, they will quickly try to find an organisation that does.
A perceived ‘dead end’ job with lack of opportunities for development is highly de-motivational and generally gets people looking around, sooner or later.
People want to grow and develop themselves — this is natural within all of us.
Once you understand your employees’ goals, it’s important as leaders to help develop people and set them on the right path to achieve these goals. In professional terms, this means some sort of career path.
It’s considered unfashionable in some quarters to stay with a company for an entire career nowadays — and it’s true that ‘job hopping’ is much easier than it used to be. But many companies seem to encourage talent drain by not providing a compelling enough reason for employees to stay.
People require direction, hope for the future, meaning in their work, recognition, opportunity, and challenge — these are all strong motivators.
4. Provide more flexibility in the work environment
People are more aware than ever about the importance of their own wellbeing.
They realize that sedentary lifestyles and stress contribute to a range of other factors in leading to poor health.
Many employees are looking for more flexible work environments that allow them to strike a better work-life balance; everyone is familiar with the available mobile technology, which means they don’t necessarily have to be in the office to be at work.
When they are in the workplace they want it to be more inspiring and conducive to a healthy lifestyle: standing desks, places to workout, and so on.
Rather than asking your employees to sacrifice personal needs to fulfil the requirements of the job, design the job around changing lifestyles that are more mobile, flexible and geared towards healthy living.
5. Focus on improving your workplace culture
Do you promote a culture of recognition, accountability, engagement, transparency, reward, positivity, and success — or do your people cast envious glances towards the competition?
In some workplace cultures, the opposite dominates: silos develop and conflict, secrecy, fear, threat, and negativity all lead to de-motivation, which in turn leads to a decline in both performance and the employee experience of actually coming to work.
Your top employees naturally gravitate towards positivity and harmony and are unlikely to hang around in an environment they perceive as toxic or harmful to their growth.
Build teams that cultivate a positive culture through connectivity, empowerment, engagement, and a sense of fun.
There will always be a turnover of staff in a business. But surprisingly perhaps, money is not usually the main reason for leaving.
It’s obvious that you should be paying employees well for the work they do; and you can’t do much about employees leaving to go traveling, fulfilling a long-held ambition, starting a family or moving to the other side of the country.
However, many of the main reasons for employees leaving can be addressed at the source by every employer.
Resist the temptation to think that high staff turnover is simply a sign of the times; with the immediate and temporary nature of social media, some business owners accept poor staff retention as the ‘new norm’. They believe that people are simply ‘job hoppers’ nowadays.
However, as a leader you can take action to stop the talent drain: by focusing on the above five actions, you will start to close the gap between where you want to be and where you actually are now.
There’s a saying in business, “You can go broke making a profit.” And another, “Cash is king. Profit is theory.
As you know only too well, you don’t pay rent, meet payroll or pay your bills with profit.
You pay them with cash.
A business can make a lot of sales, have a book full of orders, have delighted customers and clients, have a great reputation, be growing, and yet still go broke.
Why? Cash flow.
The business might be profitable on paper, but have no money left in the bank. They become insolvent.
A growing business is often hungry for cash … hungry for inputs so it can make the business’ outputs, be they physical products, services or a combination of both.
The tragedy in this is that cash flow crises can often be averted. They can be predicted, planned for, and then contingency measures put in place.
For example, if a business has seasonal effects where some months are busier than others, or if a business knows it has some jumps in expenses or fixed costs approaching—such as moving to a larger premises or hiring more staff to cope with growth—then these expenses can be planned for and compared with the planned income in those months.
Which would you prefer to do?
(A) Call your bank manager and ask for a short-term loan or increase in overdraft when you are urgently in need of the cash (and therefore stressed, and desperate, and not in a great frame of mind to negotiate good terms), or
(B) Call your bank manager 6 months in advance and meet with him or her to explain the coming cash crunch, the reasons behind it, and plan for the funding in a calm, relaxed, totally-in-control manner?
Not only would you get the loan, you’d impress the bank manager and strengthen the relationship for further funding, should it be needed to support your growth.
The bank manager would see you are a professional operator with a planned approach to your business, not a fly-by-the-seat-of-your-pants operator. (They see a lot of those. They don’t like doing business with them.)
Apart from the relationship with your bank, there’s the immediate effect of sleeping better at night.
We all seek a level of certainty to comfort us. Knowing what lies ahead in business and planning your cash flow gives you a peace of mind and confidence in your day-to-day work that will rub off on those around you…
…in your workplace and at home. It’s a good feeling.
This is one of the reasons we are so passionate about helping our clients put together cash flow forecasts, to help them keep their business on track and to avoid any stressful, unpleasant surprises in the coming months.
It doesn’t matter whether a business is a one-person hairdressing or lawn mowing business, or a 10 person, 20 or 200+ person business.
Every business needs a cash flow forecast.
Running your business without a cash flow forecast is like driving a car at night along a dark country road with only your normal headlights on. It’s hard to see what lies ahead. Some wildlife might come right out in front of you, leaving no time for you to react. CRASH!
On the other hand, a cash flow forecast is like driving along that country road with high beam on. You can see so much more. You can drive with much more confidence. Less stress. And avoid the CRASH!
Another thing we often find in helping our clients build realistic cash flow forecasts, is that we can spot problems and make suggestion that help improve the business’ cash cycle. This puts money in your bank account.
For example, a combination of negotiating better terms with suppliers, tightening up or at least clarifying and enforcing your business’ own credit terms, and reducing stock holding and waste can have a powerful positive effect on your cash flow.
So, if a cash flow forecast is so crucial, why do many businesses not have one?
Simple. Business owners get busy. Busy pleasing customers or patients. Busy dealing with staff. Busy paying suppliers. Busy generating sales.
Also, it’s easy to get ‘too close’ to your own business. “You can’t see the forest for the trees,” as the saying goes.
Having an independent and fresh pair of eyes come in and look at your business—especially cash flow which is its life blood—allows opportunities for improvements to be identified. Things that are there, but difficult for the business owner to see amidst the ‘busy-ness’ of it all.
So, what should do about it? Call us. Take action. A cash flow forecast costs less than you think.
It’s time to turn those high beams on!
Your next step … Call us at 844-424-9637 or email us at firstname.lastname@example.org to make a time to meet and discuss your options. We’ll then outline the costs so you know exactly what lies ahead.