Combining execution and attitude leads to success
Over the last few years, the economy has taken its toll on many small businesses and their owners. Not surprisingly, they are feeling beat up and hopeless, and lack the courage to fight. Some have given up and lost their purpose in life and business.
While there is no magic pill or easy solution to this dilemma, the first step requires a conscious decision to begin the hard work of reinventing the business and themselves. In order to make this transition, business owners need to adopt a new “never say die,” and “I am going to change” attitude. They have to realize they have survived the worst times our generation has ever witnessed, and now it’s time to focus on tomorrow—not two to three years from now, but tomorrow.
Once owners accept this new mindset and orientation, it is essential to demonstrate a renewed leadership role throughout the company. This means getting every employee on the same page and motivating them to work together to grow the business beyond the status quo.
All Eggs in One Basket
During the last 10 years, small business owners should have learned one very important business lesson: they must be a sales-oriented company where no one customer provides more than 15 percent of the company’s total annual revenues. Unfortunately, not many small business owners learned this lesson and are still operating with just one or just a few major customers.
This is not a winning business strategy. Just look at the recent recession. Many small businesses saw their primary customer(s) scale back their purchasing, struggle to pay for services rendered within the normal 30 to 45 days or simply go out of business. Facing these conditions, small business owners were forced to assume one of two management postures. They either “stuck their head in the sand” and ignored the problem, hoping it would get better, or they decided to reinvent the company, themselves and the employees to better compete in their existing markets, or create new market/product opportunities.
In the past 10 years, the U.S. economy experienced two major events that had a dramatic impact on small businesses: 9/11 and the Great Recession. Small business owners were simply not prepared. To prevent history from repeating itself, it is important for business owners to act now and transition their companies to be sales-oriented, implement smarter credit policies, set quantifiable business goals for each member of the management team and hold themselves accountable for achieving their desired results.
Where’s the Money? It has been reported that 80 percent of the population is employed by small businesses (companies with annual revenues of $700,000-$3 million). If this is accurate, then 80 percent of the population felt at risk of losing their jobs during the recent recession. To save jobs, the federal government attempted to alleviate small businesses’ cash and funding pressures by releasing additional America’s Recovery Capital (ARC) funds to SBA-qualified banks. However, the funds in many cases never made it to the small businesses that really needed the financial relief, but rather went to financially stable businesses.
Breaking down the economy into two segments helps to show the plight of small businesses. Imagine a giant horizontal line drawn across the economy and business communities. Above the line are state and federal governments, financial services companies, Fortune 1000 companies and large banks. All of these entities have the ability to generate cash, whether through borrowing, raising taxes, government bailouts or by tapping into reserves. These groups have been able to survive the Great Recession and even produce healthy financial performances and balance sheets.
Below the horizontal line are small businesses, some of which are doing business with the companies above the imaginary line, which has proven to be a smart market strategy: follow the money makers. In contrast, many small business owners stayed below the line to conduct their business with the general public or other small businesses. This category of business owners has really struggled to financially survive over the past two years and has the greatest need for capital infusions. However, financial institutions no longer have the appetite to extend credit to such risky businesses. Businesses operating below the imaginary line must come to the realization they are not likely to receive the financing they need and must change their business model and practices to fund their own business out of cash flow.
The Turnaround If small business owners decide to fight for the survival of their companies, they need to create a business turnaround. That strategy involves a complete review of the business model, followed by specific action steps that include:
- First, answer the question, “What business am I in?” Most small business owners will answer this question incorrectly and say they’re in the widget-building business, when in reality they are in sales. Unfortunately, many business owners lack the effective sales and marketing skills required to implement or sustain a proactive sales process. For example, in many small family-owned businesses, the first generation owners knew they had a good product and their only challenge was finding buyers. Therefore, they spent the majority of their time finding enough customers to buy their production capacity and did an excellent job of diversifying their customer base. However, many small business owners spent the majority of their training efforts with their successor, teaching the production aspects of the business and spent little time teaching and coaching their successor on how to sell. As a result, the second and third generation owners are under-trained in this area.
- Analyze the company’s cash cycle. If, for example, the cash cycle (customer sale to customer payment) is 120 days, the business owner must take immediate action to find customers with a shorter cash cycle (75-90 days). This will stabilize the company’s cash flow and reduce its reliance on the use of a line of credit. The owner should also evelop an 8- to 12-week cash management reporting process by listing the company’s expenses and revenues with their respective pay/ receipt dates and develop a plan of action that ensures the positive flow of cash on a weekly basis. The plan of action and cash management report are the two most important management tools small business owners have at their disposal.
- Extend customer credit wisely. The last step for a struggling small business is to evaluate the company’s credit policies and stop providing credit to customers who are using their money by not paying the bills for 45-plus days. Therefore, a business must develop a customer credit policy that is adhered to by every employee in the operation.
Rally the Troops
Once these steps are in place, it’s time for the small business owner to mount the white horse and lead the troops into battle. Quite simply, the owner has to say, “I know what needs to be done, and I’m ready to lead.” To effectively lead the charge requires business owners to have a clear vision of what they want the company to be, have established business goals for the company’s business model (i.e., sales, operations and finance), and have an accountable management team. The ability to successfully implement this course of action is in direct correlation with their overall management and communication skills. When owners make a personal commitment to be the company cheerleader, it is like having Vince Lombardi or General Patton at the helm.
Talk is cheap, so it is important for business owners and their management teams to be actively involved in the turnaround.They need to garner the enthusiasm, loyalty and personal commitment of each employee.
By working alongside one another, soliciting ideas for improvement, demonstrating respect, communicating openly and establishing written goals and accountability for achieving them in each facet of the organization, the entire team develops a positive momentum. Progress can be assessed and course correction changes made can be made in weekly management meetings.
Never Give Up
In a deep recession followed by a weak recovery, the most important job an owner has is to rally the troops and reinforce the belief that the business will improve. In many other areas of human endeavor, whether sports, politics or war, those who have gone through a difficult period and emerged victorious often say it was because their leader never gave up hope. The leader believed in the ultimate success of the operation, and the people under his or her command were swayed by that conviction. That conviction, dedication and unwavering belief in what is possible is the key owners need to produce renewed corporate growth and ongoing profitability in business today.