In my role as a management consultant working for nearly 40 years with owners of architecture and engineering firms throughout the U.S., and as an executive in-residence teaching entrepreneurship in the Sam M. Walton College at the University of Arkansas, I have worked with and seen the financials of literally thousands of privately-held businesses of all types.
When those businesses aren’t successful, common themes emerge. Here are a few of them:
Some business owners lose interest in their businesses over time. Some have personal problems that take them away from their businesses. Some get lazy. And some never intended on being involved in day-to-day operations. Whatever the reason, owners who aren’t there lose touch with the market, with their customers and with their employees. And that is never a good thing.
All decision-making is done at the top
Most small-business owners never develop trusted second-tier managers who they allow to make decisions on their own. All decisions go to the owner. That slows everything down and tethers the owner to the business such that they can never get away even for a short time. If something does happen where the owner can’t be at the business for an extended period of time, it all grinds to a halt and problems don’t get dealt with.
Complete lack of marketing
This is such a common problem. You would be surprised how many business owners tell me that “word of mouth” is how they market. That means they do nothing and hope they get clients and customers. Marketing takes a continuous effort and a budget that gets spent, good times and bad. If you look at successful companies of all types, they usually share one thing: They outspend their competitors in marketing. Sam’s Furniture in Springdale is one of the best local examples. They grew when other furniture stores were failing because they are relentless marketers.
Nonproductive family members on the payroll
Most privately-held companies are family businesses of some sort. And too often that means family members who shouldn’t be on the payroll are. Not to say all family members aren’t capable of earning their keep. Some second- and third-generation businesses do far better when the son or daughter takes over. But there are many more cases where people get placed in jobs they are not equipped for just because they are family members. And that can completely destroy the morale of everyone else.
Other employees are viewed as expendable
It’s interesting to me when I review business plans of potential new companies how many of them have absolutely nothing in them about how they will attract, motivate and retain a superior work force. It’s completely taken for granted. And many established businesses operate the same way. They don’t give their people any information on how the business is doing, have no real incentives tied to the success of the enterprise, and pay the least amount they have to to keep a warm body in place. And they do this in the most competitive hiring environment of my (long) lifetime. All of these things tell the employees they aren’t valued.
I see this so often. Accounting is an afterthought. You aren’t going to be successful unless you know your numbers inside out. What is happening every day from both a cash and accrual standpoint, revenue and cash flow forecasting, working capital position — this information and more has to be accurate and known in order to make good decisions about the business.
No change/no innovation
Most companies have to adapt to the changes in the marketplace. This takes innovation, new pricing methods, new products and services, and new ways of doing things that make the whole process more efficient. Rare is the business such as Herman’s Steakhouse that can base its success on no change whatsoever.
The important thing is you and your business. How do you stack up in these seven areas?
Editor’s note: Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also an executive in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas. The opinions expressed are those of the author.