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Every company makes mistakes. That’s one thing all businesses have in common.
That said, each mistake is an opportunity – especially if the error affects a customer. Some companies blame anyone or anything but themselves. They may or may not correct it. They may or may not apologize. Some act like they’re doing you a favor if you ask them to correct their own goof-up. A culture of blame exists in these firms. Their mantra is “It’s not my fault.” Other companies immediately correct mistakes – especially for customers. They apologize. They might even offer the customer something extra to show they’re serious. A culture of accountability exists in these firms. Their mantra is “Fix the problem to the complete satisfaction of the customer.” Clearly, the second type of company is where you want to be. But, consider kicking it up a notch to turn costly mistakes into profitable occurrences. Let’s say Bob’s Computer Service gets a call from their customer Big Company, Inc., telling them that Bob’s driver delivered their repaired monitor but they didn’t get their power cord back. Bob’s has a culture of accountability, so the rep apologizes, arranges to have it delivered right away and offers a discount to make up for the aggravation. So far, so good. Even though the rep did everything right, most of Bob’s competitors would do the same, so it was good, but not extraordinary. What if Bob’s takes the time to find and fix the root cause of the error? Now they begin to separate themselves from their competitors who, as soon as the customer’s problem is resolved, get back to their hectic routine. (Hey, if you’re busy putting out fires all day, every day, it’s tough to find time to install a sprinkler system.) This is the first way to profit – by driving repeat mistakes out of your business and enjoying the resultant productivity improvements. And here’s one more step: bring the customer back into the loop. What if someone from Bob’s contacted Big Company, Inc. and it went something like this: “Thank you for bringing your missing power cord to our attention. As a result of this situation, we reworked our procedures. Each product that arrives for service now gets a tag on which all accessories received are documented. Nobody – including you – should ever fail to get all your accessories back with repaired equipment.” Almost nobody does this sort of thing. This level of dedication to quality, customer service and follow-through puts Bob’s Computer Service in rare company and helps create strong, life-long customer relationships. And, we all know the value of customers who are also raving fans. We all make mistakes. You may as well profit from yours. Leadership. What the heck is leadership anyway? And why should a small business owner care?
Some folks use the word “leadership” as a synonym for influence. Let’s expand that definition to include a couple of other important activities:
This is not an all-encompassing definition of leadership. Volumes have been written on the subject. In a small business setting, though, it’s good to have a simple, common-sense approach to things so let’s focus on these three attributes. Influence There are many kinds of influence. A screaming child in a restaurant is influencing the embarrassed parents. You can use various types of influence over your staff. But we’re not talking about domination. Of course your position of authority is real so you can’t (and wouldn’t want to) turn that off. But how about simply asking your team – individually and collectively – to deliver the desired behavior? Years ago, I had two employees who became hostile toward each other after a previously harmonious working relationship. It was jarring for their team members, because they both were considered friendly and easy-going. Quickly it became apparent that this wasn’t going away. Sitting down with both of them, I pointed out that they likely spend more time at work than with their own families, and a troubled relationship affected everyone around them. They got it, and all returned to normal soon after that. But it’s not always that easy. A similar situation later erupted with two other employees, and it required more firm and direct language: “You don’t have to like each other but you must work together in a professional and congenial way. Otherwise one or both of you will have to leave.” You’ll develop your own style over time, but don’t shy away from issues in your business – deal with them directly and quickly. Checkup:
Setting the Example This one’s pretty self-explanatory. Nothing will spoil your good leadership efforts faster than “do as I say and not as I do.” This doesn’t mean you have to become “one of the guys” but know this: Your people watch you like a hawk. Model the behaviors you ask of your team. Checkup:
As the business owner, you’re the main resource provider. Here’s a good way to find out what obstacles are in your team’s way: Ask ‘em. How about having your employees create a “Stop Doing” list, or a “Hassles” log? What resources do they need? What procedures are outdated? Checkup:
Be a leader So, a simple formula for small business leadership includes using your influence to promptly deal with problems, setting the example and removing obstacles. Let me know if you’ve got more to add to the formula.  "The difference between something good and something great is attention to detail.” – Charles Swindoll
An alien spacecraft lands near a mobile home park (as alien spacecraft are prone to do) and abducts an earthling. As the extraterrestrials examine the human, they’re fascinated that one toe on each foot is much bigger than the other four. Why aren’t we earthlings similarly surprised when we see another person’s foot for the first time? Because it’s the norm. Like water to a fish. Ho-hum. And so it is with many of the line items on your financial statements. We take some things for granted, and look right past them. Sometimes, it’s familiarity. Maybe you’re used to glossing over training expense because you always spend less than you budgeted. Sometimes it’s your perceived lack of influence over certain numbers. No matter what you’ve tried, that one number “is what it is.” One of the first steps to improving your financial results is to start looking at each line item as if you were seeing it for the first time. Letting them become ho-hum is a formula for decline. Of course, every section of your income statement is an opportunity for improvement, but here we’ll focus on your Cost of Goods Sold, or COGS. COGS is defined as the direct costs that go into creating the products or services that a company sells. For example, an automaker’s COGS would include the material costs that go into making the car plus the labor costs used to build it. The other costs that don’t directly go into producing cars, like office supplies, support staff and utilities, are considered Overhead Expenses … another topic for another day. If you’re a service-only business and don’t sell goods, you probably call it Cost of Sales, or COS. Even if your P&L just shows revenue less expenses, and doesn’t include a COS section, you really do have COS … it’s the direct labor cost associated with your billable staff. Some great reasons to mine your COGS for improvement opportunities:
Do a detailed analysis of every line item in your COGS, and you might be rewarded with an out-of-this-world profit improvement. “What gets measured gets managed.”
It’s hard to argue with that piece of wisdom. That said, here’s another old saw to consider: “If everything is important, then nothing is important.” Between these two valuable quotes is a balance and a guideline for business owners. All businesses have certain numbers that define success. Some, like profit, are universal. Every business must take in more than it spends, so an argument could be made that this number – profit – is a definition of success for every business. But what about other numbers? There’s certainly no shortage of other things to measure – sales, costs, margins, cash … the list goes on and on. They’re all important. But don’t forget: “If everything is important, then nothing is important.” Focusing on a small, carefully-selected handful of numbers and actually doing things to improve them is much more likely to lead to overall success than scattershot oversight of dozens of different numbers. Some business owners create a scoreboard or “dashboard” of metrics – to pull selected numbers out of the blizzard of income statements, balance sheets and other reports – and single them out for an appropriate amount of attention. This is how the “What gets measured gets managed” piece comes into play. So, how do you cut through the scads of potential metrics which might be worthy of your undivided attention, and discover the select few which will truly make a difference? Think about your business. Two questions: 1) Are there things related to your specific business model that are absolutely critical to ongoing success? For instance, if you are the low price leader, then cost of sales is likely a primary area of focus. 2) Are there things going on in your business right now that deserve attention? Examples might include things like declining quality, too much dependence on one customer, or high employee turnover. If you find that there are specific things that warrant a permanent place on your scoreboard, then add them and leave them there. Or, perhaps you’ll discover that a temporary issue needs attention – so it gets a spot, only until it is resolved. In most cases, these big-picture, corporate-level “critical numbers” will have underlying “drivers” – activities which must be done to move the number in the right direction. A simple example: weight loss. If your critical number is pounds, the drivers would be calories in (eating) and calories burned (exercise.) The best drivers measure activities and behaviors, as in this weight loss example. If you want to change a number, you’ve got to change someone’s activities or behaviors. These are the numbers that deserve a significant amount of time and attention. That’s not to say other numbers aren’t important. They’re just not as important. Identify and break out your critical numbers and drivers. Get them on a scoreboard for all to see. Talk about them. Teach and learn about them. Assign responsibility for them. Track them. Most importantly, be sure to move them in the right direction. Your business will be more successful for the effort. The trust of the innocent is the liar’s most useful tool.” – Stephen King
We all have people we trust. And they trust us in return. In some cases, that trust has been earned via confidences kept and commitments achieved. In others, it’s possible that the mutual trust is there because … well, just because. Among my friends are two entrepreneurs who have been harmed by being too trusting, and perhaps too eager to offer others the opportunity to benefit from their businesses. We all know people we describe as “the nicest people.” While this may well be an over-used phrase, in this case it’s true. These two folks – who by the way don’t know each other – are easily the most kind, gentle, nice and trusting people I’ve known. For each of these two people, a positive characteristic – trust – turned into an Achille’s Heel. What happened? In both cases – despite their very dissimilar businesses – there was a common thread: Each of these entrepreneurs sought outside help in advancing the business. For one, it proved fatal for the business. The offending party offered to provide cash and a building in which to grow the operation. But after making those investments, the villain seized the business, leaving my friend out in the cold and wondering how this could have happened. For the other, the culprit posed as a potential buyer of the company, only to copy the products and steal the customer list. The scenario is ongoing as this article is being written. Both situations, I’m 100% convinced, were premeditated. The impact on these people is predictable: Anger. Embarrassment. Financial loss. Uncertainty about the future. What could these two overly-trusting entrepreneurs have done to prevent such skullduggery? Of course, the short answer is to get a lawyer involved. Hindsight, it is said, is always 20/20. How does one know when to seek legal help? (A note to my attorney friends: The correct response is not “early and often.”) Certainly, there’s a time to bring in the lawyers, and having a competent – dare I say “trusted” – attorney at the ready is a must-have for any business owner. Who wants to go through life thinking there’s a business-stealing boogieman around every corner, waiting to pounce? But there’s a brutal reality: the boogieman is real. He sucked the blood from these two wonderful people. Like it or not, a healthy amount of suspicion and skepticism goes with business ownership. Each of us has to find a comfort zone. For some, it might mean cynicism and sliding a non-disclosure agreement across the table to every new acquaintance. For others, it may be a reluctant admission that some folks are scallywags. So, be nice. Be generous. But be careful out there. “Trust everybody, but cut the cards.“ – Writer & humorist Finley Peter Dunne “Never trust anyone completely but God.” – Lawrence Welk “Trust, but verify.” – President Ronald Reagan Ever heard someone say, “There’s no such thing as a short-sleeve dress shirt”?
The pocket protector crowd (think of Dilbert) might disagree with that statement, but those who know far more about workplace apparel than I do accept it as gospel. To quote anchorman Ron Burgundy, “It’s a given.” There are many “givens” in business. Time is money. You only get one chance to make a good first impression. Cash is king. Here’s another one to add to the list: “If you’re the owner, nobody cares as much as you.” Many business owners haven’t yet heard this valuable fact. Or, they’ve heard it and refuse to believe it. As a result, they have unrealistically high expectations for their people. Then, when their employees fall short of these lofty expectations, the owner is disappointed, surprised and maybe even angered. Ultimately, in a situation like this, the employee leaves – either voluntarily or through termination for “poor performance.” Of course, the owner’s expectations were never clearly defined, never written down, never explained and were very likely a moving target. Let’s run down the list of what the business means to a typical entrepreneur. We’ll call him Bob. For Bob, the business is:
Now let’s make a list of what the company means to Joe, one of Bob’s employees:
OK, Joe may think of it as a career. Joe may be emotionally attached to the company and may be a big part of its success. Even so, you have to admit that Joe’s list is much different than Bob’s. Here’s my point: Business owners must adjust their expectations to the givens of the workplace. If you learn to accept “Nobody cares as much as you” as a given, you’ll save yourself from the inevitable aggravation and consternation: Anger. Firing. Recruiting. Rehiring. Retraining. Low morale. Missed opportunities. Get real and get used to it. Nobody cares as much as you. It’s a given. Some readers may find this attitude to be in contrast with my position that employees can think and act like owners. It is not. Many employees can and do think and act like owners. They will rise to the challenge and accomplish the most incredible things. I see it all the time. But there is one indisputable difference between an owner and an employee: If the business fails, the employee experiences a job-changing event. But for the owner, failure is a life-changing event, potentially bringing total financial ruin on the owner’s family. Yes, employees can be wonderfully loyal, incredibly hard-working and intensely dedicated. But the fact remains that if and when the hammer comes down on the business, it is the owner who takes the biggest blow. It stands to reason, then, that the person with the most on the line – with all respect to faithful employees – will care the most. After all, the owner’s connection to the business goes far beyond livelihood and career. Consider the following simple formula for effective leadership:
So, do what it takes to foster loyalty, hard work and dedication among your team. Return their gift of loyalty by being loyal in return. Create a win-win work environment. Share information and solicit their opinions. Thank them for a job well done and reward them for exceeding goals. Help them learn to think and act like owners. But remember, they are not owners. You’re the owner. Don’t blame your employees for drawing a line. Again, have realistic expectations. You owe it to your employees, to your business and to yourself. The best numbers to put on your dashboard are the specific numbers that define success for your company. Look at the things going on in your market and industry. What are your company’s trends for the last few years? What are your customers and employees saying? These answers will help determine your dashboard metrics.
Keep the amount of information to a handful of critical numbers so your attention isn’t diluted. Just because you CAN measure something doesn’t mean you SHOULD. Less is more. Don’t focus only on financial measures. Operational numbers (web hits, turnaround time, customer satisfaction, etc.) can be especially helpful in analyzing progress toward your most important goals. Finally, once you have a dashboard, use it. It’s not decor – it’s an accountability tool. Put a name next to each number – the person who “owns” that result. Go over the numbers regularly with your team and strive to achieve each target. Unless you’ve just been released from a long incarceration in a Turkish prison, you know that the concept of working on your business – rather than in it – was popularized by Michael Gerber in his mega-hit book, “The E-Myth Revisited.”
Gerber made many great points (which explains the “mega-hit” part), but the on/in distinction is the big take-away for most readers. Here’s an excerpt: “Go to work on your business rather than in it, and ask yourself the following questions:
Well, one of Gerber’s main themes is the idea of systems. Systemize everything. Manage systems, not people. It’s terrific advice, of course, but many small business owners still struggle, even after reading E-Myth. What’s a system? What systems are needed? Where do you start? My answer: Anything can be a system. A system is simply a way to avoid NOT making things up as you go along.
Simple? Yep. Like I said, anything can be a system. Not all systems are this simple, but you get the idea. Beyond creating and installing systems, how else can you work on your business? Perhaps more to the point, how can you find the time to work on your business when you’re consumed by it all day, every day? Here’s a way to let the ideas and time find you: Constantly be in “improvement opportunity mode.” Every time an error or crisis occurs, stop. Avoid the temptation to put out the fire and get back to work. Analyze what just happened. Was it human error, or could a system – even a simple one – prevent future recurrence? If so, create it right then and there. In many cases, you can do this sort of “post-mortem” work in a matter of minutes. Planning is a great way to work on your business. As an early riser, my favorite planning time is early Sunday mornings, before my wife gets up. And business trips can turn into mini planning retreats … if you keep the TV turned off in your room. I know a business owner who tells me he likes thinking about his business while on his riding mower. Some folks really embrace this concept by taking their teams on annual out-of-town planning retreats. Exactly what you do is less important than developing the habit. Start working ON your business today. “Do it. Do it now!” – Arnold Schwarzenegger |
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