Why Small Businesses Derail - Are You Your Own Worst Enemy?

May 13, 2014

 In the course of conducting research for our new book, Let Go to Grow; why some businesses thrive and others fail to reach their potential, we analyzed more than 100 small and midsize companies. We found that many previously successful and growing businesses reached a point where the upward trajectory flattened. As we started to examine the reasons for sales stagnation, some interesting observations began to emerge.

 

We learned that the constraint to growth is generally not capital. It may not be easy, but with a good business plan and a lot of persistence, one can obtain financing. We found that the problem isn’t usually a lack of good products or services. Most successful entrepreneurs have figured out how to deliver value to their customers. Market opportunity may limit global enterprises, but it doesn’t derail the growth plans of small businesses. There are always new geographies, new market segments and new product categories to exploit.

 

No, we found that what most often limits the growth of small businesses is the inability or unwillingness of the principal to let go. To grow a business beyond the start-up phase, the principal must initially give up doing the primary work of the business. We spoke with entrepreneurs who just simply didn’t want to do that. They loved what they did. They were passionate about their work.  They did it very well and they didn’t want to give it up.

 

For example, we met an outstanding interior house painter, an artist really. He loved to do complex faux finishes in higher-end homes. His work was magnificent. He had won awards for his creative finishes. He loved his work and he didn’t want to give up painting. That’s fine, but if the principal insists on spending most of his time with a paintbrush in his hand, doing the primary work of the business, growth will be limited. He’s trying to do it all himself and he will soon run out of capacity.

If the principal can clear this first hurdle and delegate the primary work of the business to others, the business will continue to thrive. However, the time will come when sustaining further sales increases will be dependent on the principal’s ability to relinquish day-to-day decision-making responsibility.  In addition, the business owner will need to delegate the hiring and management of at least some of the employees to others.

 

ServPro is a franchise business that cleans up and restores buildings after fire and water damage. Andy Bahen, the owner of one of the ten largest ServPro franchises in the country, confessed that, “It took my wife seven years to get me off the truck and it was the hardest thing I ever did, not to personally oversee every job.” When Andy insisted on managing every job himself, the size of the company was constrained by his capacity. Growth had stalled at about ten crews, because Andy couldn’t visit any more jobs than that in a day. Once he let go, and allowed his supervisors to manage the jobs, the bottleneck was broken and the company grew exponentially.

 

If the owner insists on making every decision and managing the details of all of the work, very quickly, the business will plateau and further growth will not be possible. The principal has to delegate this work to others. While this step may seem to be a subtle difference, going from managing workers to managing managers, it is what we call the “Big Chasm.”  For many, it’s more difficult than allowing others to do the primary work of the business. The reason delegating decision making to managers is so difficult is because it means giving up a measure of control and that can be very scary for entrepreneurs.

 

It should be scary, because the only thing worse than not delegating when it’s needed, is delegating before you construct the proper infrastructure. Doing so can be disastrous. The business can veer off course without the owner knowing it. We heard numerous stories of companies that failed or almost failed because the owner trusted the wrong people and/or the proper systems were not in place to support delegation.

One company that has now become very successful almost had to file for bankruptcy protection as they were transitioning to a midsize structure. The owner delegated responsibility to an office manager who was not ready to accept it. Further, the owner didn’t have documented processes in place to let the office manager know how she was supposed to perform her new duties. There were no appropriate metrics in place to let the owner know if things got off track. After making a number of mistakes, the office manager attempted to cover up the errors. By the time the owner discovered the cover-up, the business was perilously close to the brink.

 

Before owners delegate to managers, they must have three things:

  • The right managers – Delegating before the right people are in place is a recipe for disaster. Unfortunately, getting the right managers in place often requires difficult decisions, because it can mean layering or replacing loyal employees who simply do not have the skill set to become managers. 

  • Documented processes – It’s not very sexy and no one will pay a nickel more because you have well-documented processes. Even so, once a business reaches the point where the owner cannot be personally involved in every transaction, good process documentation is the best way to communicate to employees exactly how you want things done.

  • Robust metrics – This is what enables a business owner to know what is going on in the bowels of the business even though he or she isn’t personally there. For example, tracking the number of shipments that are currently late can let the owner know if there is a problem with on-time deliveries while there is still time to fix things, and before customers are lost. Good metrics are what allow a business owner to sleep at night.


 

With this infrastructure in place, the owner can safely let go and the business can grow.

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