Two Kinds of Businesses
When I am called to help a struggling business, I usually encounter one of two situations. The first is an owner who is a subject matter expert and struggles with allowing anyone else to perform the work that he or she is so brilliant at. That business is a trade business. It might be a plumbing company, a bakery, or a restaurant, but the function of the business is that the owner works IN the business. Often, these ventures are initiated by someone who is employed but dislikes working for someone else, desiring to express their own opinions and visions. There is nothing wrong with that if the owner understands that they have a job and it will never evolve into more than that, as long as they remain focused on working in the business instead of on it. In that case, they own the job, but it remains task-oriented, and if they ever need to step away, the business will likely fail quickly.
The other situation is someone who starts or buys a company and comes in with the mindset that they are now an “owner,” and they don’t need to perform the tasks of the business at all. That mindset rarely results in success. Unless you have enough money to suffer the burn rate of a trial-and-error process of staffing the company, simply owning the company seldom results in success, even if you purchased a successful company of the type discussed in the first chapter. I have seen this many times, and I have yet to see one succeed. Suppose the business was successful due to the personality and skill sets of the original owner, and the new owner does not have a transition plan that results in replacing the former. In that case, the essence of the business is lost, and you purchased nothing of value.
So, what is the correct approach?
In either case, a prudent businessperson would create a detailed business plan that includes every foreseeable contingency and has sufficient capital in place to navigate unforeseen events.
Almost certainly, that means the owner needs to wear multiple hats and switch them depending on the role they are playing. First, there is the “owner” hat. That is worn by the person whose name is on the paperwork at the State Capitol. Next, you might have a CEO hat, worn by the person who oversees the overall business functions, both internally and externally. Inside, there may be departments such as accounting, sales, marketing, production, and human resources. Outside the company, responsibilities may include representing the industry association, engaging in legislative and regulatory efforts, providing public representation, or interacting with the board of advisors that helps steer the company. Typically, this involves a third role, wearing a hat labeled Chief Operating Officer. That person oversees the internal operations of the business, while the CEO focuses on external functions. In the earliest days, the owner might frequently switch roles throughout the day, but as time passes and the business grows, people can be hired to fill specific roles, allowing the owner to focus on tasks that deliver the most value to the company.
The critical aspect of this discussion is that, as the owner, each position represents job performance, and an employee-like attitude must be adopted while performing those duties. The question that should always be asked is, “Am I doing the job so well that I, as the boss, would recruit me?”
I recently had this exact conversation with someone. I declared that if he looked at the company’s ROI, he, the owner, would fire him, the CEO, for poor performance.
First, each duty must be performed to the highest standard that you would want your future replacement to match. Secondly, as you are performing the work, you must record each detail and measurement that represents the excellent performance of the work. That history becomes the position description in your business plan and contributes to the creation of a position specification that you eventually use to recruit your replacement.
Assuming you do a great job and the company grows, that attitude and specification will enable you to hand the document to an onboarding employee, providing a standard of excellence. That is how you should be performing, to the highest standards.
Most likely, the two positions you will be performing longest as an owner will be accounting and marketing. The reasons are that these positions form two of the most vulnerable spots for your business: access to money and the continued stream of revenue. Often, I have seen owners pass off the bookkeeping function too soon, as it is not usually an enjoyable task. When that happens, they frequently hire someone before the position is clearly defined and safety parameters are in place. The owner believes they are hiring someone better than themselves, someone who will establish the department or clean it up for them. I can’t tell you how many times I have seen these two elements of business derail firms as bookkeepers steal money from owners, or the flow of work stops.
I strongly recommend that you find a reputable accounting firm and have them assist in setting up your accounting records. That should continue over into the period when you hire a bookkeeper and eventually a controller. That firm should work with you to develop measures and provide periodic reviews, ensuring your financial security. No other person should ever have access to, or control over, the entire financial cycle of your business. Too many times, I’ve seen individuals buying products from suppliers and writing checks to cover the bills, all the while, both sides of the equation were them, and the money was going into their pockets. There needs to be checks and balances that prevent fraud and embezzlement,
Marketing is another very challenging position in a company. It should never be handed over until there is a clearly defined position description and a system within which that person works. This should involve call sheets, metrics to evaluate performance, the use of a CRM as a means of monitoring activity, and periodic checks on activities that include client calls.
Similar to bookkeeping, the unsupervised nature of sales and marketing allows for long periods of substandard performance that can be difficult to detect unless the mechanics of that visibility are established by you, the owner, through your own performance of that work.
In the next episode, we will explore the means and methods of creating a business plan that provides a 360-degree feedback loop to drive the development of your business.