Steady as she goes

 

‘Steady’ is not a word you’d normally use to describe an entrepreneur.

The more typical image is as flamboyant buccaneers, identifying a customer need, raising capital and using energy and intellect to fulfil that need, managing risks along the way.

Tales abound of erstwhile entrepreneurs starting an enterprise in their parents’ garage, from a laptop in their bedroom or from a run-down shop. Almost overnight they become millionaires, then billionaires and high-profile media personalities.

That happens, of course, but for many business owners the journey to riches is a little more sedate and in some cases, more predictable. The few who do succeed (the statistics say that the majority don’t) and become successful and wealthy often achieve this over years, or decades of steady and predictable growth. 

Through the wonderful power of compounding (known and loved by many investors), 10% growth, year after year, will create a business of scale if carried on for long enough.

Of course, most businesses don’t grow in a straight line. 

They have good years and bad. 

The year 2020 for many businesses will be more about survival than growth. With depleted reserves and additional loans, many may take several years to recover. But recover they can and as long as the longer term trajectory is up, they can get back on their former growth curve.

Let’s look at an example. 

A small shop with turnover of £100k in their first year. Sales growth averaging 10% each year for 20 years would rise to a turnover of over £670k in year 20. That’s growth of nearly 7 times! That excludes inflation. So that is more units sold, more profit (if margins and overheads are managed) and more scale.

Of course, that is a hypothetical and simplistic scenario. 

There’s a truism in business though - that what you plan for, you achieve. Planning for a minimum of 10% growth (in normal times) is eminently achievable for most businesses. The plan needs to have substance - in our example of the shop, in one year growth may come from increasing the range, another year from expanding or reconfiguring the space, adding new employees, moving on-line etc. Growth won’t be linear but if the trend line is a minimum of 10% growth, scale can be achieved by steady, consistent, application.

Getting rich quick can be a compelling and seductive objective for some. The lucky few with extraordinary talent or perfect timing may succeed.

For the majority, steady, persistent application can deliver similar results...but it doesn’t happen overnight.

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What's on your 'To do' list?

For a typical business owner it will be a wide range of things.

From the strategic to the tactical. From the long term to the shorter term and the downright urgent!

It strikes me that the contents of your 'To do' list can tell you a lot about how you are managing the business.

If the items on your 'To do' list are leaning more towards the tactical/short term/urgent, you are probably still at the 'Technician' phase of managing your business described by business guru Michael Gerber. You are still very hands on 'doing' and delivering the product or service to your customers. Strategy? Whats that? I haven't got time to breathe never mind think about being strategic!

If your 'To do' list content is more long term/strategic - recruiting a new senior employee, negotiating terms with a prospective new customer, looking at a new IT system to improve effectiveness etc you are probably in the Manager/Entrepreneur phase. You are thinking in the longer term and perhaps engineering how your business can continue without your day to day input. That is a much better place to be for a business owner.

Well that's all well and good but an urgent list is an urgent list and this stuff needs to get done! 

That is true. When I get into overwhelm mode - it happens to us all from time to time, I review the list and set priorities. Is there anything on the list that can be delegated or deferred? With some tinkering, planning and thought the list can be made more manageable.

That sorts things out for the immediate future but what about the longer term? 

If 'overwhelm mode' is the normal state of affairs for a business owner, some time needs to spent on thinking how things might be made more manageable over time. That might need some time out from the business to think things through and work out a plan. An external facilitator can help here to help you look at things afresh and bring new ideas.

So do think about this if you feel trapped by your jobs list. We all need plans and 'To do' lists. They are what move us forward. For business owners, your list should be motivational and moving you towards a longer term goal.

If that's not the case with your list, it's time for action.

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What kind of small business is yours?

Every small business is different.

It's shaped by the founder or founders' values and the experiences and learning picked up on its journey. So putting small businesses into categories is not easy. It can be helpful though in gaining an understanding of the owner's motives and goals. For professionals like accountants, that helps us to give the right advice and support.

My consultancy colleague, Stewart Peart and I have recognised three main types of small business. All mainly shaped by the owners and what drives them.

The three types of business are Lifestyle, Owner-Managed and Entrepreneurial.

A Lifestyle business does what it says on the tin. It is built around the owner's lifestyle. There is no great ambition of being the biggest or best. It's primarily about working sensible hours fitting around family and leisure, the owner delivering the service and probably no other employees in the business. Examples might be a self employed plumber, hairdresser, accountant working from home etc. The typical business structure might be a sole trader. The owner effectively 'is' the business.

An Owner-Managed business is perhaps a bit bigger in scale. The owner will still be closely involved and 'hands on' with running the business but their role will involve managing as well as doing. Typically there will be employees and the business structure might be a limited company. Examples might be a small retail outlet, a small manufacturing unit or a high street accountancy practice with a single branch

An Entrepreneurial business is something else. This is where the founder or founders are obsessive about growth and scaling up. They are prepared to take significant risks to reach their goals and put the business above everything else. It is not for the faint-hearted or risk-averse. Typical Entrepreneurial businesses will be multi-outlet or nationwide in coverage or international. The structure might be a limited company but probably with a more complex share structure to accommodate investors. Raising capital may be critical to achieving scale in a short timescale

Where does your business fit within these categories?

We've put together a short series of videos which expand on these business types and how to make them work

I hope you find them useful

Watch 'business types' video

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Back on the tools again

The aim of every business owner is to make themselves redundant.

Or it should be.

Over time the lucky ones, or perhaps the more organised and determined ones manage to delegate much of their activity to a capable and loyal team. Their role becomes more of being a guardian of the business. Making sure it still runs smoothly, managing growth and fixing problems.

Problems. Yes, inevitably they crop up. Stuff happens. Again, the savvy entrepreneur is selective about problems they get involved in. The tendency may be to roll up their sleeves and get stuck in if something is not working well. That may not always be the best thing. Giving the team the knowledge and the scope to fix things is a better and more sustainable long term solution.

Occasionally though something comes along which can't be left alone. Maybe a big systems failure or key staff leaving and client service beginning to suffer. In these most extreme cases the only solution might be for the business owner to get stuck in. Effectively to 'get back on the tools' again. The tools might be a paintbrush and roller, an Excel spreadsheet, an HGV or hairdressers' scissors. Whatever you need to deliver your product or service to your customers

At first it feels odd. You are a little rusty. Things have moved on a bit and you need to get used to some new technology or a new way of working. Then it starts to flow. You've still got it. This is fun! This is what I used to do. It's why I started this business. It's what I'm good at.

This is the time that the sensible business owner will pause and think about the longer term. Staying on the tools may be comfortable, familiar and rewarding. But it will take your energy and focus away from where it should be - developing and sustaining the business. So it needs to be a short term thing.

The day you start back on the tools is the day you should start planning to get back off them. Otherwise you might get stuck. Your business will stay small or you will start to burn out - doing too much of everything

For a short time it can be fun while it lasts and reassuring to know that you still have what it takes. But don't let it trap you....

https://www.base52.co.uk/services/consultancy

Grinding it out

Ray Kroc, the founder of the McDonalds empire has always been one of my business heroes.

I didn't know much about him until recently, apart from the fact that he started McDonalds at the ripe old age of 52. As a late starter to business myself, that was enough for me, along with the ingenuity of the McDonalds concept - simple, effective processes, brilliantly executed can make for a great business.

So I was delighted to stumble upon Ray's autobiography, 'Grinding it out' in a second hand bookshop a couple of weeks ago. It's an honest, fast paced read about his rise to fame and riches. As the title suggests it wasn't an easy ride and success didn't fall in his lap. He earned it.

His work ethic was incredible. Ray was first and foremost a salesman. But he had other attributes as well. Not least he was an accomplished pianist.

In his early years he sold paper cups. Rising at 6am to pound his beat looking for new orders. He finished around 6pm and dashed off to his evening job - playing piano on a radio show. After the 6 to 8 shift he nipped home for a couple of hours to have tea and spend some time with his wife. Then back to the studio for the 10pm to 2am shift!

I've had periods of working fairly hard every now and then but Ray was at another level.

Of course his obsession with business left casualties. He was married three times and had some big business dust ups too. Business came first, rising to the top of his industry selling paper cups and mixers and then building McDonalds.

So why isn't McDonalds called Krocs? Well the McDonald brothers had already opened a successful burger restaurant with the signature attributes of simple processes, well executed and quick and friendly service. They were happy with their one successful store and had no desire to expand. Ray saw the opportunity, did a licencing deal with them and the rest is history. It was a fraught and strained relationship but the McDonalds brothers became rich beyond their wildest dreams when Ray finally bought them out many years later.

Like many super successful entrepreneurs he was multi-faceted. He was tough and driven but also had strong values of honesty and trust and had a knack for creating a strong, loyal team. He was also good at giving his team independence and freedom to make their own mistakes.

So this book in putting some flesh on the bones of Ray's life didn't disappoint. By today's standards he wasn't politically correct but it was a different era and I'll cut him some slack for that. He has left a thriving and enduring legacy and he remains for me a brilliant and innovative entrepreneur. He is an inspiration for me and other over 50s that it's not too late to do something great. Maybe not something as ambitious as a global food empire but something nonetheless.

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Are you super successful, getting by or struggling?

Business guru and entrepreneur Nigel Botterill often quotes statistics that only 5% of businesses are 'super successful' or doing very well, 15% are doing ok and a massive 80% are just 'getting by' or struggling.

Not a great advert for the joys of running your own business. I have no hard evidence for the validity of the statistics but leaving aside 'one person' service businesses (which tend to do well), the figures kind of ring true.

So what sets the top 5% apart? Why are they able to thrive in challenging times whilst the majority are not doing so well?

I've had a good think about the successful businesses I've worked with over the last 15 years and these are some of the attributes they show:

1. Review and adapting to change

The best businesses are continuously reviewing their effectiveness and adapting to changing circumstances. They hate complacency and being comfortable and are always striving to get better

2. Focus

They have a core offering which is the essence of their business. Most of the business resources are deployed into making this core offering as attractive as possible. They might diversify but not at the expense of the core business.

3. Business owner freedom

The business owner is released from some of the 'day to day' grind and is able to focus on customer care and team and business development

4. Processes and roles

The business has clear processes and routines for sales and marketing, production and finance and job roles are also clear. Basic stuff gets done well, over and over again.

5. Pricing

Getting this right is key. Price too low and your business will never make money. There will be a constant battle to cover overheads and manage cashflow. An uncomfortable place to be. Price too high and the business will stagnate. Hit the sweet spot where your pricing matches the value the customer receives and gives you a respectable profit and you are on a good path.

That's probably it in a nutshell.

Having a great product or service helps as does finding an attractive market niche. Even in a more competitive space, if you follow the above steps you are more likely to end up in the top 20% and move closer to super success

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How many businesses do you need?

Running a business can be pretty intense. But very now and then, there is a lull. Maybe it's a summertime thing? The volume of emails goes down, the phone is not ringing quite so much, there are no major issues worrying you. What next?

My tendency over the years has been to dabble with something new. Kick off that new business idea I've been thinking about but have not had the time or energy to do anything about. Being an optimist, I inevitably focus on the upside and getting started and think less about what is required to keep things going. So let's go for it. This is going to be big! 

But with me at least, it never quite turns out like that.

Inevitably the lull in your core business ends. Your intensity returns, the phone starts ringing again, issues crop up, you get stuck in and the new idea has to take second fiddle. It kind of bubbles along in the background, sometimes for several years but never reaches its potential. Eventually you kill it. It's become a drain and it's time to concentrate exclusively on the main business.

There are entrepreneurs who make a success out of starting several business and running them simultaneously. Nigel Botterill famously built up  5 (probably more now) £1m businesses within a few years. Felix Denis, the late publishing billionaire, used to start new 'baskets' for his new ideas and run these alongside his core business. Some of our clients too have had modest success with running multiple businesses side by side. 

So it might be just a failing in me that I've not been able to make this work. These days, when I get that new idea and rush of enthusiasm, I stop and think a bit more before diving in. Have I really got time for this? If I put the same effort into my main business would that deliver more benefit? 

Let me tell you about my new idea for a great on-line shop though...

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How do you write a letter to a lord?

My mother-in-law is a bit of a raconteur. One of her many family stories is how her father started up a filter cloth business in the 1960s. As the story goes he was listening to the news on the radio and became very exercised about something he heard. He came running into another room and shouted to his wife, 'How do you write a letter to a lord'?

What had caused his excitement was listening to a lord (it would be a better story if we knew his name) bemoaning the fact that a local firm was having to import filter cloths for commercial vehicles from overseas despite the fact that (at the time) we had our own cotton industry. My wife's grandfather, who at the time was a bus driver, thought he could do something about this by supplying filter cloths from a local cotton mill in Lancashire. He knew people at the mill and felt sure he could use his contacts and knowledge to good effect. 

He wrote his letter to the lord who agreed to arrange an introduction to the firm looking to purchase the filter cloths. He managed to secure the contract and his business was launched. It became a thriving and respected small family business supplying filter cloths to firms in the U.K. and overseas. It improved the income and quality of life of my wife's grandparents in the latter years of their working life and the business was eventually sold giving them a comfortable retirement.

So that may be a good family story but what are the business lessons to be learned? Well the main one for me that my wife's grandfather didn't just have an idea, he acted on it. He wrote his letter to the lord, used his contacts at the mill and won the contract. Every business starts with a first step towards winning that initial order or making that first sale. Something needs to be done to follow up on that great idea or flash of inspiration. So what will your 'Letter to a lord' be this week?

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What do you do when the phone stops ringing?

Business owners like being busy. Too busy to get through the urgent task list, speak to that important customer, deal with a tricky problem raised by a member of the team.  They like the buzz, the adrenaline rush, up and out of the door early, in the office before everyone else and work, work, work. Doing stuff until it's time to go home.

But suddenly it seems, something strange happens. The customers who used to contact you directly are dealing with members of your team. The volume of emails and phone calls you have to deal with has slowed down to a trickle. Business is still coming in and work is getting done but it's happening without you. 

It's a strange and unnerving feeling.

So what do you do? Well for some the need to be busy takes over. They will pile in and take on some work from the team to fill up the time. Before long they have their head stuck in a tricky customer project and they don't have time to sort out their important jobs again. They are needed and fixing problems. Job done? Well maybe not. They are busy but busy in their own comfort zone and the cycle starts again.

So if you are a business owner and this happens to you, my advice is pause and take some time before doing anything. Embrace not being busy for a while and use this time to think. What should your role be? How can you really move your business forward?

Steve Jobs at Apple went through a period of restructuring and consolidation and building up reserves in his business. Someone asked him what his plans were and why he wasn't moving forward with new initiatives. His reply was, 'I'm waiting for the next big thing'. That big thing was the change to downloading music and out of that came iTunes and the iPod and the resurgence of Apple.

As small business owners we maybe aren't setting our sights as high as Steve Jobs but we all have 'things' happening in our industries which will affect how we do business in the years to come. Maybe we should get busy seeing how we can exploit this rather get busy doing what makes us feel comfortable? 

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