F.A.M.E. CAN KILL YOUR BUSINESS

No, not FAME. F.A.M.E.!. What I we are talking about here is Failure to Acquire Management Essentials (F.A.M.E.). While there is no cookie cutter template for building the perfect business there are certain characteristics and essential behaviors that are common among many successful business owners. I call these “Management Essentials”. While it is possible to find success early in your business life cycle without mastering these essentials, there is a direct relationship between understanding and applying these principles and successful performance over time.

The following are essential to success in your business. Some only become important as the business grows to a certain point.  By incorporating these essentials into your management repertoire you can build a successful business with sustainable growth.

Understanding the Unofficial Organization Structure of Your Company

Early on you are able to drive your business to success by your sheer will. You are engaging in activities described by Jerry Mills in “The Danger Zone, Lost in the Growth Transition (3^rd edition)” as “Finding” activities. These are the activities that owners and CEO’s should normally be engaged in. They are activities that drive the business forward. Jerry Mills describes finders as “visionary, idea generators, catalysts for change, and relationship builders or creators”¹. As your business grows there is a tendency to move away from these activities. You fall into the trap of doing “Minding and Grinding” activities. The illustration on the right, taken from Jerry’s book, shows the unofficial organization chart of your business. This is true of all businesses. You must acquire the ability to delegate tasks to the proper people. If you don’t cultivate this skill then you will be locked into doing tasks that are more properly done by others. In the book The Power of Focus² the authors describe the 4-D solution as Dump it, Defer it, Delegate it or Do it (now). By mastering this simple solution you will be able to move tasks to the proper people and be more organized in the manner that you accomplish things. They further suggest learning the power on “No”.

Minders are your accountants, controllers, CFO’s and your other administrative people. Grinders are the people who produce the products or services your company provides. While it is important for the owner/ CEO to understand these activities, they should not be engaging in them. Are you making collections calls? Installing cables? Making Widgets? Invoicing?  While it might feel good to engage in these activities because it reminds you of when you started the business, engaging in these activities may set your business back to the levels at which you started the business, or worse.

The Danger Zone is the abyss that lies beyond the point where your cash needs exceed your ability to meet those needs. We will discuss this more in the “Proper Cash Mentality” section below. There are many possible contributing factors for a business entering the Danger Zone. Not understanding the “unofficial organization of your company” as Jerry refers to it can be a major factor. 

Goal Clarity

Sound business management begins here. Clearly defined goals for your business are every bit as important as funding your business. Without this all important road map how will you know where to apply resources? You can’t reach your destination without a map. Where are you going? Why did you start your business? Sure, you were passionate about starting and owning a business, but why? Money? Fame (the other kind of fame), Philanthropy? What did you hope to accomplish? Have you? Will you accomplish what you had in mind for your business?

Your strategy plan for your business (and you definitely need to have one) should support you achieving your goals and objectives. Goals change and strategies have to keep pace. When your strategy, and thus your behavior, does not work in concert with your goal achievement you will soon find that neither is successful. Define your goals in writing and create a plan for achieving them. Revisit both regularly to make certain that you retain clarity of purpose.

Goals should be Specific, Measurable, Attainable, Realistic and Timely. Remember to apply the acronym SMART when creating your goals so monitor your achievement. Smart managers create SMART Goals.

Proper Reporting Structure

You must have the proper reports for your business and you must receive them timely. A complete package will allow the owner to see the entire landscape of the business and provide a method of measuring goal achievement. Although you do not need to be a technical expert on the reports, you do need to understand them. The complexity of the reporting is dependent on each business and it should be customized to the business. What works for you? What doesn’t? What will you read? How much detail should you have? All of these are questions that you must answer.

 Some of the  reports that makeup the package may be:

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  • Balance Sheet (with documented account reconciliations)
  • Profit and Loss Statements
  • Budgets, Forecasts and the related variance reports
  • Cash Flow Statements
  • A/R, A/P reports (Aging, DSO, DPO)
  • Operational Reports (Efficiency reports, wastage, Time utilization, defects, etc.)
  • Dashboard Reports (daily or weekly)

Cost Control Mentality

“There are no profit centers, only cost centers”. Accept this fact and you will avoid the pitfall of believing you can sell yourself out of trouble. Peter Drucker, sometimes referred to as the father of modern management, coined the term “profit center” in the 1940’s.  He later asserted that there are only cost centers within a business, and “The only profit center is a customer whose check hasn’t bounced.”^[3]

Control costs aggressively. Set up an approval structure for expenditures. Create budgets and forecasts and live within the boundaries of both. If your results are down then adjust your forecast for expenditures down and stick to it. If you are having a particularly good result stick to the original budget for all but operating expenses necessary to support the increase in business. There is a tendency to increase discretional spending when the outlook is positive. Fight this tendency to strengthen your business.

Your infrastructure (Plant and Equipment, Computer Systems & Software, office furniture and equipment, etc.) should be no less and no more than you need for your type and size of business. You should, of course, allow for reasonable growth. This is a philosophy that you should maintain throughout the life of the business. Budget for capital expenditures and stick to it.

Proper Cash Mentality

The most important essential for a manager to acquire is: THE CASH IS KING MENTALITY!!! . You not only must embrace this but you must thoroughly understand the flow and function of cash within your business. The chart below shows graphically what entering the Danger Zone looks like. Remember, when your cash needs exceed your cash availability you have entered the Danger Zone. Many businesses do not recover from this. Keeping your eye  on the ball requires the proper cash mentality. The bullet  points below show some key behaviors that owners should acquire  with regard to cash:

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  • Collect it aggressively
  • Spend it wisely
  • Respect those who lend it to you
  • Catch those that steal it from you (learn how employees steal from you in our E-Book on this subject)
  • Monitor it closely –make sure that someone, a trusted advisor if not you, reviews bank reconciliations and all other balance sheet reconciliations
  • Limit Check signers
  • Make sure that you have proper internal controls in place and that they are observed or the losses could kill your company

 The above essentials are not listed in any particular order because they tend to be interdependent. Owners that have a thorough understanding of how these essentials are important in their businesses and learn to embrace them will strengthen their companies and add significant value. The “acquisition” of these essentials can be difficult for an inexperienced business owner. You were not inherently born with the ability to know the right answers. Perhaps you have learned much of this on the job before you started your business. If you have not acquired these essentials there is no shame in getting someone to help you. Use whatever tools are necessary to reach your goals.

Who knows? If you avoid this kind of F.A.M.E. your business may just grow to the point that you achieve that other type of FAME!!!

Endnotes:

1.  Jerry Mills, The Danger Zone, Lost in the Growth Transition, pp 26
2. Jack Canfield, Mark Victor Hansen and Les Hewitt, The Power of Focus, pp. 45
3. Drucker, Peter F. (2002). Managing in the Next Society, pp. 84