In order to be successful, you can’t over extend yourself, writes Simon Wehr.

Many small-to-medium businesses evolve from an individual having a particular skill or interest that develops into a money-making venture.

While they may have all of the knowledge and experience needed to be excellent in their chosen field, chances are they will lack the necessary skill set needed to take care of the commercial side of their business.

They may work for a while but when times get tough, like in the recent recession, or if the business starts to grow, the cracks will start to show.

Several years ago, my job expanded from heading up marketing to include sales. While I felt I had a reasonable understanding of our dealer channel as a whole, I knew that I needed to get my head around each individual customer if I was going to make a difference in my new role.

I asked our sales team to provide me with a brief overview – something that would help me frame up each company.

What I got back was an Excel spreadsheet with a list of names, addresses and sales history. This wasn’t what I wanted. I needed to really know my dealers and numbers only tell part of the story.

It was apparent that I needed to get out in the field and get some first-hand information, so I put together a simple questionnaire that I could use to collect data from each dealer. This would allow me to benchmark each of them against their peers to look for strengths, weaknesses and opportunities.

With computer under arm and appointments made, I hit the road and started asking questions.

Everything started out fine; it was pretty basic stuff: How long have you been in business? How many employees do you have? What other complementary products do you sell? What industry associations do you belong to? What accreditation and qualifications do you have?

What happened next nearly floored me.

I started asking some pretty fundamental questions that are critical to the success of every business. The answers I was getting back made it apparent that most of my customers were simply meandering wherever the business was taking them, without goals, a business plan or even a basic understanding of what was working and what wasn’t.

“What type of projects do you typically go after?” I’d ask.

“What do you mean?” they’d reply.

“Well, do you prefer entry level residential – you know $10,000 to $100,000? Or do you go after those mid-level residential projects, say, $100,000 to $1 million? Or, is it the luxury residential market of $1 million and above?”

“All of them!” they’d say proudly.

This set off alarm bells immediately, not only because of a small dealer’s inability to bankroll a very large project, but also because they clearly didn’t fully understand their own limitations as an organisation.

“What about commercial projects?” I’d ask

“Yes!” they’d say

“What type of commercial?” I’d ask.

“What do you mean?” would be the reply.

“Well, do you do boardroom fit outs, houses of worship and lecture theatres? Or, do you do very large scale projects like multi-dwelling units and retail shopping complexes?”

“Yes!” they’d say.

I saw a pattern forming.  So, having an understanding of their business based on the earlier questions, I start pulling the thread.

“So, you have a total of three employees in your company and you’re putting in tenders for multi-million dollar commercial projects. What would you do if you were awarded one?” I’d ask.

“We’d be laughing. We’d make enough money to keep us going for a few years,” they’d say leaning back in their chairs, crossing their arms confidently.

I don’t like to be a killjoy, but occasionally a reality check is needed to save people from themselves.

“OK. Let’s talk this through. You spend a week, maybe longer doing a proposal. A week where you’ve been generating no income for the business; in fact, you’ve been a liability. So now you submit the proposal. What would you do if you were awarded it? You would have to find 20 or more casual workers who can work at a day’s notice. They would all have to go through WHS training, and you’re going to need a 24/7 help desk. And how are you going to bankroll a multi-million dollars project? Will you take out a second mortgage on your house? Now here’s the really good bit – let’s say we, or any one of your other suppliers, are on back order with a product required to commission the project. We aren’t liable because our dealer agreement gives us indemnity, but you are. Now you’re getting hit with $30,000 a week in penalties until you can finish the project. So, you’ve just put your business into administration, put off all of your staff and lost your house! And even if you do manage to get through it, your regular cu
stomers have found other dealers, so once this project is completed your pipeline will be totally empty with no prospects.  Oh, and here’s some icing on the cake: you were able to quote $80 an hour for labour because of your low overheads. That drove down the market price, forcing the large commercial dealers to come fishing in your waters to stay profitable. You’ve woken the sleeping giant!”

The same lack of clarity and understanding was shown when I asked about their goals.

“I want to add a couple more people to the team,” was a common answer.

“Oh, so you want to make less money and have more headaches?” I’d say.

They didn’t understand the fundamentals of growth and the basic principal of the break-even point of growing a small business.

Or asking about long-term goals: “I want to sell the business one day,” they’d say.

“To who?” I’d ask.

“You know, one of the big guys.”

“But, hang on, aren’t you your business? Once you’re gone there is no business. And aren’t you pulling the profit out of the business so you can live your tax-deductible lifestyle? That’s OK for now,  but not if you want to sell it. If a big company comes sniffing around they’ll do due diligence and find the business has no profit on paper, so it’s not viable.”

So then an employee says, “I’d love to take over the business, boss.” But they can’t get finance, so you agree to play banker. The trouble is when you step away it loses your experience, commitment and focus. They start getting later and later with their payments. Alarm bells go off. You stop playing golf and go back to the office to find out what’s wrong. They’re on credit hold with their suppliers, way over their head on a couple of projects and have been trading insolvent for months. Now the business has to be put into administration and you have no way of getting your money. Hopefully you won’t lose your house … again.

I know this all sounds like doom and gloom, but the reality is this can all be avoided by following some simple rules.

1. KNOW YOUR BUSINESS
Understand the business of your business. Pull it apart into small digestible pieces so you can get a clear understanding of what is working, what can be improved and what needs to be totally changed. Do it at every level. Break a few projects or clients down side by side and compare everything from chargeable labour, travel, margin, cash flow and job satisfaction.

If you are selling products, make sure you are maximising rebate and discount programs from your suppliers to get the very best margins and rebates. In other words, don’t spread your purchases across many suppliers; consolidate to get better buying power.

Put together a detailed plan of what you want to achieve and how you are going to achieve it. Ensure you are being disciplined and efficient at every level and don’t become complacent and fall back into old ways. If you want to grow your business, understand the sacrifices you are going to need to make to get where you want to be and never lose sight of the end game.

2. KNOW YOUR SWEET SPOT
One of the questions I always ask is, “What projects do you enjoy doing the most?”

There is a sweet spot for most companies that many business owners don’t think about until they’re asked. When you drill into it, you will typically find that it is where everything aligns perfectly from core competency, profitability, cash flow and risk. By identifying your business’ sweet spot you will be able to refine your offering and provide a stronger competitive advantage. This in turn will give you better margin and greater job satisfaction.

Don’t try to be good at everything; be exceptional at a few things.

3. CREATE BUY-IN WITH YOUR TEAM
Many small business owners are so distracted with their own day-to-day workload that they never ask their staff the simple question: What are your goals?

Then they are surprised and frustrated when another company poaches them.

All too often I’ve heard: “Every time I get someone trained, a competitor comes along and steals them.”

There are two fixes to this. First, pay a competitive wage. You may be investing in their training but they are the ones investing the time and gaining the skills. Whether you like it or not, you need to increase wages accordingly.

Second, remember that everyone needs to feel valued. If their goal is to one day own their own business, then help them plan how to get there. Maybe that could be part of your growth plan too. Think creatively. Why not explore a partnership with them in a different geographical area or targeting a different market segment? You will be amazed at the loyalty this will create.

4. DON’T BE YOUR BUSINESS
All too often the person who owns the business, is the business.

In other words, everything is tied to the reputation and skill set of a single entity (i.e. you!). While this may be good for the self-esteem, it is not healthy for the long-term security and success of the business.

Apart from the risk, if you were to be suddenly hit with a debilitating injury or illness, your personal workload capacity puts a ceiling on overall potential of the organisation. That is not good for your business, your health, or your family life. Train and mentor your team so that they can confidently handle all of the tasks that you currently feel compelled to do yourself. Letting go of control will be extremely challenging for many business owners, but as you empower your team with responsibilities you will also set yourself free to take a step back and look at your business from a higher level. You will be amazed at the clarity and inspiration you will find when you’re not burdened with the day-to-day tasks of the business.

5. DON’T BE TOO PROUD TO ASK FOR HELP
I have unfortunately seen too many businesses fail because the owners were too proud to ask for help until it’s too late.

There are bound to be several areas of your business that are not in your wheelhouse and creating a weak link in the organisation. It could be marketing, bookkeeping and finance, accounts receivable, or business development and selling. The sooner you recognise this and ask for help, the sooner you will be able to get back into the things you really enjoy and excel at.

Join local business and networking groups and start talking about your challenges. There are literally hundreds of experts out there who would welcome the opportunity to assist you. They may be retired CEOs, accountants or general managers who feel they still have something to contribute and would probably be happy to do it for a token amount just to keep their hand in the game. You will be amazed at what a set of fresh eyes with years of wisdom, perspective and experience can bring to your business.

Sometimes we get so busy trying to get everything done and focusing on the things that will make us money today, that we lose sight of where we are heading tomorrow. Take the time to step back from your day-to-day business and look into it, not just at it. Don’t meander without direction grabbing at everything. Identify your strengths then build on them and fine-tune them into a repeatable recipe for success. The sense of security, job satisfaction, and profitability will have you asking yourself why you didn’t do it years ago.