So many people who start small businesses do. It is getting caught in an operational mindset without a management mindset.
Now that is not to say you don’t need to have an operational mindset in your business; you do, because you have to deliver your product or service. And you have to do it efficiently (i.e. at a cost less than the price), and effectively (i.e. meet customers’ expectations).
Why is this important? Let me give you a real life example. I’ve been working with a client which is in this very trap; they’re hard-working, diligent, and it is only through their commitment to their vision that the business is still afloat.
They shouldn’t be, but after some years, they are still losing money, supported, indeed funded, by their creditors and bank. They must have concluded, as I did, that this business, and these people, are worth saving.
What is missing is a management mindset that operates over the top of the operations, a mindset which sets the direction, the goals which must be achieved, and the measurement of progress towards meeting those goals.
The road to success is paved with good information. A management mindset determines what information is needed, and ensure that it is available, reported and analysed.
Imagine you are a pilot, charged with delivering a plane load of passengers, from Sydney to Perth. What are some of the things you need to know?
• The size of your load – that affects the height at which you will fly,
• Your speed, and hence how long it will take to get to your destination
• How much cash (fuel) you will need
• The weather conditions ahead (the economy)
• How you are tracking against these variables.
The pilot measures his progress through the instruments in front of him. Indeed, that gave rise to the name “dashboard reports” we see in businesses today.
People doing the delivery don’t have time, the opportunity, or the tools, to look at these variables. Their job is to deliver.
A sustainable business requires three things; these are not mutually incompatible; they have an element of both. After all, small businesses aren’t, or should not be, run as mutually exclusive hierarchies:
A clearly defined target market or markets backed by a good understanding of the expectations of those markets. This requires both a management and an operational mindset.
A sustainable income stream, i.e. both consistent sales and consistent profits from those sales. Management needs to know what is happening; operations need to know how to achieve it.
Documented systems and procedures that enable the processes by which the profits are generated. The management mindset of a business requires these, the operations mindset produces them.
The operational mindset pertains to the ongoing activities of the business to produce and deliver its offerings. You must do so in a timely manner, and meet your customers’ expectations. Failure to do so, if not corrected, will lead to failure of your business.
Where do people who start their own business come from – from an operational skill. Unfortunately, many of the skills you learned in being great at your own job do not translate to being a great manager.
As an individual operator, you are judged only on your own work and results you deliver. As an operational manager, you are judged on the results and success of your team.
From the other side, if you, as a manager, don’t understand your business operations, and what are the links to its performance, then you might have a management mindset, but will not succeed. If you don’t understand the basics of your business, how it runs and what makes it run, the you won’t succeed.
Management has to have a sense of strategy; knowing where to go, and the strategies to get there. But they must also love the numbers. They need plenty of common sense and an ability to derive meaning out of the different ways numbers can be combined or dissected to arrive at the right performance metrics for early warning signals for the business. Knowing your numbers and the different levers that can be applied to them makes you the master of the game.
Having both a management and an operational mindset is extremely critical for all business owners. No matter how good you are at framing strategy; it also has to get executed successfully for an organisation to succeed.
And this is the challenge for people going into business for themselves; they must develop a management mindset, and learn how to integrate their operational mindset with their new management mindset.
To succeed in small business, you need both mindsets, and know how and when to step from one to the other.
And that is the next step my client must take; develop a management mindset, and use it.
When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back. They so often lack a management mindset, and lack control over their business. Eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.
For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand:
• The strengths, weaknesses opportunities and threats of their business
• Determine where they want to be – clear, achievable goals, and
• How they are going to get there – their strategies to achieve their goals
This is sometimes known as the NOW – WHERE – HOW model.
If you would like to discuss with me how you might do that, book a Strategy Consult here.
© Copyright 2016 Adam Gordon, The Profits Leak Detective
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?