Over the last few months, we in Australia have been horrified by the shenanigans going on at the Royal Commission (Inquiry) into some of our largest businesses, the major banks, and the damage they have done to themselves.
For the first time since the scandals erupted, a bank chief executive---the National Australia Bank’s Andrew Thorburn --- has stepped back and analysed where his bank went wrong.
This analysis by Thorburn has been suggested also applies to the actions of the vast majority of large Australian-listed companies.
My question is, could they apply to small businesses such as yours? Let’s have a look at them.
Thorburn suggested the primary focus had shifted away from customers. This has left his industry open to the challenge of ‘profits before people’. He said, “Ultimately the interests of our shareholders are the same as the interests of our customers.”
It’s hard to disagree with that, but the underlying problem appears to have been a move from a long-term view to a short-term one. Management have been looking at only this year, and at best, next year. Hence there were all sorts of incentives for short term results. He admitted that, “given the risks and nature of our business, we should be planning over a 5-10 year horizon, not just 1-2 years.”
What is driving that is the view of the big institutions which control their share price. As a small business owner, you don’t have that hovering over you. But you do have your bank hovering over you.
Does that impose pressures on you, to satisfy the bank, just as the banks have to satisfy the institutions short term horizons. And if so, does that impact on how you treat your customers: “get the sale”, rather than “satisfy the customer”. Short term performance, rather than long term growth.
Thorburn suggested “Banks have become bound by internal rules, policies, regulation and legacy systems. This has led to inertia – and as a result losing the local connections we previously had with customers when our people were more empowered.”
Now I’ve always thought that one of the real advantages small business has over bigger businesses is flexibility, and being able to react quickly to events, whereas big business has to make sure all the boxes are ticked before they make a decision.
In a small business, you make the decision, and I believe that can give you a real advantage.
It appears some of the banks at least, have been fog-bound. Thorburn said the bank could not identify how, or to what extent, it was failing to comply with the law. And this applied not just to his bank.
Apparently neither the senior management nor the board of the bank could be given any single coherent picture of the nature or extent of failures of compliance; “they could be given only a disjointed series of bits of information framed by reference to particular events.”
You need to know what is happening in your business, and that means more than acting on PHOGY thinking. The road to success is paved with good information, so you can see where you have been, and where you are going, and not be fog-bound.
And you need good systems to give you that information, and good procedures to ensure errors don’t creep into what you do. Don’t go overboard with them, but have enough to give you consistent performance.
There’s another tip to be picked up from the first quote from Thorburn, and that is “losing the local connections”. You, and your people, are the face of your business. People still value dealing with people – a friendly face, a smile, some useful guidance. It makes a big difference.
Yes, we all buy on-line, and I have no doubt this trend will keep growing, but being the business the customer turns to when they have a problem can’t be replaced by a system.
Systems can improve efficiency, take steps out of a process, but they are not a smiling face.
The big boys have clout, there is no doubt about that. But they have lost a lot of trust. You can build trust by the personal relationships you build with your customers, showing that you value them – it’s more than just a sale.
Have the systems to give you the information you need to run your business, that will enable you to make good decisions, quickly. I discussed the “Essential Attributes of a Good Business” in Part 1 and Part 2 a little while ago.
Be consistent and plan ahead. Don’t be like the banks, and sacrifice the future for short term gain. You won’t have the bank hovering over you.
When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need.
Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.
For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to use the 80-20 rule to determine their most profitable customers, and to determine the offer to bring them on board.
If you would like to discuss with me how you might do that, book a Strategy Consult here. There is no cost.
© Copyright 2018 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?