How can entrepreneurs avoid startup pitfalls and set their companies up to profit right from the start?
After reviewing 6,000 companies in hot water, George Cloutier says, he has concluded that 90% of failures are due to bad management. Business owners who are fearful or in denial will never run successful companies.
Why do businesses fail?
Businesses fail because they don’t make a profit. They don’t have cash flow plans, and they don’t budgets. Profits aren’t everything—they are the only thing. With 90% of our clients, we install a cash management system.
Does bad management typically begin at business startup?
It may start right at the beginning, or it could be that business owners have some early success, then get carried away and become distracted. You really have to work 60 to 70 hours a week to be a successful entrepreneur because companies just don’t run themselves.
What are the specific hallmarks of failing to manage successfully?
Not doing financial statements honestly and accurately each month is destructive. Business owners must look at their profit and loss and cash flow statements in the cold, hard light of day. Don’t make excuses; don’t deny bad news. Face the problems and figure out why you’re losing money. Either your prices are too low or your product costs are too high. Deal with that right away. Don’t implement a plan that will reduce your losses in six months, because you’ll go out of business before then.
Is it human nature to want to deny or put off tough decisions?
Tough decisions usually involve confrontations, and most people don’t like those. My mother gave me great advice many years ago. She told me to eat my vegetables first! “Don’t delay the inevitable” she’d say.
Imagine this scenario: Two children are sitting at the dinner table. Each has one goal in mind: finish eating as fast as possible in order to resume play. One child eats the vegetables first, then moves on to devour the chicken nuggets. The other child squirms in his chair, passes chicken nuggets to the dog and builds a t-pee structure with his green beans.
Is it fair to say, child #1 may have an easier time facing tough decisions than child #2?
In business, don’t put off tough decisions. It’s only delaying the inevitable and because time is money, procrastinating is going to waste your money. So, eat your vegetables first.
How do employee issues lead to failure?
Many small businesses—and even big businesses—fail to demand top performance from their employees. If someone bills themselves in an interview as the best salesman since sliced bread, hold them to it! They should be as good as they say they are. The same goes for your suppliers, manufacturers, distributors, and anyone else you work with. You’re paying them to deliver excellent performance, and if they don’t, you have to find someone else who will.
The other thing about managing employees is that most business owners don’t have pay-for-performance policies. If a potential employee asks for $35,000 a year, give them $30,000 with the option to earn $40,000 if they do well. It will be worth your money to pay 25% more if you get the performance level you want out of that employee. If other employees complain, you tell them they can earn just as much if they perform just as well.
What additional management errors do you commonly run into?
There’s way too much emphasis right now on business owners needing to delegate. When you’re a small business owner you do have to delegate, but you can’t abdicate. Ultimately, you’re responsible for the company and you have to stay on top of things. Even after you’ve delegated something crucial to an employee, you have to circle back regularly and make sure you’re getting the right performance in that area. Don’t blame others for their shortcomings if you didn’t bother to follow them closely enough.
If your business is in danger of failing, should you bring in a consultant?
If you do hire a business consultant, make sure you’re paying them to implement a new system. Don’t just pay for advice—you can get plenty of that for free. Hire a company who brings in a qualified team of analysts who can help you get your hands on the problems and change them. We spend 80% of our time at clients’ companies working with management and employees to restructure and return them to solvency.