How a small-business mentality hinders growth

Every business you’ve ever heard of, or come across, started the same way. All businesses start small. They all begin with an idea. One person will come up with an idea, and will take a risk and start a business. Some new business owners will reduce their risk by getting other people involved, either as partners or investors. That’s the foundation of every business. 

Stylequity (a business advisory firm with which I’m involved) is celebrating its 10-year anniversary. You may not think that’sa big deal, but given the odds of success for any new business, this milestone is truly remarkable.

Statistically, 75% of new businesses will fail in their first 3   ̶ 5 years. The statistics vary from country to country, and from one area or expert to another. The actual percentage isn’t important though. If you ask any new business owner about their chances of failure, very few will acknowledge it.

Nobel Prize winner Daniel Kahneman calls it Delusional Optimism– if entrepreneurs knew the odds of failing in their new ventures, none of them would ever start a business. Despite the odds, people start businesses all the time.

I believe that most people who start a business aren’t really business people. Let me explain:

Entrepreneurs vs Managers

Last year I analysed the CEOs of the top 200 ASX-listed companies. Most of them didn’t startthe business they are heading up sobre esto. Many of them have a financial or legal background, business degree or MBA, and many of those have attended an Ivy-league school for their post-graduate education.

Small business owners are very different. Those are either professionals (tradies, doctors, lawyers, accountants or engineers), or entrepreneurs with a passion (shop owners, restaurateurs, etc.).

Running a single shop, or one-office practice or firm, is very different from running a chain of shops, or an international multi-office firm. The fundamentals are the same, but the difference is in the mindset of the owner (managerial skills are also required, but that’s a separate discussion…).

I’ve identified 4 key areas in business owners’ mindset, which prevents them from going bigger, and building a large enterprise:

Vision & Strategy 

“One day Alice came to a fork in the road and saw a Cheshire cat in a tree. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ was his response. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.”

― Lewis Carroll, Alice in Wonderland

This is one of my all-time favourite quotes. Without clear vision and sense of direction, it really doesn’t matter which route you decide to take. It will be impossible to get to an unspecified destination. It seems that many small businesses lack a clear vision, and a defined strategy to get there. In saying that, I’ve seen smaller businesses with a clear vision and strategy, but the thinking is limited to a small operation.

Control and letting go

When a professional starts a business, everything isequally important. When things get overwhelming enough (and not a second before!), the fledgling business hires its first employee. An initial part-timer becomes a full time staff member. That’s an enormous milestone in the life of the new business and itsowner. Why?

Because when you hire someone to help, you need to let them do their work. If you’re hovering above them and looking into every detail of their work, the impact will be immediate:

• The employee will feel unappreciated, micro-managed, and is likely toresign.
• You will lose a ton of time checking someone else’s job, and not doing yours.

By providing clear guidance and performance expectations to the new recruit, you can let the employee do what they were hired to do, so you can do your own work.

Knowledge and advice

“We don’t know what we don’t know” is another favourite quote of mine. Donald Rumsfeld famously said: 

“…as we know,
there are known knowns. These are things we know we know.
We also know there are known unknowns. That is to say, there are things that we know we don’t know.
But there are also unknown unknowns, the ones we don’t know we don’t know.”

Small business owners appreciate the first two of theseand will consciously ask for help. This comes as hired help  ̶ either employees or service providers (accountants, lawyers, etc.). 

The Unknown Unknownsare often neglected, or even ignored; and that’s a big hurdle in the small business owner’s growth mindset. 

Assembling an advisory board, or a professional chair for a board of directors, will help the business owner prepare for the Unknown Unknowns.

Leverage

If you’re a motor mechanic, and open up a mechanical repair shop because you want to be your own boss, that’s absolutely fine. There’s nothing wrong with this approach, as long as we acknowledge it for its’ limitations.

To run a successful mechanical repair shop you don’t have to be a mechanic. In fact, if you’re passionate about fixing cars, like to get your hands dirty and fix things, your chances of success as a large business owner are not too good. If you want to do the “doing” yourself, you’ll probably miss many leverage opportunities – systemisation of processes, financial leverage (understanding the difference between good and bad debt, for example) and investment in high-calibre managers to run things for you. 

Understanding leverage is paramount in growing a business. Utilising staff, advisors, financial and operational levers in a business will help yougrow the business. 

Begin with the end in mind

Steven Covey’s 2^nd habit, in his famous book 7 Habits of Highly Effective People, teaches us to begin our strategic planning by articulating exactly what we want to end up with. That’s basically the fundamental element of vision and strategy, and without a clear articulation of our goals, we can’t really get there. Once we know our destination, we can plan, alone or with the help of others, to get there. Quickly…