Tuesday, January 24, 2012

How to Diagnose What’s Wrong With Your Business


Over the years, I have met a lot of entrepreneurs who have been frustrated by low profits, lack of growth, or the stress of the never-ending demands. Many struggle with all three. While every business is different, there are common denominators. In fact, I believe there are 10. The tricky part is that failing to have a handle on just one of these areas can result in mediocre performance, a stressful existence, or ultimate and intimate failure. That is one reason the failure rate for small businesses is so high.
This is the checklist I review when I’m not satisfied with my company’s performance.
Marketing
1. Targeting. Do you have a strategy to reach your best potential customers with your sales and marketing efforts? A shotgun approach is too expensive and inefficient for any company, especially a small one. What percentage of the people you approach actually buy a product or service like yours?

2. Advertising and Public Relations. There are many choices for where to place an ad and how to execute a public relations campaign. The problem with many small businesses is that their marketing activities are driven primarily by which salespeople happen to call on them. Ineffective advertising or public relations can be not only a tremendous waste of money but a tremendous waste of opportunity. If you are doing things the same way you did them 10 years ago, you are probably getting less response.
3. The Message. Lots of companies still use this line: “We will exceed your expectations.” I even saw it on the back of an ambulance. (I don’t know about you, but I have pretty high expectations when I call an ambulance! Are the technicians going to give me a haircut after they bring me back to life?) It was a good line when someone first thought of it. Now, it is old. It is tired. It needs to retire. You need to exceed people’s expectations by coming up with your own line. Maybe it is not a line at all. Maybe it is a message. Whatever it is, it should say something about your company that means something to potential customers.
Management
4. Hiring. I can’t think of anything more important than hiring the right people. Great hiring is a skill, one that frequently is not the strong suit of the typical entrepreneur. Do you have a hiring process? Hiring by trial and error is a very expensive and painful way to build a staff. I have found that hiring the right people is 75 percent of management. What percentage of the people you hire work out great? It should be 80 percent or 90 percent, and perhaps less in a low-wage environment.
5. Firing. This is never a popular subject, and it’s especially uncomfortable these days. But it is a harsh reality of business that some people are just not suited for some jobs. Many bosses avoid firing at all costs, including going broke, because they want to see themselves as being “nice.” In reality, customers and other employees just see them as irresponsible. Here is a simple test: Are there people who work for you who you would be relieved to have come in tomorrow and quit? If the answer is yes, that is not a good sign. Especially if the employee is a relative.
6. Operations. Training, standards, support, recognition, systems, key performance indicators, follow-up, etc. Is your company getting the job done? Are customers happy? Do you know? How is employee turnover? Are employees happy? Would they tell you if they weren’t? Do you have people who tell you the truth? Do you yell? (I know. You’re passionate.) Have good people left your company for more money? That is frequently an indication of other problems.
Accounting and Finance
7. Basic Accounting. Many seemingly successful companies have gotten into big trouble by neglecting accounting until it is too late. Accounting is not just about paying taxes. It is about information, insight, and control. Great accounting will not make a business successful, but bad accounting can destroy a business. Is someone staying on top of receivables, being careful about opening new accounts and making sure the existing ones are current? Could you walk someone through your financial statements and explain each part?
8. Pricing. This is probably the sleeper on this list. I can’t tell you how many times I have seen entrepreneurs either put themselves out of business, or never make the money they should have, because of bad pricing models. They charge prices that bear no relation to the costs or to the value proposition. This is just one of the reasons a company needs accurate accounting — so it can determine the true cost of a product or service. Do your salespeople have control of the pricing for jobs that they quote? If so, are they selling at a price that allows you to make a profit?
9. Financing. Most businesses need some kind of financing. Whether it comes from investors, banks, credit unions, factoring or even credit cards, there is a lot to know and understand. This is another place where a good accountant can be of great help. Or not. If you have one of the many accountants who just do tax returns and are not really experienced at helping businesses grow, you can find lots of information in books and online. Or you can hire a better accountant. Here is a test: Do you know your debt-to-equity ratio?
Leadership
10. Any one of these topics could fill a book, and leadership is no exception. Let me count the ways: vision, direction, inspiration, support. It is similar to management, but they are not the same thing. As my company has gotten larger, I have found that leadership gets easier because I now have managers managing. When a company is smaller, the boss has to manage and lead. One minute you are writing someone up for violating the late policy, and the next you are trying to inspire the troops. Perhaps management is pushing, and leadership is pulling. It’s not easy doing both at the same time.
Whether you score well or poorly on this list, keep in mind that it is an ongoing struggle. Personally, I’ve been doing this for 30 years, and I can assure you that I am constantly wrestling with almost every item on the list.
So how did you do?

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