Much has been written about the failure rate of new businesses. You have probably seen the statistics. If 10 new businesses start today, five will be out of business in two years and eight will be gone in five years. I hate statistics like this. Good to know, but what the heck can you do with it? To me, the interesting thing is why there is such a high failure rate.
So what happens? Why is the failure rate so high? There are many reasons, including: lack of start-up cash; low selling prices; and poor personal work habits. The list could go on and on.
However, as I have worked with new businesses in my role with Nexstar, I have seen some common challenges that inhibit start-up business success. I am going to share one that was reinforced recently.
If you are a small company (two to eight employees) and are struggling to find the time and energy to keep your company profitable and progressing, see if some of this may be true with you.
I received an e-mail asking for coaching assistance from a husband and wife who started a contracting company in the last 10 years. The company had grown to three field technicians with one full-time and one part-time person in the office, in addition to the owner and his wife. During the start-up years, the wife ran the office. She was smart, efficient - a real go-getter. She now has other responsibilities and is unable to work in the company.
The owner told me he was really frustrated with his management ability. He, in a moment of self-criticism, said he was poor at discipline, accountability and delegation. He was really down on himself.
He’s working 60-70 hours a week. Being the owner of a small company, he is preparing and delivering estimates, running the occasional service call and laying out jobs in the morning for his guys. He is also ordering material, checking invoices and doing back-of-the-envelope job-costing. And he is cleaning the warehouse, tearing down cardboard boxes and many other jobs that are not necessarily tasks associated with business ownership.
What he was looking for was help streamlining his day. He wanted to know what he should be doing each day to move the business forward. He was looking for a new set of daily tasks that he should focus on. He wanted to work on the right things.
His intentions were great, but it was not getting to the heart of the matter.
The real question is not what he should be doing differently, but why he ended up doing all these things in the first place.
The Most Important HireLet’s go back to the history of this company. It grew quick. The owner is a crackerjack salesman. He knows the business, knows how to attract and retain customers, as well as how to get the work done. His wife, when active in the business, kept things humming and organized. As far as start-up businesses go, this one had a lot of early success.
The business is sized today about like it was two years ago. Why is the owner now feeling overwhelmed?
Could it be he is just unwilling to delegate? It’s a common challenge for many small business owners, and especially true with technically savvy owners like this one.
Was he a control-freak perfectionist? Not in this case.
This is tough to say, but he hired nice people who were incapable of efficiently performing the tasks he delegated to them. As a result, he was doing them himself, working himself into a coma every week. He didn’t even see it.
I challenged the owner on the abilities of his office staff and at first he aggressively defended their value to the business. “They are great with customers.” When I asked him to explain what they did in addition to the important job of answering phones in his absence and invoicing work orders during the day, his protests grew silent. After a period of contemplation, he admitted they have a hard time handling multiple tasks - they get overwhelmed. Uh oh …
The first office hire for a small business is the most important hire the company will ever make. Let’s think about large companies for a minute. They hire for specialties. A customer service rep, a dispatcher, a payables clerk, etc. It is one of the advantages of being a large company. You look for someone with outstanding communication skills and enthusiasm, and make him or her a customer service representative. You need a payables clerk, you look for an organized, detailed individual.
I am not saying the job of locating people to fill these specific roles is easy, but they are out there and in an economy such as this, in some markets they exist in abundance.
But what about a small company? A company that is hiring its very first office support person. Someone who will be in the office for extended periods of time when the owner is away in the field. Can you afford to hire someone who is “great with customers,” but not so good with other tasks? Can you afford to hire a detailed and organized person with lousy customer service skills? Can you afford to hire someone who has difficulty managing multiple priorities?
And this was the root cause of this contractor’s challenges. He had hired two very nice people, who he knew and trusted, but were incapable of handling the myriad of responsibilities that are required in a small business. They are quality employees who are placed in jobs that are not suited for their skill sets.
This owner is very capable of delegating. But when he delegated certain tasks to these employees and they failed, he took the tasks back, thinking he was a nice guy sparing his hard-working employees the anguish of feeling overwhelmed.
The question of training or ability/willingness came up next. If someone is not performing the job correctly, as a manager, you have to ask yourself, “Is it because they have not been properly trained or is it because they are unable or unwilling to perform the job?” Like all good people, this guy wants all his employees to succeed, especially those who are trying hard. And no, like virtually every employee in the world, they didn’t receive all the training they needed.
The $5,000 Question: I then posed this situation to the contractor. I take $5,000 and he takes $5,000 and we put it in an envelope. The bet is he attempts to train his current office staff and, at the end of one year, if they are performing the job close to the way his wife did, then he keeps the money. If not, I keep the money. Would he take this mythical bet? If the answer is yes, train away. If the answer is no, we need to start recruiting - immediately.
It is not fair to his current employees to continue on this way. They may be excellent specialists at a large company, but this owner needed to hire for a very difficult job. He needed someone who could perform a variety of roles in the company. He or she didn’t have to be world-class at all of them, but these tasks needed to be done with a high level of proficiency along with a sense of urgency and commitment. He did not need an average employee - he needed a real high performer, like his wife.
He has some tough decisions to make; decisions that will keep him up at night, decisions that will either change or doom his company if they are not made and executed properly.
They are not easy decisions and surely contribute to many of the eight out of 10 businesses that fail. The first office hire can open up a world of opportunities for the owner and the business. It can also potentially close the door on a better tomorrow if not done right.