Let’s talk about the typical small plumbing, heating and/or cooling firm. There is a single owner (or shareholder) and that same individual also operates the business as the company president or general manager.
Now let’s talk about a large public or private company. The owners or shareholders typically are not involved in the day-to-day operations of the company. The shareholders are merely investors who take their money and invest in the company. The hope is that their investment will grow as the value of the business increases. Perhaps even dividends are created from profits.
Shareholders of these large companies elect a board of directors who, in turn, hire a president or general manager to run the company. If the company is progressing and the shareholders’ investment is growing equal to or better than expectations, the president stays on managing the affairs of the business.
Should the business falter or miss expectations for an extended period of time, you can bet the farm the board of directors will fire the president and find a new person to lead the company. That is the way it is. That is what we hope happens when we invest our hard-earned money in a public company or any passive investment (real estate ventures, commercial property, stock market, etc.).
As a president of one of these companies, you understand the deal before you take the job. Perform at the highest levels or your tenure will be short. The axe will fall and you are out on the street.
It is the American way. It works - not perfectly - but better than any economic system ever created.
Now let’s get back to the typical PHC firm where the shareholder and company president are the same person. How does that work out? Do we have the same checks and balances in place? Is there the same ruthless expectation for an above-market return on investment?
Unfortunately, the answer is not usually. That is not a good thing.
Why Did You Go Into Business?If you ask many owners of PHC firms why they decided to go into business (invest their money into a new start-up company), you hear some common reasons. Chief among them are:
- I wanted to be my own boss.
- I just hate answering to anyone.
- My old boss was an idiot and I could not take it anymore.
OK, let’s step back for a minute and put our shareholder hat on. I have a sum of money I am looking to invest in a company. I meet with the company president to research the potential of the business. I ask a few questions, and during the course of the conversation the president tells me: “I am running this company because I just hate working for someone else. I like to keep my own schedule. If I want to come in at 10 or just take the whole day off, I can do that and no one can fire me. Truth be told, I have a real problem with authority. Someone tries to tell me what to do, I just might do the opposite.”
Now, as an investor, would you say to yourself: “Perfect, I am going to take my life savings and give it to this guy?”
What if you had this same interview with a different company and a different president, and during the conversation you heard: “I look forward to leading this company because of the opportunity this industry provides to create an outstanding return for my shareholders and a rewarding career for the company employees. I love to build successful businesses. I find it rewarding and invigorating on a daily basis.”
Of course, you would be more inclined to invest in this company.
Look In The MirrorNow, why did you go into business again? Was it to be your own boss? To be independent? So you could go hunting or golfing or whatever whenever you wanted? Would you invest money into any other company where the operator of the business listed this as his or her stated reason for accepting the job?
Not a chance. And if this is the case, in all likelihood your business has not provided much of a return on investment and probably not as much free time as you expected either.
Let’s do another self-assessment.
If you are the owner and the operator of a small business, you have two separate and distinct “hats” you wear. The first is the owner hat, the hat you wear as the investor in the company. The second is the president or general manager hat, which you wear as the day-to-day leader of the business.
With your owner hat on, how would you judge the performance of you as the business operator? Have you been a good steward of the resources invested in the company? Have the original and ongoing investments that have been made in the company grown faster than other investment opportunities during your tenure as business operator?
Said differently, if someone else owned the business, would you still have the job as the company general manager or would you have been fired years ago?
Said differently again, would anyone else on earth have been foolish enough to trust you with his or her hard-earned money, or are you the only possible person who was senseless enough to fund your business?
After writing the above, I sat back and said: “Man, Tester, that is a little harsh, don’t you think? To each his own. If a guy wants to start up a company, invest his life savings and fiddle around with it during his prime earning years, what do you care?”
And that is true. It is America. However, in the past I have on occasion come across this type of management. Years of haphazard management and listless leadership create a business that not only provides a poor return on investment, but ultimately creates insurmountable debt for the shareholder.
A poorly run business becomes like a used car. You keep pouring personal money into it because you have already invested so much into it. Both will end up dead in the ditch - the car and the business - with the owner having no money left.
Whoever is running the day-to-day operations has to have the talent and the desire to run a first-class company. Anything less than that will ultimately lead to demise.
Hold Yourself AccountableIf you run a small business, you owe it to yourself to run it like you could get fired for poor performance. Sure it is make-believe; no one can really fire you. But the fact is, you are your own worst enemy. You need to understand that, to be successful, you will have to work harder and be more accountable than if you worked for a tyrannical owner.
If your goal of starting a business is to be independent, you actually have to work harder to accomplish that than working for someone else. Sure, you can have seasons of freedom. But real freedom comes from having a successful business over the long term, not taking a two-week vacation or an afternoon of golf, leaving behind a business limping along.
Now, the great news about running a small company is that you can start changing things right away. Your reasons for starting the business may have been suspect and your performance as a business operator to this point may be worthy of a pink slip, but starting tomorrow, it can improve.
If your business is not providing the return it should, look in the mirror. Realize that a small business is successful when the business operator is engaged, enthused and committed to business success. Unlike years past, there are resources available in this industry to help with this quest. Join a business development organization, seek out the advice and counsel of successful business people in other industries.
And work every day like you could get fired tomorrow.