Attitude. First, last and always, the successful small business manager has to have the right attitude. That attitude starts with loving what you are doing and extends to your family. They had better love what you are doing too. Unless you really want to be running your own business, you are not going to put in the time and effort it requires. Unless your family really wants you to run your own business, they are not going to be willing to give up a Anormal@ family life. If you are running a small business, you will not be able to leave the business at the office. It is going to come home with you.

It will save trouble in the long run if the family understands what will be involved before you embark. It is all but impossible to get a business up and running when you know that it will have to be sold as part of the divorce settlement.

Another aspect of a successful entrepreneurial attitude is rigorous self-knowledge. You have to know your strengths and weaknesses and you have to be prepared to get help where you are weak.

The entrepreneurial attitude is far more complex than a simple can do belief, although unless you believe you can do it, there is no point in even starting. The successful entrepreneur is also willing to listen to others and to take help from wherever he can find it.

No one starts his first business knowing everything there is to know, or even knowing enough to get by, which is why entrepreneurs start an average of 3.8 unsuccessful businesses before they have learned from enough mistakes to get the next one up and running.

Most people are too anxious to begin doing and too reluctant learn first. We are not a nation of chess players. Thinking several steps ahead is not something most of us do. When you are starting out, the future is a completely blank canvas, and even the most obvious problems are lost in an optimistic haze of hockey stick sales and profit forecasts. It is amazing that almost everything in life and in business is cyclical, but all sales and profit forecasts move up and to the right. The successful entrepreneur recognizes there will be problems and plans to negotiate them.

To do that, the entrepreneur has to know the business he is in. This is not always apparent. Did Dominos start out in the Pizza business or in the delivery business? Did Dominos succeed because the product was so good and the delivery so swift that there was no need to go out, or did Dominos succeed because it permitted people to stay home and watch movies on their newly acquired VCRs and cables? Domino=s success had very little to do with the quality of their product, and quite a bit to do with a sea change in lifestyle among young and affluent families.

Clearly, Dominos succeeded because people wanted to eat at home and Dominos delivered. Now that they are no alone in the pizza delivery business, the focus has shifted to the product.

Knowing what business you are in is only part of knowing the business, but it is the part that cannot be taught.

Knowing your business also entails in-depth industry knowledge, market savvy and a certain practical knowledge of how to find suppliers and distributors. This expertise is usually gained through a combination of formal education and continual study, combined with on-the-job experience.

The chief benefit of formal education is that it teaches how to find information in addition to what to do with it. References available at libraries, colleges, the Small Business Administration, incubators, and book stores. Banks can help with information on competitors (Dun and Bradstreet reports) as well as standard financial ratios (from Robert Morris Associates and others) see Appendix for a list of sources.

These ratios will provide a way to Agiggle test@ your business plan. If you are in the same business, it is extremely unlikely that you are going to appreciably improve on standard ratios. Any claims of improvement had better be explained, and those explanations will have to overcome a great deal of skepticism.

Knowing your business also means knowing the financial condition of your company everyday. Who do you owe? Who owes you? How much? When will you pay them? When will they pay you? Those are the easy questions. You will also have to know how much it costs to produce your widgets or to deliver your service. In short, you should be able to produce a complete set of up-to-the-minute financial statements from the top of your head at any time. If you don=t know the numbers, you don=t know the business.

Clearly, to do that, you will have to know something about accounting. Unless you know what the numbers mean, you will never be able to keep them updated and in your head. Unless you know what your company=s financial condition is, you will have no idea of how you are doing, and whether you have adequate capital.

A knowledge of accounting, bookkeeping and how banks work are some of the aspects of basic management that you will have to master. Other skills include production scheduling, personnel management, financial management and planning.

If there is one area in which small business owners feel ill-prepared, it is finance. The solutions is learning to delegate and the corollary, learning to make sure your designees are doing what they are supposed to. This involves being able to judge people, but, more importantly, it demands that you be able to communicate effectively. Being able to get your point across clearly and quickly is necessary in all areas of business. You need to be able to deliver an "elevator speech" to raise money and to be invited to make a pitch a potential customer. Listening is an integral part of communicating. You need to know when you have made a sale, when you have a commitment for funds, what your customer=s reservations are, to make sure your workers know what they are supposed to be doing and why.

Management is the art of getting the most and the best out of the resources available to you. Among the tools used are goal-setting and decision-making. Employee management is another important management skill. Training costs money and takes time. Keeping and improving the employees you have is usually the more efficient course of action.

Many small businesses fail because the owner doesn=t realize that he is in sales. He has to sell his business to investors and to customers. He is also responsible for moving product profitably. Unless he has sales skills, the business will not reach its potential.

Planning, including budgeting, is the most important skill the small business owner can master. This involves a lot more than throwing guesses into a spreadsheet. It involves an intimate knowledge of the business, the industry, and general economic conditions and an understanding of how the business will tend to react under different conditions as well as knowing what steps can be taken to take advantage of favorable conditions and to defend against unfavorable developments. Planning does not involve seeing the future, which is impossible, but envisioning possibilities, assigning probabilities to them and deciding what to be prepared to do should they seem likely.

Planning is a never ending process because the possibilities, and the business, are always changing. Very few successful small business owners end up in the business they started. Planning has to be flexible enough to admit all possibilities.

The basic business plan usually includes projections of fixed and variable expenses, analyses of the company=s breakeven point, the competition and projected sales. To this master document are added periodic sales plans.

It is a good idea to open the planning process to outside professionals such as the company=s accountant and lawyer as well as to seek input from other agencies such as trade associations, local economic development councils, banks, the Small Business Administration.

All companies fail because they do not have adequate capital. Just as all animals die because their hearts stop. Adequate capital is vital, but its absence is generally symptomatic of other problems.

The first step in judging whether one has adequate capital is to decide what one plans to do with it and how long it will take for that capital to start returning capital. Adequacy of capital is a strategic question. The strategy is to determine what can be done with the capital on hand and to determine if that is enough.

Many small business owners recommend doubling the amount you think you will need and tripling the time it will take to generate revenues.

The ability to manage finances is critical to small business success. Managing a growing company is every bit as difficult as launching one. Working capital invariably lags sales growth. Increased sales also increases receivables and the time needed to convert them from receivables to cash in hand. On top of that, close attention has to be paid to the inventory. This is an important indicator. Inventory is money that isn=t doing anything. If things aren=t moving out of the inventory bins and out the door, there is a problem. If things are moving out the door so fast that inventory levels are dropping, that is a different problem. No company is too small to be able to do without financial controls and the small business owner has to understand them and believe in them.

Finance becomes a competitive edge when the small business owner starts extending credit to his customers. However, not all those customers are going to pay when due and more than a few might not pay at all. Financial management requires the small business owner to be able to know what the potential risk of being stiffed is. He will have to check out his customers and while have to figure out how much he can afford in the way of none performing accounts. It is not a difficult exercise, but, unfortunately, it is not something that can be taught. It is a matter of judgment.

Time Management

By this time, it should be obvious that successful small business owners are the ones that can manage their time efficiently. Time management involves managing your own time, as well as managing others so that they actually free you from some of the day-to-day chores.

When starting a business, you are doing everything. The problem with that is that when you are working with suppliers, you are not planning for the future, not monitoring cash flow, not drumming up new business. And when you are doing those other necessary things, you are not working with suppliers. There is always more to do than can be done. The secret is to know what has to be done, when it has to be done and what needs to be done before it can be done.

Being able to function on less than eight hours of sleep is a plus, but the real key is to be organized and flexible. Rigid organization can be more damaging than disorganization, since the disorganized person will react to opportunities as they present.

As soon as you can, hire good people and delegate give them as much responsibility and authority as you can, but that does not mean they are on their own. It is still your business, your vision and your reputation that makes the business go. You will have to monitor and instruct your employees, but you don=t have the time to micro-manage them.

The idea of having employees is to multiply the things you can do within a specific period of time by moving you from a doer to a supervisor. For instance, if you hire someone to load the truck and to make the deliveries, revenues are being generated while you are out making sales calls, or minding the store. The trick is to make sure the fellow can load the truck and make the deliveries without your being there to watch him.

General George S. Patton, Jr., (1885-1945) had a reputation as a martinet, but he also knew how to get things done. He said the secret to his startling achievements was that he told his subordinates how to do a job, because Athey will surprise you with their ingenuity.@

Before you can turn your employees lose, they must know what the goals are and the type of service and image the company is to convey.

Finding ready-trained competent people may be beyond the constraints of money and location. However, since you are a small company, you might be able to offer perks that larger, wealthier, companies cannot. Flexible hours and the fact that they will get opportunities it would take years to get at bigger firms may make up for higher wages. Even with those benefits, you will have a hard time finding good employees and you will probably have to train the ones you find, both in the business and in the way you want the company to perform. Decide on the qualities that are important in furthering your aims and hire people that seem to have those qualities. Bring them along as fast as is prudent, but monitor them carefully until you are satisfied that they understand what they are supposed to do and what the company=s image is supposed to be.

Because they hire relatively untrained people, many small business owners find that one of their biggest problems is getting their employees to take some initiative. It is a self-confidence problem coupled with the fear that their mistake could kill the company. To get the most out of these employees, they have to be convinced that, while they might make mistakes, they are smart enough not to make company-killing mistakes, if they act within the guidelines. While they should try not to make mistakes, they should remember that everybody does.

Telephone tag is one of the great time-wasters of our time. Calls have to be returned, but it is probably better to return calls when the person is likely to be there. If you are using voice mail, ask for a time to call. If you have a secretary, have her ask when it would be convenient to return the call. Studies have shown that people tend to be in their offices at the start of the business day, just before lunch and just before they go home for the day. Another idea is to set aside phone timeB a portion of the day when you will be reachable by phone. Unless you have a chauffeur, it probably is not a good idea to use drive time to make and answer phone calls. It is illegal in some states and dangerous in all.

Inefficient time management can prevent a company from running smoothly and cost-effectively. There are three principals of effective time management:

You will have to put in a lot of hours. This is not a 40 hours a week proposition, but hours alone don=t mean anything.

Be disciplined about your time. Prioritize projects according to the business plan.

If you can, delegate responsibilities to those who can handle them.

The biggest time management headache is the time it takes to do paperwork, such as preparing taxes and regulation compliance. It is probably more of a psychological than a real pain. A task that is resented because it adds nothing to the company=s profits and imposes government control. The government does not make things easier. Instructions, laws and regulations are all but unreadable. But until everybody joins the Securities and Exchange Commission=s crusade for plain English, we will just have to put up with the confusion. Most tax forms and regulatory reports are boiler plate so that once, mastered, can be duplicated with minor changes in the future.

It has to be done, so every effort should be made to make the chore go as quickly as possible. Taxes and regulatory reports have the benefit of being due at specific times so they can be planned for. They are also predictable. You know what information you are going to need, all you have to do is make sure that it is available when you need it. Organization forethought and planning will make these chores more manageable.

The competitive urge

Competing on price is the worst thing a small-business owner can do. Bigger companies can always undercut your price. They have the resources to lose money until you go under. What a small business ought to be able to do that a large one cannot, is to offer custom service, better quality control and a better motivated workforce. All companies attempt to deliver the best possible product or service, but the bigger the company, the more things that get in the way. The first thing to get in the way is the impossibility of being all things to all customers. The more customers a company has, the less likely it is that the company=s products will exactly fit each customer=s needs.

The second point at which a small company can compete successfully against a large one is in listening, and responding to, its customers and potential customers. This is the process of finding out what the customer really wants. He may say that he wants a part which attaches in a specific way, when what he really wants is a part which is easier to put on. It may be that changing the order of assembly will speed the line more than a new part. Or, it may be that what is really needed is a special assembly tool.

The best way to compete is to find your distinctive niche in the marketplace and stick to it.

Over the long run, keeping customers and adding new ones is not so much a matter of competing as it is of competing effectively. Effective competition is strategic in that it relies on deploying all the resources and strengths of the company to achieve the company's mission, rather than tactical, which tend to be short term efforts, such as .

To keep customers and add new ones, owners stress the value of knowing how to compete. They have learned through experience that there is a difference between "just plain competing" - for example, relying on low prices - and knowing how to compete effectively. Owners believe that competitive savvy means being true to what made them successful in the first place - keeping the integrity of their original vision, growing strategically, and above all, using their strengths as leverage in the marketplace. All this is achieved while keeping an ever-vigilant eye on what the "other guys" are doing.

Again and again, owners stress the value of adhering to their original plan. "My goal is to make my business profitable without compromising our values," stated one toy retailer.

To achieve his goal, the retailer concentrates on his distinctive niche. "People come to us because they like our personal service," he explained, "but sometimes they only have so much money to spend. We have overcome this by becoming more of a specialty store."

Owners sometimes struggle to uphold their commitment in the face of stiff competition - but they find that maintaining the integrity of their idea and focusing on their strengths are the best long-term competitive strategy:

"I've seen our industry going through price-cutting that is absolutely staggering," noted a construction equipment lessor, "but I have not participated in it. Yes, I have grown and prospered and make a nice profit, and we are consistently the highest-priced people in the marketplace. In the long run our quality shows our customers that we are the cheapest to do business with. You spend an awful lot of agonizing evenings and days trying to decide whether to participate in the price-cutting game - do you try to just gain market share and kill the competitors? If you have a quality product, you probably will kill your business at the same time. It takes guts and commitment to withstand that, to rally your sales staff around you and say, 'We are not the cheapest, but we are going to be the best.'"

To keep capitalizing on their strengths while sales increase, most owners set a goal for controlled growth.

"You can grow too fast," noted a contractor. "You don't want to take on more projects that you can complete. And, you don't want to take on more than you can finance."

How do owners expand their customer base? Most rely on a variety of methods. Eventually, they develop a mix of keeping their sales staff motivated and marketing effectively.

"You learn better sales and motivational techniques," said one wholesaler. "Make sure your people continue to learn new ways of selling." Effective marketing involves communicating the benefits of your product or service to obtain new customers. Owners rely on a variety of methods, usually tailored to what works best for their particular business.

"Word of mouth is big," said one retailer. "We live in a community that is pretty good about passing on the good word." This owner also used advertising and the yellow pages to keep his name out in front of the market. In general, he advised to "find what works and stay with that." Those who could afford it found value in tapping the expertise of outside marketing consultants.

Of course, effective marketing inevitably includes being aware of your competitors' activities. "You have to be very cognitive of the competition and what they're doing," noted an automotive glass replacement shop owner. A businesswoman explained that "knowing where you stand relative to your competition allows you to position your own product in relation to the market" - referring back to the theme of knowing where your strengths are and capitalizing on them.

It is at this point that pricing does become an issue for small business owners. Inherent in the concept of small business is that you cannot discount on low volume - so to make a profit while being price-competitive, owners advise that you establish an identity, stick to it, and communicate it.

"What do you give your customers that your competitors do not," asked one successful owner, "and what is that extra something worth to your customers? That's the whole concept of value-added services, and that's how you establish your prices."

"To get higher prices," advised another entrepreneur, "do something different that no one else is doing."

Product or Service Acceptance Curve

Studies have shown that new products, services and companies all encounter the same stages of acceptance. The curve is bell-shaped indicating a standard distribution of potential customers. The "toe" of the curve represents people who buy because it is new. They tend to buy, try and discard when something new comes along. Since their interest is to be the first to have something, quality, performance and service are not important. The next, and much larger, segment, covering the area from the toe to the knee, is composed of people who believe the product or service will fit a need. They are vitally interested in making the product or service do what they want it to, and are generally willing to work with company to get to that point. A wise management pays attention to the members of this group, since they are field-testing the product or service.

The next group is the real market. It extends from the knee to the opposite toe. This segment is huge and difficult to reach. Before a member of this group will buy he must have received a good report from another member of the group who has bought and used the product or service. Within this group, a good report travels at a snail's pace, while a bad report spreads like a grass fire on the plains in August.

"It seems like, if I do a good job for someone, he may tell one or two people about me, but if he doesn't like the job I did, he will tell everybody," is how one business owner explained word-of-mouth.

Not only is breaking into the main customer segment, difficult, maintaining acceptance is even harder. Success tends to lead to complacency. After all, if people are buying, why change?

The final portion of the acceptance curve is that portion of the population which will never buy the product or service.

Each Successful Company Carries the Seeds of its Own Destruction

Those seeds are all reflected in the company's reputation, which suffers from growth in a number of ways. Growth may stretch management so thin that the boss in no longer available to take the customer's calls. New, and less enthusiastic employees may make mistakes which aren't caught before the product is shipped. Expanding demand for parts may force the company to do business with companies that management doesn't know. The opportunities for loss of reputation and customers are almost endless. The one thing the boss of a growing company must do is make sure he is satisfying the people who made him a success. To paraphrase football coaching legend, Darryl Royal, the entrepreneur has to make sure "the ones that brung him still want to dance with him." A company that gets too big for its customers will probably not have the problem, or the customers, very long.

Stewart-Gordon Associates, Inc.
P.O. Box 781992
Dallas TX 75378-1992
voice (972) 620-2489
fax (972) 406-0213
e-mail Tom Stewart-Gordon