Montana n: A state of the northwest United States bordering on Canada. Admitted as the 41st state in 1889. The fourth largest state in the union, it includes vast prairies and numerous majestic mountain ranges.
Syn: Treasure State, Big Sky Country, Last Best Place.
Jones n: slang. An addiction or very deep craving.
Friday, May 09, 2008
I have friends that want to start a small business. I want to give them advice and help them understand what they are getting into, but they are optimistic and enthusiastic and somehow think my insights don't apply to them. I sigh and roll my eyes at them just as they sigh and roll their eyes at me. We are very good friends.
Thinking about the adventure they are undertaking has given me a lot of insight into the adventure I am going through. It has helped me understand some things I have learned. So whether you take it or not, here is my advice for people starting a new business. The things I have learned by running a business.
Everything takes longer than you think it should.
Almost everything I have tried to do in my business has taken longer, and sometimes a lot longer, than I thought it should. Things like hiring employees, changing the menu, printing business cards, making repairs. Nothing terribly hard, but they just take longer than I think they should.
Sometimes it is because you end up waiting on other people. You Email out a question to someone and they take several days to respond. People have to check their schedules, finish their projects, do something in their lives before they can give your issue any attention.
Sometimes it is because you are busier than you think you are. Most jobs have a regular routine with lots of things to do and fitting that one new and extra thing into the schedule is just plain tough. It may be a simple thing, but you still can't stop everything else just to do it.
Sometimes is because of something unpredictable. Road construction delays the trip to the bank or forgetting that one important document and having to go back for it. Your delays could be from illness, or snowstorms or other more important things cropping up. The universe just messes with you sometimes.
I have seen this phenomena before when I was someone else's employee. It was a minor nuisance then, I thought it was an example of the business not being as well run as it ought to be. Now that I am the employer I see it more and more in almost every aspect of the business. It is not just a nuisance, it is a serious obstacle that needs to be planned for and dealt with.
When you are planning your business and your schedule, budget extra time for everything. I don't care what you are trying to get done, be it great or small, everything will take longer than you think it should.
Pay yourself and value your time.
The pay yourself part is hopefully common sense. It is a key point to starting a business in the first place. I have heard from some entrepreneurs the idea that they can just live from the company bank account as needed. When business is good they will draw more cash and live well, in poor times they will draw less for themselves. I'm sure there are many small business people that live this way successfully, but I think it defeats an important part in business decision making; the value of your time.
My philosophy is to put myself on the payroll as the business manager and draw regular paychecks just like any other employee. This has advantages in budgeting, both business and personal, and it makes accounting and tax preparation a little easier. If you ever want more money when the business is doing well, there are ways to get it. Bonus checks or dividends are easy enough.
The real advantage to being on the payroll is that you will know very precisely the value of your time. There are a million things to do when you run a business. Everything from balancing the checkbook to sweeping the floor. If you are paying yourself $10 per hour you can put value on each of those tasks. You can ask yourself "is it really worth it for the business to pay $10 per hour to have the floor swept?" If there is another employee that makes less that $10 per hour it usually makes more financial sense if the lower wage employee did the sweeping while the higher wage employee handles more valuable jobs.
I have seen many business owners trying to save some payroll money by doing the menial chores themselves. Perhaps it saves money, but it also costs time that could be spent on something more profitable.
Another example of the value of your time is in chasing pennies. Comparison shopping can be a fools errand. Say you need something done, like servicing all the fire extinguishers in the warehouse. Start by checking the yellow pages for someone to do this. The first price quote is usually higher than you were hoping for. It is a small business after all and money is tight and if we can just knock a little off this price, things will be better. So you call another service and another and do an internet search and really research that whole fire extinguisher thing. When you finally settle on a contractor you can pat yourself on the back because you got the best deal you could get and saved thirty bucks off the first guys rate. Except for the fact that you blew all afternoon doing it. At your $10 per hour wage it ended up costing $40 of your time to save $30 on an invoice. There comes a point where you will need to quit chasing a good deal because it ends up costing too much. The only way to know where that point is and make a good business decision is to put a dollar value on your time.
Don't take shortcuts.
I remember back in school getting writing assignments. We were supposed to turn in an outline and then do it again and turn in a rough draft and then do it again and turn in the final copy. Talk about a sucky homework assignment, you have to write the same stupid thing three times. A friend of mine had the perfect system for doing these assignments. He would just write the paper. Then he would go through it and take out every third sentence to make the rough draft, and then he would edit that down to the first sentence of each paragraph and make the outline. Submit the parts at the appropriate deadline and you spend way less time doing the homework.
People that know about quality writing are probably squirming at that description. The reason the teacher was so emphatic about the long and ugly process is because those are the steps that are required to produce good writing. The point to the assignment was never the final document, but to learn the process for creating a high quality written work. My friend never understood why he got poor grades in english class and to this day his Emails are painfully difficult to read.
Business is the same way. Making the deposit to the bank is not the point. Closing the sale is not even the point. When you are in business you are going through a process. Planning, supplying, creating, fixing, polishing, selling, servicing, and finally putting the money in the bank. Each step is crucial to what you do before and after. Then you have to do it all again to keep the revenue up. How well you succeed has everything to do with the process and nothing to do with your prowess at making bank deposits.
Some might say that they are improving efficiency, but be very careful that what you are really doing is efficiency and not a shortcut. Efficiency improvements are a similar change to the process, but with a very different outcome. Some rules of thumb: Efficiency will cost you something; shortcuts won't. Shortcuts hurt the quality; efficiency won't.
You can always tell when a business takes shortcuts in their process. These are the businesses that the quality is just not there, or the service is wanting, or you walk away thinking "I can't believe I wasted time on that piece of crap."
This is your business for crying out loud. You should be proud of how well it runs. Your reputation depends on how well you do your job. There are people, customers, employees, suppliers, that are relying on you to do a good job. When you shortcut everyone can tell. Your employees don't want to work as hard, your suppliers stop caring and your customers stop buying. It hurts your business, your reputation and all the people around you when you shortcut the process.
Plan your work and work your plan.
When you first start your small business, you will need a business plan. The only ways you can get by without one is if you are filthy rich and can finance the whole enterprise out of your own pocket, or if the business is so small that you can finance the whole enterprise out of your own pocket. For everyone else you need either bankers or investors to supply the needed money. These bankers and investors won't give you a single damn dime until they see the (formal and written) plan for how you will earn the money to pay them back. In my opinion, if you can't spend four weeks making a business plan you do not have the patience or attention to detail needed to run a business for a year.
The business plan is just the start though. When you get into the nitty gritty details of running a business, having a plan is huge. Sometimes it is as simple as planning the route you will take for your daily errands. When you need to hit the bank, the hardware store, the Costco and the grocery, there is usually a route that is most efficient. It helps to have a plan for what you need at each stop too. The big picture needs a plan too. When you need to do hiring, advertising, procurement and maintenance there is usually an efficient order to do them in. Having a plan for how you will execute each of these items is also pretty key.
Working without a plan means you do things less efficiently and sometimes do things two or three times. This makes your work more expensive and that is death to a small business.
In high season for my business, I depend on a lot of people being in the right place at the right time. That calls for planning. Dinner goes into the oven at a certain time, so supplies have to get delivered at a certain time. For that to happen supplies have to be acquired at a certain time. To make that happen they have to be ordered at a certain time and knowing what to order involves an inventory at a specific time. All these little micro deadlines need to be planned in advance or everything goes to shit in a big hurry. Dinner becomes a fiasco without a detailed plan. Because I spend so much time planning I spend less time dealing with crisis. And because I follow the plan religiously everyone else's job becomes predictable, routine, and dare I say, easy.
Some of these plans get written in big formal looking documents with cover pages and appendixes. Other plans get written on posty notes. Some plans are verbal agreements between people. I have never seen time spent on planning wasted. When you try to do something without a plan, that is when time gets spent fruitlessly.
You are not really the boss around here.
A successful business is all about people. There is the business owner. Sometimes multiple owners. There is staff, could be large or small. Then there are the suppliers. The goods you sell come from someone else. Even if you sell a service you will still need supplies, so the people that supply you count. And then there are other support people around the edges; the landlord, the accountant, the lawyer, the banker. And let's not forget the government. The taxman, the police man, the city council and the governor all have an interest and a say in your business. Last, but not least, let us also count the customer. Every business involves a lot of people.
The smallest business I can imagine effects the lives of only three people (not counting the taxman). A business owner who is also the sole employee and accountant working out of his own home and keeping his money under a mattress. He will need one supplier and one customer to be in business. While I can imagine a business of this small size and structure I cannot imagine what the business does and I would be surprised if the business owner can even earn a living.
A more typical small business will touch the lives of hundreds, if not thousands of people. My own small business has multiple owners, multiple managers, dozens of employees, dozens of suppliers, a reasonable cadre of support from accountants, lawyers, bankers and so forth, and a good deal of oversight from regulatory agencies. When I make a business decision it can touch the lives of easily a hundred people. This does not even take into account the thousands of customers I serve. There are lots of small businesses that touch more people than mine.
There is a romantic notion that the boss is lord of his business realm. That his needs and decisions are the only ones that matter and he can use his capital and decision making power to lord over employees and all that interact with him. Rubbish. Anyone that runs a business this way, especially a small business, is in for troubled times.
The people of a business bring with them a complicated web of cause and effect. For example, if the boss decides to change the budget by cutting wages, then the help becomes disillusioned. Since the boss is not looking out for them they either quit or productivity goes down or quality goes down. This ripples through the company and everyone from the secretary to the customer has to deal with a change in how things are done. So in making decisions, the boss needs to watch out for the interests of the workers if things are to run smoothly. And also watch out for the suppliers interests and the accountants and the city council and so on. Every one of those hundreds of people has the power to make the business owners life more difficult and the power to hurt the company.
When running my business I very rarely feel like the lord of my domain. Sometimes I don't feel like the boss of anything. It is more like everyone else is the boss of me. When I make a decision it is rarely about what I want; it is usually about what is best for the people around me. Strangely enough, that is as it should be for the business to succeed. Business is about people after all. My life does not get easier until I put effort into making life easier for the people around me. I don't succeed until the people I rely on succeed.
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There is more Jones in the archives: February 2005 March 2005 April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 December 2009 January 2010 May 2014