It is my favourite theme and the owner/manager’s biggest challenge: balancing strategic leadership with effective operating management. Lack of strategic leadership may be the biggest mistake made by entrepreneurs and can be fatal to their business.
(Following is an extract from “Don’t Do It the Hard Way” by your Uncle Ralph.)
“Today I’m going to start by admitting to you my own biggest mistake as an entrepreneur – failing to continually think strategically. I was too often pre-occupied with operating issues and short-term problem solving. Stuck in the old dilemma of too busy fighting fires to ever work on fire prevention.”
“This was especially true in my first business, computer products distribution. There was so much detail to keep on top of – markets and technologies, customer service issues, managing employees and learning everything I had to know as a new entrepreneur about running a business - from accounting systems and freight rates to lines of credit and payroll deductions.”
“I had all the usual excuses for being drawn into the daily crises and never getting back to the drawing board to review the original strategic plan and see if we were still on track. To be honest, our original plan was not very strategic and never looked past the first two or three years. It was only focused on making our numbers, not on strategic positioning and managing our important business relationships. We made good short-term decisions to maintain profitability and win our share of competitive battles, but did not effectively protect ourselves from conflicts with our major suppliers and were not prepared for the rapid decline in profit margins as competitors flooded the market.”
“Don’t make the mistake I did of getting lost in the operating details and neglecting to raise the periscope and scan the horizon for oncoming threats or opportunities. Be prepared to respond. Strategic vision and leadership need to be constantly applied to daily decision making.”
A few years ago, I came up with “The Seven Biggest Mistakes that Entrepreneurs Make and How to Avoid Them” for a breakfast seminar presentation. The presentation was well received and has since been used many times, eventually expanding into several chapters of my latest book for entrepreneurs, “Don’t Do It the Hard Way”.
This is a short version of my list of the seven biggest mistakes followed by my recommendations to avoid them by seeking balance.
#1 Too Entrepreneurial
Certain characteristics of entrepreneurs are necessary for them to be successful. But if over-indulged they can lead to big mistakes. These include the tendency to be too opportunistic and not sufficiently selective and focused; to be too optimistic and miss or ignore the warning signs; to be too impatient and expect too much too soon.
Entrepreneurs usually have great confidence in their instincts, but the mistake is to neglect or ignore market feedback and analysis of the facts. Being action-oriented, the tendency is to “just do it”.
Entrepreneurs are expected to be decisive and demonstrate leadership, but both can be overdone – deciding too quickly and providing too much direction so that input, initiative and creativity are stifled. All these mistakes can arise from being “too entrepreneurial”.
#2 Lack of Strategic Leadership
Another tendency of many entrepreneurs is to get lost in the daily details and completely forget their original strategic plan. Operating decisions demand continuous attention and there is seldom time dedicated to stepping back and looking at the business from a strategic perspective. The common observation is that the owner is too busy working in his business to effectively work on his business.
Defaulting to continuous short-term decision-making can result in the business not having consistent strategic direction and straying far from the original plan. Lack of strategic direction may be the single Biggest Mistake that Entrepreneurs Make.
#3 “That was Easy, Let’s Do It Again!”
Another common mistake that can have devastating consequences on the business is the over-confident entrepreneur who concludes, “That was easy, let’s do it again!” So he or she jumps into new markets, new product lines, or even a new business or investment opportunity without doing the homework first.
It’s important to remember: Making money doesn’t make you smart. Look at every opportunity with the same detached analysis as the first time you started a business. Many successful entrepreneurs have made the mistake of jumping into a new venture – merger, acquisition, restaurant franchise or real estate investment – and blown away the equity value they generated in their original business. Another big mistake to avoid.
#4 Focused on Profit
Being focused on profit doesn’t seem like a mistake. After all, isn’t that the whole purpose of running a business? No, actually. The primary financial objective of any business is “to enhance long-term shareholder value.”
A focus on short-term profits will do exactly the opposite. It is easy to improve short-term profit by reducing the maintenance and marketing expenses, neglecting product development, cutting employee wages and benefits, ignoring safety and environmental regulations and avoiding taxes, but these actions can all destroy long-term value. Paying attention to these requirements will help to build it.
Managers need to look at all their key performance variables and react quickly to avoid big mistakes.
#5 Neglecting Key Relationships
The key relationship for any business is the one between management and staff. Good communications are essential to providing strategic leadership and ensuring that management and staff are working effectively as a team toward common goals.
Sometimes we are distracted from our key relationships by the most annoying and challenging employee or customer. Often your biggest customers are not the “squeakiest”; just the most important. And do you need to squeak more yourself? Do your suppliers appreciate you enough?
Another important relationship is with your banker: Is your bank a welcome and willing partner in your business? Building and protecting these key relationships are essential to keeping your business on track and meeting your strategic objectives.
#6 Poor Marketing and Sales Management
There are usually obvious signs of poor marketing and sales management. Feedback from customers will also highlight your failures in customer service. Opportunities for growth are being missed and current customers are fading away.
No business can survive without effective marketing and sales management supported by consistent customer service. All three functions need to be done well to build loyal, long-term profitable customer relationships.
#7 Distracted by Personal Issues
Personal issues can seriously affect business performance regardless of whether they come from the owner, management or staff. Family businesses introduce particular challenges to managing personalities and corporate culture. Can you include family members in the management team without excluding others?
In summary, my list of the Seven Biggest Mistakes that Entrepreneurs Make:
Lack of Strategic Direction
“Let’s do it again!”
Focus on Profit
Neglecting Key Relationships
Poor Marketing and Sales Management
How to Avoid Them?
Each of these Big Mistakes is a result of the entrepreneur failing to achieve balance between opposing forces.
The Answer is Balance!
Avoiding these mistakes requires the entrepreneur and business owner to:
Balance Energy and Drive with Planning and Analysis
Balance Strategic Vision with Operational Detail
Balance the Logical Head with the Intuitive Heart
Balance Short-term Profit with Long-term Value
Balance Personal Priorities with Strategic Objectives.
Balance these issues to grow and prosper in your business and avoid the Seven Biggest Mistakes that Entrepreneurs Make.
Enjoy the Holiday Season and have an outstanding New Year.
An excerpt from Don’t Do It the Hard Way, A wise man learns from the mistakes of others: Only a fool insists on making his own” by your Uncle Ralph, Delvin R. Chatterson
I am not referring to the policing tactics that lead to so much turmoil, but to the never-ending management of your own personal profile. It is essential to your personal branding and the presence of so many online profiles on different platforms is extremely important to perceptions of your reputation and credibility.
Profile maintenance is never-ending, requiring continuous revision your life story on LinkedIn, Facebook, Twitter plus your website, CV, and other marketing and PR bios and blurbs. It’s hard to be consistent and effective in presenting yourself. And you may be fighting other versions of your story that are still found on the Internet. Aren’t you the guy who …?
I’m reminded of the story of Dizzy Dean, a baseball hero of the 1940′s. (I know, before your time and mine, but there was a movie….) Apparently after his first game with the Yankees he created a media frenzy with his sensational pitching. He spent hours in the dressing room after the game with one reporter after another asking him to tell them his life story. The next day in the papers, remarkably everybody had a different story. His manager asked him, “What happened?”
“Well,” Dizzy Dean replied, “I just didn’t think it was fair to give them all the same story.”
Maybe not a good branding strategy, but perhaps an early example of “mass personalization”? Everyone got a story that was interesting and original to them. It is part of every pitch to adjust for the particular target audience and appeal to the areas you have in common. So long as it’s all true and you’re not inventing a new life story that is complete fiction. Unless you are writing your biography, keep your profile concise, simple and consistent. Focus on the key points that are important to your chosen target audience and do not try to appeal to everybody.
In my own profile I am re-branding myself as your Uncle Ralph. It’s the persona I want to present as the experienced, wise and friendly advisor for entrepreneurs. Not an academic management professor, not a celebrity CEO and not a new techie billionaire. Just a former business owner and entrepreneur who is now consulting, advising, writing and cheerleading for entrepreneurs.
Our PSN Breakfast Series on October 15th went well with three speakers on “Entrepreneurial Challenges” including my own presentation on “The Seven Biggest Mistakes that Enrepreneurs Make”. (Lots of nodding heads and smiles of recognition from the audience even if no one wanted to admit to having made all seven!)
If you would like to review the PowerPoint slides, including Chris Murray’s “Success Strategies for Internet Marketing” and Margot Uson’s “Winning the War for Talent”, they are available at PSNetwork.ca
The Seven Biggest Mistakes that Entrepreneurs Make
Which ones are you making? How can you avoid them?
I was recently asked to do a presentation with my associates at a breakfast seminar for business clients. We had arrived at the title “Seven Biggest Mistakes that Entrepreneurs Make” before I had the list prepared, so I decided to do a survey of entrepreneurs and their advisors to complement my own ideas. The feedback was enlightening.
Here are some of the suggested “Biggest Mistakes” from the survey: “Cash flow, cash flow, cash flow”, “Afraid of Marketing and Sales, “Reactive, not strategic”, “Not delegating”, “Hiring too fast, Firing too slow”, “Not focused”, “Communicating too much, or too little”, “Not using consultants” (That last one was from the consultants, not their clients!)
The feedback also reinforced my own experience that it is OK to fail and make mistakes, as long as they are small, frequent, and early. It’s all part of the learning experience to get better. But big mistakes can kill your business.
Here is my final list of the Seven Biggest Mistakes that Entrepreneurs Make.
#1 Too Entrepreneurial Certain characteristics of entrepreneurs are necessary for them to be successful. But if over-indulged they can lead to big mistakes. These include the tendency to be too opportunistic and not be sufficiently selective and focused; to be too optimistic and miss or ignore the warning signs; to be too impatient and expect too much too soon.
Entrepreneurs usually have great confidence in their instincts and consequently rely on “gut feel”. The mistake is to neglect or ignore market feedback and analysis of the facts. Being action-oriented, the tendency is to react and “fire” before the “ready, aim” stages are complete. Painful surprises can result.
Many successful entrepreneurs have achieved a lot based on their energy, charm, charisma, and persuasiveness, but then get caught by selling on personality, not on performance. Clients start to notice that expectations are not being met.
Entrepreneurs are expected to be decisive and demonstrate “leadership”. Both can be overdone – deciding too quickly and providing too much direction so that input, initiative and creativity are stifled.
“Doing it my way” often means improvising and learning on the fly, or sticking with what works, until it stops working. The mistake is in neglecting to evolve and grow by optimizing systems and installing best practices and latest technologies.
All these mistakes can lead to serious consequences, as a result of being “too entrepreneurial”.
#2 Lack of Strategic Direction
Another consequence of the action-oriented entrepreneurial approach is the tendency to get lost in the daily details and completely neglect the original strategic plan and objectives. The owner-manager soon becomes pre-occupied by operating decisions and all the demands on his time from customers, employees and the constant fire-fighting. It leaves little time for fire prevention.
This situation is worsened as the entrepreneur concludes that the best solution is “do-it-myself”. Not delegating to staff or using external expertise may seem like the least-cost solution, but probably undervalues the owner’s own time and expertise and does not lead to long-term solutions.
The entrepreneur may have good awareness of long-term strategic issues and had them in mind when the business was launched. But they are now neglected, and the original Business Plan (if there was one) is not documented, updated or shared.
Lack of strategic direction is listed here as #2, but may be the Biggest Mistake that Entrepreneurs Make.
#3 “That was Easy, Let’s Do It Again!”
Another common mistake that can have devastating consequences on the business is the over-confident entrepreneur who concludes, “That was easy, let’s do it again!” So he or she leaps into new markets, new product lines, or even a new business or investment opportunity. It’s important to remember: Making money doesn’t make you smart.
Do you really know what you did to succeed? Or what mistakes and risks you avoided? Is now a good time to start something new? How much will the current business be impacted by new initiatives? Is your success really transferable?
Many successful entrepreneurs have made the mistake of jumping into a new venture – merger, acquisition, restaurant franchise or real estate investment – and blowing away the equity value they generated in their original business. Another big mistake to avoid.
#4 Focused on Profit
Being focused on profit doesn’t seem like a mistake. After all, isn’t that the whole purpose of running a business? No, actually. As I explain to students in their first Finance class, the primary financial objective of any business is “to enhance long-term shareholder value”. Many short-term profit-oriented decisions can hurt long-term value. Examples are many: cutting staff, maintenance or marketing expense; not upgrading systems and technology; accepting high credit risk or low margin customers; avoiding taxes, environmental or quality issues.
Most entrepreneurs are very focused on managing the bottom line by monitoring sales, gross margin and expenses. They always know those numbers.
But they are usually ignoring asset management, especially cash flow. The business may appear very profitable, but have constant cash flow challenges because management is neglecting inventory and receivables, in particular. And unfortunately it is not as simple as: Collect fast, Pay slow. Customer and supplier relationships can be at risk if cash flow issues force you to take that approach.
Managing the Balance Sheet also requires good management of debt and balancing short-term and long-term needs with short and long-term sources of funds. And the Most Undervalued Asset doesn’t usually even appear on the Balance Sheet: Human Resources. That leads to Biggest Mistake #5.
#5 Neglecting Key Relationships
The key relationship for any business is the one between its owners and the staff. Management and employee communications are essential to business performance and often not managed very well. Key employees need to be recognized and engaged. Mistakes made with key employees can jeopardize the whole business.
Similarly, don’t make the mistake of being distracted by the most annoying and persistent customer. Your biggest customers are not likely the “squeakiest”, just the most important. Don’t make the mistake of letting them be neglected.
Do you need to squeak more yourself? Do your suppliers appreciate you enough? Fast growth and profitability may be coming from one or two key customers or suppliers which can lead to over-dependence on their business. And your success may be convincing them that they don’t need you in the middle any more. Be wary.
Another key relationship not to be neglected: Is your bank a welcome and willing partner in your business? Remember “friends in need” have to be developed in advance.
#6 Poor Marketing & Sales
You know there is a problem brewing when you hear the entrepreneur explaining that “The product sells itself”, or “Price is all that matters”, or “Our Sales Reps need to do a better job”. These are signs of poor marketing and sales results. Usually the company is failing at both the strategic marketing level and at the execution of effective marketing and sales activities.
Not only are opportunities for profitable growth being missed, but the company may be on the downward slide to “out of business” without a well-conceived marketing plan and effective sales strategies.
#7 Distracted by Personal Issues
And finally #7 – Personal Issues that distract attention from good management of the business. Personalities and their issues can seriously affect business performance regardless of whether they are owner, management or staff issues. Sometimes they are simply ignored until they become a problem. Sometimes they are a result of too much success and behaving like a rock star.
Family businesses in particular run the risk of favouritism and having family matters interfere with business success. Managing personalities and corporate culture are a particular challenge in family businesses.
In Summary, the Seven Biggest Mistakes that Entrepreneurs Make:
Lack of Strategic Direction
“Let’s do it again!”
Focused on Profit
Neglecting Key Relationships
Poor Marketing and Sales
Now the obvious question is: How to Avoid Them?
The answer is: Balance!
Each of these Big Mistakes is a result of the entrepreneur failing to achieve balance between opposing approaches and decision making processes. Avoiding these mistakes requires the entrepreneur and business owner to:
Balance the Entrepreneurial Approach with Analytical Input
Balance Strategic Vision with Operational Detail
Add the Head and the Heart to the “Gut Feel”
Manage for Long-term Value not just Short-term Profit
Keep Personal Priorities in your Plan but Out of your Business
I hope that helps you to grow and prosper in your own business and avoid the Seven Biggest Mistakes that Entrepreneurs Make.
We could all be even worse off, but let’s hope it gets better from here. For most of us the impact on our businesses has been inconsistent and inconclusive.
What are the right management strategies and action plans to get through this economic turmoil with a more resilient and successful business?
Here are the lessons we have learned from clients, commentators and other experts, so far:
1. Do not rely on the headlines.
They are just trying to get your attention and a train wreck is more interesting than a success story. They will not provide either balanced or insightful input to your planning or decision making. You will have to dig deeper. Make sure your market data and competitor intelligence is current and accurate.
2. Communicate Communicate Communicate.
Keep employees and customers informed. They are worried, confused and need to be reassured that they can count on you. Unfortunately, you may not have good news for them, but it will be appreciated that they are hearing directly from you and are not left guessing what’s next.
3. Keep on Selling.
Now is not the time to cut back on marketing and sales. Your efforts now will be more even conspicuous and effective as your competitors back out of the market and away from their customers. Be selective and very focused. Work on building stronger customer relationships by being relevant and responsive to the current economic circumstances. Avoid the “cry for help” advertising that only confirms “we’re desperate and need the sales”. Calmness, confidence and competence are much more appealing to those potential buyers who are still spending and want reliable, long term suppliers.
4. Do quickly what obviously needs to be done.
If it’s clear to you it’s also clear to the people affected. They are waiting for you to act and will be more confident and proactive themselves if they see you taking action. Face the facts, don’t fight the facts.
Remember Darwin’s “survival of the fittest”: those who adapt to their environment are most likely to survive; not the strongest or the biggest. This is not the time to be stubbornly persistent about your plans. Look around and be creative. Your destination may still be the same, but the route, the vehicle and the passengers may need to be changed.
6. Be confident, but cautious.
Recognize the difference between calculated risk and a state of uncertainty. Make a decision if the potential outcomes and the percentage probabilities are reasonably clear, but hold fire if they are not.
7. Show conspicuous leadership.
President Obama understands the concept of being the conspicuous spokesman for his plans and policies. No one can do it better than the one who is ultimately responsible. We may not all be as adept communicators as he is, but we can all speak with more sincerity than any spokesperson or intermediary on our concerns, our strategies and our plans.
Good management will be tested during these times, but good decisions now will mean a better business for the future. Keep at it. This too will pass.
I was in a good discussion today on the special challenges of managing young employees from the twenty-something generation.
There is often a large gap in job expectations between the 30 to 40-year old managers and their younger staff. Loyalty, extra hours, and commitment to the company are concepts familiar to the managers but foreign to new employees. Their key issues are flexibility, social time, open communication and personal attention. Work habits may include continuous connection to their cell phone and online text messaging. These young employees present management with new challenges to attract, recruit and retain them.
Meeting their needs is difficult in an environment that has to remain equitable for all employees and still be a productive and customer-centered work place. Progressive companies have found creative ways to achieve their goals and to meet the expectations of desirable young employees.
They have implemented flexible work schedules within reasonable limits, make senior managers accessible, and recognize personal needs that have priority over job responsibilities. Adapting old personnel practices to the expectations of the newest employees requires careful assessment and implementation. It is worth learning from the successful employers so that your company can also become recognized as a great place to work. It is key to attracting and retaining the best qualified employees.
Again I learned something new at the McGill MiniBiz Seminar this week. The topic was managing diversity, especially the generational gap between those born before WWII, the Boomers, Gen X and Gen Y.
For both managers of those diverse groups and for members of each generation the recommendation was to remember the Platinum Rule.
OK, we all know the Golden Rule, “Do unto others as you would have them do unto you”. Apparently a pretty universal concept that has worked for many generations. Essentially, treat other people the way you would like to be treated. Seems good to me.
But consider the more effective Platinum Rule, especially when there are large cultural or generational differences to consider: “Treat other people the way they would like to be treated.” Powerful concept.
I had the pleasure yesterday of hearing a presentation by Henry Mintzberg, McGill professor and management guru. One attendee described him as the “Tiger Woods of management science”.
I know him as the Strategy professor during my McGill MBA program from 35 years ago. (Yikes, neither of us seem to have aged that much! OK, maybe less hair.)
He is a widely respected academic and the acclaimed author of “The Nature of Managerial Work “, “The Rise and Fall of Strategic Planning”, “Managers not MBAs” and many other books and articles that argue against the conventional wisdom and provoke thoughtful reflection on management and business. He is also the co-founder of the International Masters Program in Practicing Management (IMPM), a unique approach to learning that is designed to flow from the experience of the participants.
His presentation yesterday was originally advertised to be on the dilemma of corporate compensation, but that turned out be only part of his critique of the modern CEO focus on shareholder value that is leading to the great depression of 2008.
Some of his points to consider:
Productivity is a euphemism for cutting costs, mostly by firing employees, while maintaining short-term revenues.
The theoretical corporate objective of maximizing long-term shareholder value has been hijacked to mean pushing short-term earnings to inflate current market share prices.
How can employees be motivated to work for shareholders they have never met? Many of whom have no interest in the company except for the short-term ability to make a profit on their investment – they are day traders or hedge funds.
Shareholder value is not a worthy objective of the corporate institution as it specifically ignores (or exploits) other stakeholders, especially employees.
Mercenary corporate leadership is stealing from shareholders with absurd compensation and severance packages that are not tied to performance. The “robber barons are back!”
The old corporate silos have been replaced by horizontal slabs of concrete separating executives from their employees and the real operating issues.
“Human resources” is a term that dehumanizes human beings. It makes it easier to treat people like other “resources” to buy, sell, use and dispose of them. It’s like describing airline passengers as “self-loading cargo”!
Corporations need to remember that customers are people too. They are not just another asset to be exploited.
Professor Mintzberg also suggested some remedies to avoid the great depression of 2008:
Stop being misled by the apparent productivity gains and profitability of large American corporations.
Get the mercenaries out of the executive suite and add employee voices in the boardroom.
Stop running businesses to satisfy financial analysts or investors with no interest in anything except short-term results.
Install real corporate leadership that is concerned, engaged, and modest. (Interestingly close to Jim Collins description of Level 5 Leadership from “Good to Great”.)
Ignore the obsession with measurable factors and reconsider the immeasurable – values, benefits and impacts of economic activity.
In the larger context, get back to a better balance of the three sectors in society – public, private and social.
NO EASY MONEY Launching today! Buy a book, tell a friend Your first chance to buy a book and share the fun! Visit Indiegogo: Launching NO EASY MONEY, a Dale Hunter novel Yes, finally you can buy a book. The novel, NO EASY MONEY or...
Entrepreneurs don’t read And business fiction doesn’t sell I’m trying to prove both assumptions are wrong. A futile exercise? Maybe you can help. First, entrepreneurs can and do read – mostly non-fiction books and articles, mostly related to business and self-improvement. I think we can...
Good luck or bad bounce? Hazards of the British Open Tiger Woods was leading after nine holes. At one point it was Spieth, also Kisner, Schauffele, and Chappell. Finally the winner, after four days of challenging conditions and 72 difficult holes of Scottish links golf,...
What did you learn today? You don’t have to be in school to learn something every day If your goal is to get better and do better, then you should be learning something new every day. You don’t have to be in school to be...
Bad behaviour Needs to be changed, not explained Bad behaviour needs to be changed, not analyzed, explained, rationalized or excused. Speculating over why it’s happening may keep the analysts and commentators busy, but it’s tiresome and irrelevant. If the bad behaviour can be stopped by...