Taking the scary out of start-up

One of the most overwhelming aspects of starting a new business, whether it is a nonprofit or a for-profit, is feeling like you're lost in a maze. Once the initial excitement wears off, it can feel like trying to navigate Africa without GPS or even a map.

The solution for that feeling lies in gaining knowledge and experience, but trying to do that completely on your own can be time-consuming, expensive  and just plain scary.

There are tons of resources for would-be entrepreneurs, from the local SCORE office to a myriad of books, podcasts and videos to one-on-one consultants like me.

   

So why do so many startup owners seem to flounder for so long? Why do 70% of all start-ups fail within five years?

I think part of it is because people who start businesses tend to be highly independent folks.

It takes a certain type of person to say "I don't want to exist within the corporate world."  They are quite willing to give up the perks of the corner office to make an impact on their own. They tend to be driven to achieve a goal, sometimes to the point of disregarding anything but the vision of that goal already attained. They are dedicated, but not patient.

As a consultant, one of the first things I do is ask about the basics. Does the enterprise have the structure needed to survive and grow?

Often I find that in the entrepreneurial mind, following rules, i.e. having structure, equates to being suffocated by bureaucracy. I explored that in my previous post "Structure Without Stricture".

Some rules of business exist almost as laws of nature. If you are a for-profit, you have to sell things for more than they cost to produce in order to survive. If you are a non-profit, you have to be able to show a real positive change in a circumstance or condition that provides benefits over the long term to prove your value to donors.

None of that precludes innovation or imagination. You can approach problems with new methods or define a successful outcome with new metrics.

I recently had a client who started his email with "People tell me I am doing everything right. I'm  active on social media, I attend local events, I contribute to local charities and all that stuff. My service is far better than my competitors. But I'm still going broke. Can you help me?"

This person was doing all the soft-skill stuff well. But he missed an important point. The service he was selling cost more to produce than he was selling it for, which he attributed to needing to be competitive.

When I pointed out that being competitive meant staying in the race, he simply didn't understand what I was saying. He had a business strategy problem. He thought that by being the cheapest supplier he was going to get enough market share to become profitable.

To set the stage a little on this, this gentleman had been an employee of a firm providing a service to homeowners. When the business abruptly closed, he started a business doing the same thing.

He knew that his former employer had been charging a certain price that was pretty closely in line with the competition, but he felt that if he sold the same services for just a little more than he had been being paid as a wage by his former employer, he could get more customers and undercut the competition.

That part worked. He rapidly had more business than he could handle, but he still couldn't pay his bills.

The problem was that he had never taken the time or wanted to spend the money to find out how much he truly needed to charge to stay in business. Things like having to pay the employer's share of taxes, or carry liability insurance or the cost of advertising were never considered when he set his rates. When those costs suddenly had to be paid, it took what little profit he was making and then some, forcing him into using his savings to stay in business.

There is a reason why consultants insist on boring exercises like constructing business plans and cash flow projections or developing a marketing strategy.

Just because you are an entrepreneur doesn't mean you should ignore the basics. If you plan well and use the tools developed by others before you, you can take a lot of the scary out of being a start-up. 

Can you kick the crisis management habit?

Some organizations seem to run as smoothly as warm butter dripping down a hot ear of corn. Others seem to lurch from crisis to crisis. Ever wonder why?

All organizations, nonprofit and for-profit, have rough spots. The difference is, some of them seem to be almost unable to function unless everyone is in full panic mode. Others just tweak their plans and everything goes on smoothly. Is there a difference in the type of crisis, or is it the organization?

A crisis can be caused by a sudden external event such as the unexpected loss of a major donor or client, but usually, there is some warning that there's a problem.

If the warnings are ignored, then a minor incident becomes a crisis.

There are two reasons why warnings are ignored. One is poor planning. In established organizations that only happens once. From that point on, someone in the organization starts looking beyond the ideal outcome, puts a plan in place to list all the possible problems and designs a plan to deal with them. If the organization is brand new, they stop and create a proper operational plan.

Then there is the organization that never seems to learn. While the circumstances of each crisis may be different, the outcome is the same. Everybody has to drop their normal work and deal with the crisis. Then they are behind in their work, and that creates another crisis, and the cycle repeats itself ad infinitum.

This is usually a management issue. For instance, if there is a report due to management and it takes several people to create it, the person in charge forgets to tell someone that their input is needed, or fails to communicate a delivery date for final review. If it is a decision, such as whether to pursue a grant, they wait to make that decision until there is barely enough time left to get it completed.

These people are crisis junkies. Either they simply don't seem to be able to function without the adrenaline rush they get from managing a crisis or they are bored with the advance planning needed to avoid it in the first place. Maybe delegation is not something they do well. Occasionally they just don't have the experience to be able to think ahead far enough to avoid trouble.

Here is a real-world example illustrating both scenarios.

A printing company had grown rapidly, and its four-person staff was struggling to get all the work done. Everyone was working nights, weekends and holidays to try to stay caught up. Deadlines started to pile up, a critical machine broke down,  and eventually an important deadline was missed.

This was an avoidable crisis. As soon as it became obvious that there was more work than could be completed in a normal workday and it was an ongoing condition, steps should have been taken to mitigate the problem. Maybe that would have meant turning down work, asking for deadline extensions, scheduling the work so that the deadlines didn't all hit at the same time, or even hiring more staff, either permanently or on a temporary basis.

In the case above, the manager didn't do any of those things, and the business lost an important account. In this case it was determined that the manager had a hard time delegating and preferred to step in himself and save the day. In short, he was a crisis junkie.

While it would be easy to blame just the employee directly in charge, upper management knew that he had a history of barely making deadlines, his employees turned in a lot of overtime,  and he constantly accepted more work than other departments. Since it had always turned out all right in the past, no one stepped in and handled the underlying problem. They simply assumed the best outcome would always happen. When it didn't they professed to be surprised and shocked.

The fix was fairly easy, if expensive. The company retained a process review company that instituted weekly staff meetings, re-trained the manager and hired someone to review the time cards and work-in-process reports and check the floor periodically to be sure that the physical state of production matched the reports. A specific amount of time was allocated each week for machine maintenance, and a downtime allowance was added into the bid planning. Gantt charting was done so that deadlines didn't pile up at the end of the month. Connections were made with a staffing firm so that temporary help could be added as needed.

Production improved, payroll costs were more controlled, and most importantly employee morale skyrocketed.

Nonprofits are particularly prone to crisis management because they traditionally operate in a culture of "do more with less". If everything seems to be in a constant state of turmoil, sit down and find out why. Don't ignore little things until they become unmanageable. If you need more structure or better planning, make that a priority. If it's a people problem, deal with that. 

Don't let crisis management become a habit. No one ever failed because they were too well managed.