A family-owned dairy distributor, founded in 1985, had held market dominance from when it began until 2017, when everything changed. The local milk production company closed the factory and stopped producing the local brand. The distributor’s whole world crumbled overnight.
This small business had the advantage of a superior local product, but did not have the business systems, the people capability or the knowledge to compete in a hyper-competitive market. Unfortunately, this is an all-too-common story in the SME world, in different industries everywhere.
Many businesses are characterised by a period of high growth where things seem effortless and customers are plentiful, but without careful forethought, these businesses hit a ceiling, and are unable to scale in any sustainable way. That’s why SME success relies on having four firm foundations in place.
1. Get financially literate
Financial reporting, modelling and budgeting are activities that many small-business owners struggle with – or even avoid. Many see these processes as a waste of time because they are based on assumptions. While for others, interpreting the numbers in a business context can be challenging.
But numbers are the language of successful businesses. You must know what your numbers are telling you.
“Systemising a business creates performance consistency.”
By undertaking a robust budgeting process, you will better understand the opportunity cost of deliberately allocating resources to one area of the business at the expense of another. It is a discipline that forces you to decide how you will or will not compete, choose what competitive advantages you will invest in and consider how the market may react.
Considering direct costs, variable costs, overheads and capital expenditure in light of anticipated revenue enables you to explore what-if scenarios. In doing so, you can better understand the potential impacts of decision-making.
2. Capture all knowledge
Record and transfer all knowledge currently in your head. Traditionally, this would have been mapped out into an operation manual, training program, or anything else that takes what you know and puts it in a form others can follow. In the modern era, there is an endless stream of software applications and videos that make this possible.
“Considering direct costs, variable costs, overheads and capital expenditure in light of anticipated revenue enables you to explore what-if scenarios.”
Over time, you will create a templated process for capturing the information you know and disseminating it to the team. If you find there is still a major gap between what you know and the capability of the company to execute it without you, this may indicate a skill gap you either need to train or recruit to fill.
Once you have your information-recording system humming, it’s time to get your team involved and have them capture the information in their heads. This process of systemising a business creates performance consistency. Not only that, if you’re looking to sell, scale or replicate your business in the future, you will have created real value in your business model.
3. Define what’s important
For many business owners, taking the time to stop and assess, rather than motor on at a hundred miles per hour is uncomfortable because it requires self-reflection to dive into what is truly important. Who has time to waste doing this when there are so many more important tasks to do in the day to day?
Yet you need to know what is truly important to you, what your values are, so that you can align organisational behaviours with these values and prioritise business actions accordingly. Without having spent the time to define what is important, business owners naturally gravitate to what tasks and challenges are coming at them day to day and not toward what will ultimately drive sustainable business success in the long run.
Recognising and celebrating behaviours that align with the organisational values, and managing those that do not, allows you as the owner, to set the standards. These standards will facilitate accountability as the business transitions to a more disciplined and accountable structure.
4. Be consistent
The challenge with long-term goals – such as building a commercially viable business – is that they take time, and as humans we are wired for short-term rewards.
If you can align your lifestyle and working environments with productive habits, you can build a sustainable operating rhythm that creates momentum and positive activity. As with anything worthwhile, however, you are not likely to see big results in the short term. Always remember, a habit executed over a long period will bring long-term results. Never give up.
Business owners who have created habits, rituals and routines that change their reality have been able to extricate themselves from the business tasks and processes that kept them firmly stuck and unable to grow.
A case in point
Let’s revisit our regional dairy distribution business. The business owner partnered with a wonderful accountant who helped her understand the financial position of the business and performance indicators.
Leveraging the business owners’ knowledge and building out a team revolutionised the efficiency of the operation and reduced its reliance on the owner. The business invested heavily in cloud-based, affordable IT platforms and systems to drive efficiencies, which helped increase average customer spend, and accelerated the uptake of new products.
The biggest win for this multi-generational, family-based business, which was built on customer service and client connection, is that the owner was able to create a brave new world without compromising what is important.
Like the concrete slab of a house, upon which all else is built, these four foundations are the bedrock on which your business can be built to weather any storm or market disruption. Try it and see.
This article first appeared in issue 42 of the Inside Small Business quarterly magazine
