I have been very fortunate during my career to have meaningful conversations with hundreds of mid-market business owners from all over the world. Over the first 30 years of my professional life, I owned and ran firms that provided talent to companies in a wide variety of industries. As president or chairman of various organizations, I had the opportunity to discuss issues, challenges, problems and opportunities with owners and senior management. Over the last couple of years, I have similarly had the opportunity to meet with and dig deep into the reality of dozens of business owners as well as learn from the hundreds of companies that FortéONE has helped over our first 15 years.
The lessons owners identify they have learned usually aren’t unique but repeated by business leader after business leader. I have narrowed these most common lessons to a top five:
Lesson one: Assemble talent that differentiates your company from others
This lesson seems to be almost universal with business owners. It sounds quite basic, but too many businesses give this concept mere lip service. The strategy and tactical execution in how employees are attracted, selected, managed, developed, compensated, and engaged is not focused on to the same degree of other areas of the business. There are few, if any, outcomes of most businesses that don’t rely on the people who are employed there. In many businesses, people represent the largest cost and have a dramatic impact on all outcomes of the business. Tolerance of mediocre or bad performance is infectious and too often forms a culture that is unintended. Conversely, companies that thoughtfully address how they find extraordinary talent —and nurture them to succeed to the best of their ability—have a massive advantage on the rest of the field.
Lesson two: Putting off dealing with a “troubled” employee
In a very closely related category, the second lesson—and perhaps the number one regret—that business executives have shared when reflecting on their careers is they waited too long before asking a “troubled” employee to leave. Sometimes the employees just don’t perform up to the standards that are needed; other times, the results are acceptable but the behavior is damaging to the organization. In either case, the business leader knew for some time that they should really make a move but just didn’t make the change. The cost is almost always well beyond the financial measurement of salary and benefits. Poor morale around the problem employee, hidden client issues, productivity costs, and many other unmeasured costs result in the wrong person being tolerated for far too long.
Almost always, when action is finally taken, it is like removing a cancer. Hidden issues that had been festering are uncovered, and it becomes painfully obvious that this action should have been taken long before. The fresh start and the recognition that action was taken both add tremendous energy to a team who knew in their hearts that this had to happen. Even great performers with top results but bad culture tend to be a huge addition by subtraction, and the net effect more than makes up for the transition of a well-planned exit.
Lesson three: Know how the business makes—and loses—money
The third lesson that far too many owners acknowledge is they don’t really understand what’s profitable and what simply is not. They judge the company’s performance by the bottom line. This is a good place to start, but being satisfied with a dollar amount rather than an earning percentage in the top echelon of your industry benchmarks could be masking issues that make it harder to grow or weather the downturns that come during difficult cycles.
A perfect example of this is the oft-repeated reality of large clients who are viewed as valuable and crucial but have such thin margins. When proper analysis is applied, it turns out they are actually unprofitable. Understanding your real cost structure and the factors impacting profitability by product or service offering is central to maximizing the potential of any organization. Without this information, it is very difficult to make sound decisions on issues such as pricing, investment in assets, where to invest in growth, or how to design appropriate rewards. Other symptoms of this problem are companies that don’t have a handle on the appropriate turns on a SKU, how to minimize inventory, or even how to manage their pricing in relation to all of the factors that impact the true return on goods or services sold.
Lesson four: Failure to strategically communicate
A complete inability to strategically communicate is something I’ve seen repeated countless times. All companies communicate constantly. Few do it with planning regarding the consistency of the message with their mission, values, goals, the targets for the communication, and its frequency. I would contend that a well-executed communication plan is the very foundation for achieving a company’s mission. The right strategic communication plan also sets the foundation for the culture, which evolves either to fill a void or along the lines of a well-defined path strengthened by a communications plan. One of the most common requests that we receive is to help establish what we like to call “A Culture of Performance.” The request rarely is stated in that way, but the symptoms described and observed cry out for this initiative. There is much more to creating a culture of performance than communications, but without a planned and executed communication strategy, there is little hope of creating this powerful environment in a company that fosters maximum achievement.
Lesson five: Failure to constantly and quickly identify and react to market trends
This failure occurs in many ways including not adjusting your sales structure, value propositions, personnel and reward systems to recognize market shifts and opportunities. Today more than ever, markets are constantly changing and the ability to identify the impact of these shifts and adjust accordingly can give your business a meaningful advantage over the competition.
As an example, one company we recently helped recognized a shift in their industry from frontline buyers to a higher-level executive buyer in a consolidating industry. The very nature of the buyer and what they were looking for was fundamentally changing. This client’s ability to recognize this shift and reconfigure their value proposition and sales structure to address it won them a significant head start on their competition. The ability to spot these trends and react accordingly doesn’t just happen. It requires leadership that creates the right culture and infrastructure to look for these subtle shifts and adapt.
I could spend a day going deeper into each of these five common lessons and share numerous war stories. Some companies have prospered because they got it right, but far too many had to suffer some pain until they recognized the lesson and addressed it with their own plan to change. Think about your business and how well you have done in these five common areas of danger and opportunity. What can you do today to put actions in place that will put you in the position to tell success stories about how you avoided the five most common mistakes business owners make?
This article first appeared in the YPO ignite Blog