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5 Ownership Mistakes That Kill Small Company Growth

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This post originally appeared on THEsmallCOMPANYBLOG.

At some point in the past 12 months, all of us have heard a friend, relative or co-worker say ”I should start my own business!”  The basis of their claim is usually that they are ‘idea people,’ and obviously idea people always make GREAT small company owners . . . right?  Not exactly.  After 17 years of working in and with small companies, I can say with confidence that actually having an idea is about 5% of what it takes to be successful.  45 of the remaining 95 percentage points are based on being able to successfully execute on your ideas meaning something other than ideas and execution is accounting for at least 50% of every small company’s success.  But what is it?  Luck?  Motivation?  Networking? Hardly.  The secret to successfully growing a small company, over and above everything else, is the ability to avoid the really BIG mistakes. Or to put it another way:

Small company success is more about avoiding stupid ideas than it is about coming up with great ones.

So what are these mistakes?  Realistically there are dozens that could make any list of Top 5 (feel free to post your suggestions), but the ones I have seen made most often are outlined below.

Ownership Mistake #1: Pursuing Business Opportunities Outside of Your Company’s Core Competency

Over the last three months I have seen a coffee shop go into the retail art business, a graphic design firm try to upsell me SEO services, and a men’s haircut place promote $10 tickets to an onsite wine tasting.  Although I can respect all three attempts at generating extra revenue in a bad economy, these soon-to-fail ideas all have one thing on common—they divert money, resources and employees from the company’s core businesses.  Running a small company is a difficult job, and it is not uncommon for ownership to temporarily forget why they went into business in the first place.  But as a business owner you MUST understand your mission and motivation, and work toward that and that ONLY.  From Harvard to DeVry, every authority on business agrees: small companies need to figure out what they’re good at, and do more of it.

Ownership Mistake #2: Betting Your Entire Business on One Client

Even in a strong economy, hundreds (if not thousands) of small company owners close their businesses every year because they ignored mom’s advice: don’t put all of your eggs in one basket.  Most of these companies were originally formed in a similar manner: the founder works for a large company, leaves to start a related business, and is eventually hired by their former company as a contractor or supplier.  Over time the entrepreneur adds staff, systems, an office building and a benefit plan to handle all of their new business, and before you know it the owner is sitting on a $3 million per year enterprise . . . until the large company changes suppliers.

Over time, small company owners can get used to (read: SPOILED BY) revenue from one or two large clients, and ignore the risk involved with not actively seeking new ones.  Here’s a good rule of thumb: if losing your largest client would cause you to lay off more than 5% of your employees, you are too invested in one customer.

Ownership Mistake #3: Hiring Your Friends and Relatives

Over the last 17 years I have worked at companies with Owner-Child, Owner-Spouse, Owner-Sibling and Owner-Friend management teams.  None of these scenarios—and I truly mean NONE—have ever resulted in anything positive for the organization.  Hiring friends or relatives can be a significant demotivator to the rest your employees; especially when they are brought in as management. And even when these types of employees are not brought in at a high level, the person who made the hire rarely has the objectivity to properly manage a friend or relative . . . or the foresight to allow someone else to do it.  And when personnel issues arise—and they absolutely will—the issues are seldom resolved. Instead, your employees are forced to suffer in silence, eventually leaving your company for less stressful work environments.

Ownership Mistake #4: Offering Less-than-Minimum Benefits

Most people who work for small companies understand the economics of the situation, and would never expect common ‘big company’ benefits like cell phone allowances, employee stock ownership plans, paid dependent life insurance, and 100% matching on 401(k) contributions.  At the same time, you can’t attract and keep employees by offering two weeks of paid vacation, eight holidays, no dental coverage, and a health plan with monthly premiums three times the national average.  There are a lot of great employees willing to work for lesser benefits than their friends at large companies.  But there is a ‘minimum level’ of benefits in every market and in every industry.  In most cases, a local area Salary and Benefits Survey (usually compiled by the State) can tell you what that minimum level is.

Ownership Mistake #5: Thinking You Can Do Everything

Since the early 1990s, every small company owner I have worked for (or with) has admitted to me they are a “horrible day-to-day manager.” Yet with the exception of one—my current employer—each of them insisted on doing it anyway.  Being a successful company owner takes a great deal of self-awareness when it comes to what strengths you bring to the table, and what weaknesses need to be ‘covered up’ by allowing someone else to do your work.  If you truly believe you are the best accountant, marketer, sales person and manager at your company, chances are you’re already making this mistake.

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September 28th, 2010 at 1:33 pm