Why owner-managed companies must use the good times for strategy
I see many owner-managed businesses on the verge of collapsing. It isn't so much the economy that is bad, but rather that a bad economy exposes poor management practices. The fact is that without the cushioning of a strong economy, most owner-businesses are exposed as badly managed. They simply aren't competitive.
As I consult on business development, I see nepotism to the point of incompetence, zero evident succession planning, owners being treated as gods, and no healthy debate to challenge the thinking. Things become stale.
To be fair, this is the natural path of all owner-managed businesses unless intentional countermeasures are taken. All owners are treated like gods - they often started the business from scratch and now provide a livelihood to staff. No wonder they are revered. Nepotism is standard practice and an accepted, effective tool to manage risk - it's not all bad. The problem isn't so much the existence of these factors, but that left unchecked, they become septic and eventually fatal.
At some point, all owner-managed businesses must embrace strategy and decide where they are heading. This should happen when the good times have arrived - not when the bad times create turmoil. Every spurt of good fortune should be used to reassess the business and decide how to future proof it. I suggest it should be done during the good times because strategy is undeniably an indulgence for an SME and should preferably be undertaken during periods of least financial pressure.
Good times leave a very distinct impression on a business - even more so than bad times because good times are announced and celebrated. Bad times are hushed - it slowly eats up morale, but it is hard to pinpoint what is happening. On the other hand, good times leave a distinct imprint - everybody remembers the good times. The announcements, parties, cocktails, smiles, other indulgences and bonuses. During these punctuated moments, the ownership of the business needs to realise it is time to take stock. Why? Because they are inevitably doomed due to the nature of owner-run companies.
A business strategy should start by assessing weaknesses and deciding what to do about them. It's as simple as that. Actively conjuring up and thinking through worst-case scenarios and determining what can be done about it now, in order of priority, is a practical first step in small business strategy.
We only have one machine doing "x" - what happens if it breaks? What happens if person x leaves or dies? How do we survive if our biggest customer leaves us? What are our business's significant assumptions, and what happens if these prove false?
I'll repeat it - this process does not have to happen annually like inside big corporates. It must occur whenever the good times strike! The good times should initiate a moment of pause during which the bad times must be imagined and dealt with proactively. During such assessments, the business owner should involve others inside the business and give them carte blanche to think outside the box and raise issues. A safe space must be created for this, and if not possible, an external facilitator must be brought in to interview staff and provide anonymous feedback.
I find in many of my most successful projects I am merely a conduit for frank feedback to the owner.
"You are heading for an iceberg - your staff are saying so behind your back...what now?"
Another benefit of using an external facilitator is that they can ask the stupid questions everyone is either too afraid to contemplate or has long since waved off as irrelevant. Bottom-line - good times should be used to think through the future in all its scary possibilities.
Don't wait until things get bad before asking what to do. It's like an open water swimmer struggling in the high swell - they must use the moments of calm to lift their head up and refocus their direction.
Most owner-managed businesses will die when the owner dies - a tragedy since the mere fact that they were able to build the business means there is potential to sustain it.