Learn the secrets for small business success.
Did you ever realise that the vast majority of small businesses fail without ever becoming successful?
Did you ever wonder what’s so special about businesses that survive past the five-year mark and then run smoothly ever after?
Here you’ll find an easy-to-follow guide to making sure your business is a success and not just a sad statistic.
You’ll also find out:
- why 80% of small businesses fail in the first five years,
- how founder Ray Kroc’s strategy for McDonald’s is one you should follow, and
- why your business will be better off without you.
1. The entrepreneurial myth.
A heroic entrepreneur with a great idea and technical know-how succeeding in business quickly? That’s a myth.
Did you know that there were 629,000 such small businesses in Australia in June 2019, up from 572,000 two years earlier. But 40% of them fail in the first year and 80% in the first 5 years? Most of these failures are due to the entrepreneurial myth.
The entrepreneurial myth is a fundamental misunderstanding in Australian business.
It’s the notion that skilled technical work and a good idea form a sufficient basis for business success.
People often start their own business merely because they excel at work in a certain field, such as a machinist, barber or computer programmer.
Then one day the entrepreneurial seizure strikes.
They realise they don’t want to do technical work for someone else. They want to work for themselves as per their ideas for their own business.
Let’s say you work as a barista. You’ve mastered coffee roasting, brewing and latte art and you have lots of ideas of how to run a cafe. Suddenly, you realise you’d rather open your cafe.
Such a realisation is the reason behind the one million new businesses each year.
But if you start a business from the basis that you have technical expertise and new ideas, you’ve already begun on the wrong foot.
Your business will probably fail.
You’ve made the fatal assumption, the mistaken belief that knowing how to do technical work means you know how to run a business.
In fact, technical work and the work required to run a business are two entirely different things.
Here’s an example. Jane, a barista opens his cafe and soon realises that his coffee skills are not enough to make his business successful.
He has to know how to hire more employees, organise tasks and grow his business.
This is why so many small businesses fail!
2. Usually, an entrepreneur’s business won’t survive past adolescence.
Have you ever thought about the stages of a business like those of a person?
Interestingly enough, businesses go through infant, adolescent and mature stages, just like we do.
The difference is that most businesses won’t survive adolescence.
In the first stage, infancy, the owner and the business are the same.
At first, infancy is romantic.
The business owner finally gets to do all the work himself!
For example, the barista opens his cafe and is now roasting and brewing his coffee – great!
But success at this stage means more customers and more production.
Eventually, the work becomes too much to handle.
At the barista’s cafe, customers notice space isn’t as orderly anymore because the owner doesn’t have time to clean every day.
Suddenly, by starting his own business, the owner too finds himself buried under technical tasks.
He’s become the boss he wanted to avoid!
When he hires someone to help him, the business enters its adolescence phase.
Adolescence also starts out great, as the owner doesn’t have to do everything himself anymore.
But most young business owners enjoy freedom too much and manage by abdication instead of managing by delegation.
They leave their tasks to others and assume they’re taken care of, instead of ensuring everything is done properly.
Back at the cafe, customers start to complain about the lacklustre lattes the new employees make.
During this part of the adolescent stage, the owner must get past his comfort zone, where he controlled everything in the business himself.
The business will fail unless it can grow beyond the owner’s ability to do and control everything himself.
What can the former barista, now business owner, do?
He could get small again, fire his employees and return to his comfort zone, where work instead overwhelmed him.
Alternatively, he could risk and let the growth of his business accelerate until it got out of control, hiring more employees and accepting an inevitable decline in quality.
3. To nurture your business beyond the adolescent stage, you have to plan from the start.
Even if you’re prepared to get out of your comfort zone and relinquish some control to grow your business, where do you start?
You have to start from the very beginning, back before you even opened your business.
That’s because businesses that make it past adolescence and into maturity are founded on a broader perspective than most, and have planned their structures accordingly.
Successful businesses consider the future, focusing on building a business that works without being dependent on the owner always being there.
That way, when it’s time to grow past adolescence, they’ll be able to handle the growth.
To launch a business that will make it to maturity, you need entrepreneurial perspective.
This means that you plan from the very beginning how your business will look, feel and work toward its goals.
Instead of asking “What work is necessary for the business?” ask “How will the business work as a whole?”
For example, the barista knows the technical work his cafe requires.
He’ll roast Guatemalan beans and serve lattes.
- What will set his business apart from competitors?
- How will he attract customers?
- What sort of customer does he want?
The answers to these questions demand entrepreneurial perspective.
Then, to implement your entrepreneurial perspective, you’ll need an entrepreneurial model.
The entrepreneurial model is a plan for your business that satisfies potential customers’ needs in an innovative way.
Your entrepreneurial model will include your business’s market opportunities, a clear idea of your ideal customer and exactly how you’re going to deliver your product.
To save his business, the barista might have to close the cafe for a few days to ponder his entrepreneurial perspective and entrepreneurial model.
He could decide, then, that his target customers are eco-conscious students and he’ll satisfy their needs by being the first cafe to offer locally sourced milk and reading cubicles.
4. Inside, everyone has many different business personalities.
Do you think of yourself as just one single, predictable personality?
Then your business is probably going to struggle.
The truth is that we’re made up of some battling personalities.
Specifically, we’re each some part:
One moment we’re entrepreneurs creating a new product, and the next we’re a technician, frustrated with the new idea we just came up with a moment ago!
Of our battling personalities, the entrepreneur is the innovator, looking around and seeing a world of opportunity.
He’s a high-energy dreamer and visionary.
He sees all the angles, all the possibilities toward success and is intently focused on the future.
Sometimes that energy and constant opportunity-chasing create havoc and chaos.
He tries to pull people along and gets frustrated when things slow down or lag behind.
Without the entrepreneur, there’d be no innovation.
The manager in you is pragmatic and craves order.
More than opportunities, he sees problems to fix.
As the entrepreneur innovates and creates new things, the manager arranges things into rows, organised and orderly.
Without the manager, the business could never function.
Lastly, there’s the technician, the doer and the tinkerer.
The technician in you loves controlling the work flow and getting things done.
The entrepreneur’s flakiness and needs to constantly change ideas frustrates him.
But he’s happy when the entrepreneur and the manager create more work for him to do.
Without the technician, nothing in the business would ever get done.
Although the three personalities inside us seem to be totally at odds with each other, we must utilise the strengths of each to run a successful business.
That’s why the average small business owner is approximately 10% entrepreneur, 20% manager and 70% technician.
So now you know the daunting odds stacked against you if you decide to start a company.
But how can you avoid becoming one of the 800,000 failed businesses? Well, there’s a revolution going on in small business, and within lies the secret of success.
5. There’s an ongoing revolution in small business that provides a path to success.
Did you realise that we’re in the middle of a historic revolution that will change business forever?
It’s called the turn-key revolution, because more and more, businesses are being built so that an owner could in principle give the key to their business to anyone, and that person would be able to run the business successfully.
Businesses in the turn-key revolution create a model that works perfectly, provides a predictable product to the customer with every purchase and can be replicated without the owner’s presence.
In other words, they’re franchises.
For your business to be a turn-key business, you need to have a business format franchise: the model you give to the franchisee, the person who will run your franchise.
It contains your company’s processes, organisations and systems.
The success rate for franchises is incredible.
Whereas 80% of small businesses fail in the first 5 years, 75% of business format franchises succeed.
The turn-key revolution is so successful because it focuses on building businesses that anyone would want to buy.
For example, if someone wanted to buy your business, their first question would probably be, “Does it work?”
If you design your company’s systems to operate most naturally and efficiently, anyone can run the business, and thus it is appealing to buy.
In the turn-key revolution, you’re not just selling the products you make to customers.
You’re working to sell the whole business, including its processes and systems, to franchisees.
Ray Kroc started the turn-key revolution in 1952 when he became obsessed with creating a hamburger stand that would produce a precisely replicable hamburger to each customer.
He re-engineered the way hamburger stands worked, making everything so exact that every hamburger was flipped at the same time.
Ray Kroc defined processes that anybody could follow because he saw the eventual franchisee, the person who would run the stand, as his real customer.
Ray Kroc then sold the system of McDonald’s businesses as a franchise, thousands of times over.
6. Imagine your small business will one day be a national chain; now, build the very first store.
Companies franchise? The first thing you have to do is build a franchise prototype, the original model of your business that will be replicated.
Your franchise prototype has to give people value and be so simple that it can operate by anyone.
The value your prototype offers customers is whatever they perceive it to be.
What it means is that the value can be anywhere: in your reasonable prices, in your fantastic customer service, in a gift, your customers receive in the mail, and so on.
For example, the barista’s cafe value could be his perfect lattes that come with free cookies.
Next, the way the value is delivered has to be designed in a way that is systems-dependent, NOT expert-dependent.
This means that you should design your systems to be so straightforward and efficient that your business will no longer rely on you or technical experts.
For example, if the barista designs a perfect training program that ensures every barista in his cafe makes perfect lattes, he or other latte experts will not have to do it themselves.
Also, the franchise prototype should document everything in an operations manual.
If you don’t document how your business works, how will someone be able to run it without you?
Therefore, you must write down every single process as part of your company’s how-to guide.
The barista’s cafe, then, should have manuals not just on how to make a latte, but on how to train people to make lattes.
Lastly, the franchise prototype also should provide predictable service, 100% of the time.
If people don’t know what kind of product or service they’re going to receive, they probably won’t become regular customers.
For example, people who come to the barista’s cafe shouldn’t get a delicious latte one day and a bad one the next, or they’ll never come back again.
And of course, a franchisee won’t want to run a business with unpredictable results.
7. Start a business to satisfy your aim in life.
Why did you want to start a business in the first place?
Hopefully, it’s at least partially because you wanted something more than a 9-to-5 job in your life.
So as you set up your franchise prototype, your top priority is to ensure that your business will give you what you want!
The most important step in building your business is knowing your primary aim, or what kind of life you want to live.
After all, how can you tell what kind of business to build if you don’t know what it’ll help you achieve?
To know your primary aim, ask yourself questions such as:
- “How do I want to live?”
- “What do I care about most?”
- “How much money do I want?”
- “How much do I want to travel?”
After you know your primary aim, you have to make a strategic objective.
That’s a list of goals that your business will have to fulfil to help you reach your primary objective.
A strategic goal is also a tool for measuring progress, implementing plans and franchising your business.
It’s a list of standards that anyone should be able to understand.
It should include financial projections, including how much money you expect to make in gross revenue and profit.
It should also define why your business is an opportunity worth pursuing, meaning that it involves a big enough market opportunity to fulfil your financial goals and satisfy your primary aim.
And it should define what kind of business you’re in, including a description of your ideal customer.
Let’s say the barista’s primary aim is to make $500,000 a year and travel for one month every year.
That means that his strategic objective should explain how his three cafes will each make his $167,000 a year, as well as a plan on how he can close the cafes and wind down operations for one month each year.
8. Organisational charts are crucial for your business’s growth and establishing accountability.
If you’re like most people, you hate drafting organisational charts.
But without a clear way for everyone to know their responsibilities, how will your business succeed?
You need an organisational strategy to lay out exactly who in your company will do what work.
Even if you’re still a one-person business, you have to plan your organisational strategy to know how your business will grow.
So start out by considering how many employees you’ll need, and what work each one will do.
Then, for each position, write out a position contract explaining who the employee reports to, what work has to be done and by what standards the employee’s work will be judged.
For example, the barista knows that his cafes will need 3 baristas and 1 baker in each, a manager to oversee them, a marketing manager, an accountant and a general manager to oversee everyone.
In the beginning, the Barista will fulfil all those jobs.
He’ll make coffee, bake cookies, design ads for local newspapers and keep the books.
But as the business grows, he’ll need to know exactly how many people and for which positions he has to hire for his business to run successfully.
Plus, the barista will learn the best approaches as he works in each position.
He should document them in a specific manual for each position so that he can pass it down to future employees.
Another advantage of a clear organisational strategy is establishing accountability.
Each employee will be responsible for the work his position requires, which will be laid out in each position’s manual and position contract.
Each employee also must sign his position contract, which shows he agrees to accept responsibility in accomplishing his assigned work.
In the end, when each position is filled, with employees fulfilling the standards for their positions, your business will be on its way toward satisfying its strategic objective and your primary aim.
9. To manage your employees, don’t rely on great people – rely on a great people-management system.
Do you think the secret to a successful management strategy is finding as many incredibly talented people as possible?
The secret to a great management strategy is implementing a management system that approaches your management of people as a marketing tool.
Why a marketing tool?
Well, the way you treat your employees and the way you push them to do satisfactory work will end up having the biggest impact on the product your customer receives.
For example, one way the barista could manage his baker would be by telling him that he must stay in the kitchen and bake a certain amount of cookies and cakes every day.
Or, alternatively, he could put him on display in the shop, front and centre, and even let him choose his ingredients.
The latter option would probably result in the Baker being more enthusiastic about his job and customers consequently enjoying better cookies.
But the most important part of your management system is a people strategy, where you ensure your people understand the idea behind the work they’re doing.
If your employees understand the meaning of the work they’re doing, they’re more likely to want to work to help the business reach its goals.
A third important component is that you should test your employees against the standards you set for each position.
Let’s say that one of the barista’s business objectives is to prioritise creativity.
When the barista hires a baker, he makes sure to connect the objective of creativity with his work.
He tells him that personal creativity is a cornerstone of his cafes, so he has to push his creative limits by designing each week’s cake schedule.
He will be held up to the standard of creativity: no two weeks’ cake schedules should be the same.
The Baker will be pushed to reach his baking potential, while your customers will have more choice of cakes!
10. Next, forget everything and think only about the customer.
What about marketing?
What’s the best way to approach your marketing strategy?
Focusing on the customer is so vital that you should forget about everything else and only think about the customer.
First, consider your customer demographics.
- How old are your customers?
- Where do they live?
- Why do your customer buy from you?
These are your psycho-graphics.
Why should your demographic group buy from you and not from somebody else?
For example, while the barista might not have enough money to compile a huge customer research report, he could ask each of his customers to fill out a small survey, rewarded with a free cookie at the cafe.
To know his customer better, he could ask demographic questions such as age and address, and psycho-graphic questions, such as which leisure-time activities a customer enjoys.
With this information, the barista can present his products according to his customers’ profiles, and they’ll be more likely to buy.
Once you understand your customers as best as you can, make your marketing as appealing as possible to them.
For your franchise prototype to be predictable to a potential franchisee, you have to consistently market to your customers as scientifically as possible.
Scientifically, in this case, means according to data and tests that you run.
That means that once your research shows your customers have become younger, or that your marketing approach by advertising in newspapers isn’t as effective anymore, you must change it.
For example, you can consider buying online ads to reach younger customers.
11. In the end, you’ll have a business made up of fully functional systems.
What will your business look like after plotting out your entire franchise prototype?
It will be a complex, yet easy to run, interdependent series of all the systems and processes that make up the business, from marketing to management to organisational structure, all the way back to your primary aim.
That’s because you’ll have a systems strategy in which everything interacts with each other, and through those interactions, everything will develop and change.
Your systems strategy will fall into a few categories:
- Hard systems, the inanimate objects that make up your business, such as computers and colours.
- Soft systems, the ideas and the living things in your business, like yourself!
- Information systems, which will tell you all the data on your business, so you know what’s working, what’s not and when it’s time to change.
For example, in the barista’s cafe, hard systems will include his espresso machine; soft systems will include employee attitudes, and information systems will include data on what exactly customers purchase.
To succeed, all these systems have to work together.
You can’t work on any one part of the business without considering all the other parts.
At the barista’s cafe, he might want to exchange the espresso machine for a newer model, a change to the hard system.
To make that decision, he’ll have to consider how the other systems will be affected.
The soft system could be compromised if employees adore the current machine and don’t want to learn how to operate a new one.
Then the information system will have to monitor customer behaviour to ensure the new machine isn’t making subpar lattes and hurting sales.
If the systems can’t run smoothly together, the business doesn’t have a chance!
12. This process of planning and implementing never stops.
If you want to ensure your business is successful, you can never rest on your laurels.
You have to constantly be working on your prototype, tweaking its systems and confirming that it’s running as best as it can.
That continual tweaking, testing and energy are called the business development process.
The first step in the business development process is innovation.
Innovation is simply doing new things.
The key to successful business innovation, though, isn’t innovating your product so much as it is innovating your business.
Ask yourself the question, “What’s the best way to do this?”
Remember, Ray Kroc didn’t innovate hamburgers – he innovated how McDonald’s made and sold hamburgers.
The second step in the business development process is quantification.
Quantification is simply measuring everything.
How can you know what’s working or what’s not without measuring your innovation’s impact?
For example, how will the barista know that his management system of fostering creativity in the Baker is working unless he tracks how many pieces of cake he sells?
The final step of the business development process is orchestration.
The orchestration is putting innovation into practice.
It’s taking your idea of how your business should work and having it play out between employees and customers, then watching what happens.
It’s a constant process, based on your efforts of innovation and quantification.
That means, if wearing a blue suit increases your sales, keep wearing a blue suit!
But if quantification finds that losing the suit and wearing shirtsleeves helps performance, then switch to shirtsleeves.
The key point is that innovation, quantification, and orchestration aren’t necessarily chronological.
They don’t happen one after the other, but rather all together, all the time.
The business development process never ends, because your business will constantly be creating innovations, orchestrating them into real life and measuring the results.
It’s a process that will drive your small business to success.
Most small businesses fail, but if from day one you build your business as a franchise prototype so that anybody can take the reins, your chances of success increase dramatically.
The key is to go to work on your business, NOT in your business.
Define your primary aim.
Before starting your business, ask yourself:
- What kind of life do I want to live?
- How much money do you want, and how much do you want to work?
These are fundamental questions for which you need the answers before you start, as you should set up your business in a way to help you attain your goals.
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