Do Business Well

There comes a time in the business cycle when survival is no longer the issue. Some of the signs will be: consistent monthly profits, three months or more of cash reserves, excellent banking and other credit relations, and an owner’s income at least equal to what could be made for similar work if employed by someone else.

More than likely this will take place between the third and fifth year. While this would seem to be the perfect time to break out the bubbly and celebrate, it may actually prove to be a time of great stress. This is because a number of new challenges will emerge.

The first is that of making the transition from a “seat-of-thepants” operation to a managed business. Most owners will recognize when this time has arrived, though they’ll be hesitant to make the transition since it calls for a whole new set of skills. This is not the stuff of which most “entrepreneurs” are made.

It’ll Never be the Same

During the first three or so years, you are the chief cook and bottle washer, head salesman, personnel department, bookkeeper, and, of course, janitor. But of all the hats you’ll wear during this period, the one you’ll wear the most is fireman. The major difference between the start-up, survival-oriented business and the mature, “managed” company is that the first is reactive and the second is proactive. In the early years you’re at the mercy of events. Only after traveling a lengthy learning curve will you be able to control most events.

(Note: The transition from a reactive “survival” phase to a proactive “managed” phase distinguishes the very small business from one that intends to grow well beyond ten employees. The owner who intends to have fifty, one hundred, or even thousands of employees will very likely go from the survival phase into a growth phase. While many sophisticated management tools may be in place during this growth period, there’ll continue to be substantial amounts of reactive behavior and numerous learning curves.)

To illustrate the difference between these two phases, let’s consider a doctor’s office. We’ll assume that Dr. Linda Smith is opening a new practice, and hasn’t brought along any patients from her former employment.

During the first three years, she‘ll be in a constant fight to pay the rent and other bills since her gross income will be small. She may find herself offering special hours, making house calls, or working on call for other doctors at night or on weekends. She‘ll need a receptionist/bookkeeper, but won’t be able to afford one. When it comes time to pay a major bill, she‘ll have to hustle even harder to try to get some cash in the door. Her few patients will benefit from this since they’ll always be able to get a quick appointment.

Four years later the good doctor will have joined an HMO, worked the service-club circuit, tapped into the Medicare program, and built a thriving practice.

Survival will no longer be the issue. Managing two nurses, a receptionist, and a bookkeeper will represent constant drains on her time. She won’t have to worry about income, but she‘ll now have to manage the patient load. She‘ll also have to fine-tune the appointment system so as not to unduly waste her patients’ time in the waiting and examining rooms. And she may want to consider automating her record-keeping system.

The distinction between the two phases of small-business development can best be seen in terms of planning. As the company becomes more oriented to management rather than survival, theplanning is longer range. In the first few weeks of a new business, it’s often hard to plan past the next weekend. In the five-year-old managed business, it would be common to have a fairly specific five-year plan.

The components of management (planning, investigation, evaluation, implementation, and oversight) require more reflection than survival. Managing is commonly more difficult and takes more discipline. Survival issues are constantly thrown in your lap and require immediate attention. You have to call on instinct, since there is no time to reflect. On the other hand, you have to remember to manage. If you forget, you’ll fall back into a survival pattern when the result of your failure to manage comes home to haunt.

It is common business parlance to speak of the person in charge as putting out fires when he reacts to survival issues. Let’s develop that comparison between an owner and a fire fighter.

I’m no expert, but my instincts tell me that folks in that profession love the action in fighting a big fire. Such a situation most definitely puts them in a survival mode. To win this battle, carefully trained instincts must be brought to bear. The adrenaline is pumping and the feeling of satisfaction from success is quite exhilarating.

Contrast that portion of the fireman’s job with the long-range management of the fire district. Someone has to evaluate tract maps for the area covered by their station. The staff must analyze each different type of condition. Officers must be sent out for site inspections to ensure compliance with regulations. Citations must be issued and followed up. Given the choice, most fire fighters would rather be out facing the fire. Unfortunately, no matter how good they are at putting out those blazes, some damage has already been done. The comparative drudgery of managing might have prevented its happening in the first place.

Many owners stay in the survival mode long after they should have moved into the management phase. They may have tried to make the switch and didn’t have the skills. Maybe they don’t want to lose the adrenaline surge of a good firefight. Sometimes it’s simply a case of not realizing that change is possible.

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