Management Failures. Avoidable Mistakes Often Made By Small Business Owners
By David Grace (www.DavidGraceAuthor.com)
During my many years of dealing with small businesses I’ve run into common management failures over and over again.
Lots of people think: “I’m smart therefore I can run a business.”
They’re wrong.
Lots of skilled people know how to do the work — build a house, feed a crowd, build an app, get the order, whatever — but they don’t know how to run a business.
Running a business is a skill. You need to have the right personality, the right talents, and you need to be trained for it.
The world is full of smart people who are terrible businesspeople and who should never be in charge of running a business.
I’ve put together a list of some of the Owner/Management mistakes that I’ve run into and some policies that I recommend that will help avoid them.
Hiring The Right Person For The Right Job
Personality Skill Set
A candidate’s personality traits need to match the job requirements.
If the job is distilling tons of invoices and receipts into a cash-flow report then you want someone who is detail oriented and reasonably good with numbers. I don’t care if he’s your best friend’s nephew or if he’s very handsome and smiles a lot, the person who’s spent the last two years working as a personal trainer is probably not the best person to fill that detail-oriented paperwork job.
If the job is customer relations then the woman who’s been building websites for the last five years is probably not the best candidate.
Figure out the personality traits and skills the job requires and then eliminate candidates whose past employment gives no indication that they may possess that skill set.
Basic Personal Attributes
You want employees who are reliable, punctual, intelligent enough, and have acceptable, basic social skills.
Does the candidate arrive on time or, better yet, early? People who can’t manage to arrive at the job interview on time aren’t likely to report to work on time.
Does the candidate dress appropriately? If your company sells computer-security software services and the job is for a sales rep who will interact with business customers, the guy who shows up in a t-shirt and jeans and has a lightning bolt tattooed on his neck is probably not a good fit.
Does the person make eye contact? Why did they leave their last job? Do they seem to be intelligent enough to do the job? What sorts of tasks have they completed in their previous jobs? What vocabulary do they use?
You can find lots of books and articles that will give you job-interview tips. Read a few of them. But at the very least, a little common sense will tell you that you shouldn’t hire someone whose last job was as a waiter at Applebee’s as the manager of your inventory control department.
Assume That Your Employees Have No Clue About Proper Work Conduct
If you decide to hire Mr. Smith or Ms. Jones you need to make sure they understand what is expected of them.
Middle-class people assume that everyone knows what stealing is and that it’s not acceptable to steal from the company. That is a false assumption.
Lots of people who will come to you for a job will assume that company supplies are there for the taking as some kind of an unofficial fringe benefit.
You need to explicitly tell every employee at the very beginning that taking company property for personal use is stealing and that it will get them instantly fired.
It’s common for employees to assume that if they want to mail a package that it’s OK to take it to work, wrap it using company supplies, and put postage on it from the company’s postage meter.
If you learn that someone has done that and you confront them they will be confused. They will tell you that “Everybody does it”, that “It’s just some supplies and a little postage” and that “No one told me I couldn’t do that.”
Sometimes employees return materials to a vendor or deliver recycling to the center and receive payment. It’s not uncommon that they keep part or all of the money or spend some of the money to fill their gas tank or buy themselves lunch.
If you review the receipt and complain that the cash they’ve turned in doesn’t match the paperwork you will be met with a blank stare. “I was hungry” or “I was almost out of gas” is the response you will get, followed by “No one told me I couldn’t do that.”
The-No-One-Told-Me-Not-To Defense is amazingly common in all kinds of situations.
A few years ago a San Francisco County supervisor was indicted (and went to jail) for soliciting money from a company in his district as “compensation” for his help in obtaining a business permit.
His defense was, “I thought that was how government worked. No one told me I couldn’t do that.”
Perhaps you remember the a scene from Seinfeld where George’s boss, Mr. Lippman, calls George into his office.
“George,” Mr. Lippman begins, “it’s come to my attention that you had sex with the cleaning lady on your desk. Is that true?”
“Was that wrong?” George asks. “Let tell you, I’ve worked at a lot of companies, and if anyone had ever told me that having sex on my desk with the cleaning lady was frowned upon I never would have done it.”
Every employer would be well advised to create a “You Can’t Do This” video that every employee is required to watch. It should include things such as,
- You can’t use company postage on your personal letters and packages.
- You can’t take company equipment home.
- You can’t personally use or take office supplies — tape, staples, envelopes, etc. — home.
- You can’t have sex in the building.
- You can’t drink alcohol or use recreational drugs on company property.
- You can’t show up for work under the influence of alcohol or recreational drugs.
- You can’t use racial, ethnic, religious slurs at work.
Etc.
As an employer you have to start with the assumption that your employees know nothing, have no common sense, and have no basic cultural or behavioral values.
Make them watch the video and sign and date a statement affirming that they watched the video, that they understand the rules of conduct it laid out, and that they understand that a violation of any of those rules may result in the immediate termination of their employment.
Know Who Your Good & Bad Employees Are
After you’ve hired someone and given them the training they need to do their job, you have to actually pay attention to how well they do that job.
- Who always shows up early or on time and who doesn’t?
- Who stays late to finish a project and who doesn’t?
- Who often calls in sick the first work day after a long weekend or a holiday?
- Who notices a problem, takes ownership of it and on their own initiative works to get it fixed?
- Who notices a problem, says, “That’s not my job” and moves on?
- Who goes the extra mile to keep the customer satisfied?
- Who suggests changes in company procedures that will make your operation more efficient or more profitable?
Bad employees will often tell you they’re bad employees. It’s always surprising to me how often dishonest people will brag about being dishonest. They’ll lie to someone to get some bonus or refund then they’ll brag to their co-workers how successful their cheating was.
If they’re lying to other people, they’re also likely to lie to you. If they’re cheating other people they will also likely cheat you. Duh!
When John tells his co-workers that the cashier gave him $20 too much in change and then he brags about hurrying out the door before she could notice her mistake, John is telling you, “I’m not an honest person and I’m proud of it.”
You don’t want employees who are liars and cheats and you especially don’t want employees who are so stupid that they brag about getting away with lying and cheating.
You want employees who are honest, intelligent and have a good work ethic. You want employees who are hard working, want to do a good job, and want the company to be successful.
You want to find out who is not honest, who wants to work as little as possible, who doesn’t care if he does a poor job, and who doesn’t care if the company goes down the toilet.
Good Employees Are Your Best Asset
Good employees need to be paid well and treated fairly because they make you money.
Every time some small-business owner says something like: “I don’t pay these people to get sick” or “I don’t pay these people to take vacations. I pay them to work” I want to look him in the eye, shake my head, and ask, “How stupid are you?”
When an employer says, “These people should be grateful to me for employing them” I want to remind him that the employees could just as easily say that they’re doing him a favor by agreeing to work for him and that he should be grateful that they’re willing to work for him.
Like every other contract, employment is a two-way street. Walmart isn’t doing you a favor by selling you a TV set and you’re not doing Walmart a favor by buying it. It’s a bargained-for exchange.
Yes, the employer is giving the employee money, but the employee is giving the employer labor. Neither one is doing the other a favor.
You’re employing people because you need them. You’re not paying them as a charitable donation. You’re paying them because they are making you more money than they are costing you.
Every employee has the ability to maximize their value or to minimize their value. To a large degree which one they choose will depend on how you treat them.
Committed employees will make you a lot of money and dedicated, conscientious employees will keep you from losing a lot a money.
Employees who are committed to a company’s success, who care about doing a good job, who are proactive about finding and fixing problems, who want to make your business run more efficiently and who want to keep your customers happy are worth every penny that you pay them and more.
It you treat employees as if they are a necessary evil who are out to pick your pocket that’s what they will become.
If you let your employees know that your primary goal is to get as much out of them as you can while paying them as little as you can get away with, their reaction will be to do as little as they can and let your business go to hell as much as possible.
Why would any of your employees devote one extra second of their time, energy or thought to helping you or making your business more successful if you treat them as if they are a necessary evil?
When you treat people like shit, they will look for ways to treat you like shit. What goes around comes around.
There are dozens of ways that employees can let your business go down the toilet and not get blamed for it. When you treat them like an enemy and let them know that you view their wages as little more than legalized theft you can be absolutely sure that if they find a problem that they can ignore without being blamed they will ignore it and they’ll laugh when you get the bill.
That few hundred dollars you save by grinding down your employees every chance you get will end up costing you thousands or tens of thousands of dollars. There will be phone calls that didn’t get answered, problems that didn’t get reported, customers who weren’t soothed, all to your cost.
If you have hard-working, dedicated, responsible, honest, employees then treat them well. Tell them they are appreciated. Give them a little bonus now and then. If you let them know that you appreciate them and value their hard work, most of them will actually work harder.
Grinding down your good employees is one of the dumbest, most short-sighted and most costly things an employer can do.
Absent Workers
At the same time you’re figuring out who your good employees are, you need to determine who your poor employees are.
There are people who are always there. They never call in sick. They never arrive late or leave early. They are super reliable. All other things being equal, these are the employees you want to keep and reward.
On the other side of the equation are people who are constantly late, often leave early, and regularly don’t show up at all.
You can’t run a company if you can’t count on people showing up and doing their job. I recently went to the dealer to pick up my car after it had been in the shop for a week for a warranty repair.
No one could find my car. I asked to speak to the manager.
“Sorry, he’s on vacation.”
“How about the assistant manager?”
“Sorry, he’s also on vacation.”
“Who’s in charge?”
“Well, Mr. Smith is in charge, but he went home early today. You know, your car might be at the Body Shop. Here’s their phone number. Why don’t you call them and see if they have your car.”
I will never give one more penny of my money to that dealership ever again.
“Sorry, Mr. Smith is out today. Call back tomorrow” will not work for your business either.
Who calls in sick every couple of months? Is his sick day usually a Monday? Does he miss just one day or is he usually out for several days in a row?
These are employees you should have a talk with and if this conduct continues, consult with your attorney to confirm that you can fire them.
Do you have an employee who often calls in sick the day after a paid holiday? One way to handle that is for your holiday policy to provide that there will be no holiday pay if you fail to appear for work the day after the holiday.
Monitoring Employee Performance
Still on the subject of monitoring employee performance, I’m always surprised by owners and senior managers who refuse to monitor their subordinates’ performance.
It sounds silly for me to have to say this, but you have to constantly pay attention to how well the people you supervise are doing their jobs.
Most people’s response to this rule is, “Well, duh!” but there are lots of owners who just won’t do it. Their attitude is: “Bill is running the warehouse” or “Sally is in charge of sales. That’s her job.”
If the sales manager tells the owner, “The Johnson people are calling me, asking about their order” and the owner tells them, “Don’t bother me. That’s a warehouse problem” the owner is making a big mistake.
Your Sales Manager wouldn’t be calling you about the Johnson account if he hadn’t already tried and failed to get an answer out the warehouse.
The next thing the sales manager is going to tell the owner is: “I’ve called Bill at the warehouse twice but he won’t call me back.”
OK, now the owner absolutely knows that the warehouse has screwed up in some way and is ducking the problem. The owner has just been told that the warehouse manager is refusing to do his job.
Then the owner says, “It’s Bill’s job to handle that. Deal with him. I’m too busy doing my own job to get involved with Bill’s job.”
No. No. No. A thousand times No!
Clearly, Bill isn’t doing his job. Bill is refusing to do his job. The owner is Bill’s supervisor. Bill’s failure to do his job is the owner’s job. As Bill’s boss it’s absolutely the owner’s job to find out why the Johnson order is screwed up and fix it.
If the owner tells his Sales Director, “Don’t bother me” he’s saying, “I don’t care if Bill isn’t doing his job and I don’t care if the Johnson people are unhappy.”
What is the natural and normal lesson the Sales Director will take from that? It’s:
“Well, if the owner doesn’t care, why should I? To hell with the Johnson order. I’m going home.”
If your company has a warehouse that often ships product to the wrong address, or loses shipments it receives, or mis-picks orders, that’s a failure of the person who is in charge of the person who is in charge of the warehouse. That’s your failure, Mr. Owner.
It’s the obligation of the executive who supervises the warehouse manager to know how that person is performing or not performing. It’s not just Bill’s problem, Mr. Owner. As Bill’s boss, it’s your problem.
As the owner you need to know if each department is making more mistakes than can just be chalked up to “shit happens.”
Is your warehouse operating well below the number of “shit happens” mistakes? Great. It’s your job as the owner to find out what your warehouse manager is doing that’s getting such good results.
Maybe you can replicate the warehouse manager’s techniques in other areas of your company. Maybe some bonuses or awards are in order to encourage more of those good results.
Something as simple as a couple of paid days off or dinner for two at a nice restaurant will likely encourage the successful employees to work even harder.
You also need to know when your warehouse is making more than the number of excusable “shit happens” mistakes.
Is the warehouse manager arriving late and leaving early? Does he have a drug or alcohol problem? Is he taking a nap in his office while he leaves the real work to his poorly trained or poorly motivated or poorly paid subordinates?
Does he have one or more subordinates who are screwing up and he’s not doing anything about it? Does he have enough workers? Has he trained them properly?
Clearly, there’s a problem in the warehouse and the person who’s supposed to be fixing it, Bill, isn’t fixing it. As the owner you can’t just say, “Oh, that’s a warehouse problem.”
As Bill’s boss it’s your job to dig into the situation and find out where and why things are going wrong and why Bill isn’t fixing these problems on his own. When Bill screws up Bill becomes your problem, Mr. Owner.
Checklists & Lists
Every business has paperwork. You have to get customer information. Order information. You have to give quotes. You have to prepare invoices. You have to pay bills. You have to receive and/or ship product. You have to keep track of employee hours, vacation and sick leave time. On and on and on.
There will be mistakes. There will be omissions. There will be problems. Things will slip through the cracks. Many of these problems can be reduced or eliminated by making one person responsible for a specific aspect of the paperwork process. That way, when things go wrong you will be able to track who made the mistake. Then you can find out if there’s a structural problem, a software problem, a training problem, or just a bad employee problem.
It shouldn’t take too long to detect a pattern to the mistakes. There was an omission on this form. That form was never received or sent. This number was never calculated.
Many if not most of these sorts of paperwork mistakes can be solved by instituting a checklist system.
You make a list of every element in the paperwork process that needs to be completed before the paperwork moves to the next stage. You list each of those steps in big letters on one piece of paper. Each step has a check box and a date line.
That piece of paper gets stapled to the folder or file or documentation and the responsible employee cannot forward that material to the next stage in the process until he/she has checked off every box and written in the dates that each of those steps were completed.
If you need the date that the job was completed in order to bill the job then one item on the checklist is “Job Completed On ____________”. That way the employee cannot send that paperwork to the billing department until that blank is filled in.
The reliability of almost every paperwork process can be improved by requiring the completion of a crucial-step checklist before the paperwork is allowed to move on.
You also need to require that the responsible employee keeps a list of projects that have not moved on. If the paperwork can’t advance without certain information then the employee needs to keep a list of the jobs that are missing needed information and what that missing information is.
That person’s supervisor or the owner needs to regularly check those “not completed” job lists because they will tell the owner who’s not delivering the needed data. Where is the bottleneck? Where is the roadblock?
Spending a few hours on creating and refining the paperwork process can save a company tens of thousands of dollars.
Lists and checklists not only can avoid errors of omission, they can fix responsibility on the appropriate employees and they can highlight who isn’t doing their job in a timely fashion.
Why Is Someone Doing A Bad Job?
If the warehouse is constantly sending out the wrong shipments, sending product to the wrong address, losing inventory, etc. you, the owner, need to find out why.
The very first thing you should do is privately talk to the lowest level warehouse employees one at a time.
Don’t start with Bill the manager. Start with the people on the bottom. One-on-one. Privately. Confidentially.
“Jerry, I need to understand why we sent the XYZ order to ABC. Can you help me understand how that happened?”
If you’ve got six guys working in the warehouse the odds are that at least three of them will be able to tell you exactly what went wrong and why.
Maybe most of the mistakes can be traced to one person and that person may be semi-illiterate and can’t properly read the routing orders.
It might be that the software generates duplicate order numbers or confusingly similar order numbers.
It might be there is no set of established procedures for double-checking orders before the truck leaves the dock.
It might be that the manager is in his office on porn websites all day and he leaves most of the work to Larry who is completely incompetent.
Only after you’ve talked to the people below Bill, the manager, should you talk to Bill. By then you’ll probably have pretty good idea of what’s really going wrong. What does Bill tell you? What’s his story?
Does Bill even know there is a systemic problem? Does he have any idea of what it is or how to fix it? Does he blame it all on of his subordinates? If so, why hasn’t Bill replaced that person already?
If the problem is with the paperwork system itself, then fix it. If the problem is that things aren’t being double-checked, then institute a double-check policy. Is it one bad employee? Can that person be turned into a good employee with further training or supervision or by being moved to a different job?
In short, is the problem fixable with different tools or training?
Why didn’t Bill detect and fix this problem on his own?
Is Bill unable or unwilling to do his job well?
Bad Employees Need To Be Promptly Fired
It’s the owner’s job to monitor his/her subordinates, find out where problems are arising, why, and how to fix them.
To continue our example, is the warehouse screwing up more than it should? If so, what’s the reason, and why hasn’t Bill, your subordinate, corrected that problem on his own? Why has it gone on this long without being fixed? Why hasn’t Bill talked to you, the owner, about it already?
If the reason the warehouse manager hasn’t fixed the problem is correctable, fine, give Bill the advice, additional training or better tools he needs to correct the problem.
On the other hand, if the problem is that Bill
- wants to do the very least amount of work he thinks he can get away with
- don’t care about doing a good job
- is basically dishonest
- is always looking for a way to blame others for his mistakes
- is basically too stupid or unskilled to do the job well
- has a drug or alcohol problems
etc.
then Bill needs to be fired ASAP.
If his poor performance is due to a medical/alcohol problem you’ll need to take guidance from your attorney before you fire him, but get rid of him as quickly as possible.
Lazy employees, stupid employees, dishonest employees, etc. don’t change. They don’t get better. They just continue to screw up and cost the company money. Even worse, they degrade the performance of all the other employees around them.
The old saying about one bad apple spoiling the barrel is true.
When Bill does a bad job and nothing happens to him, the other employees think:
- “Why should I kill myself getting this order out when Bill is screwing everything up and no one cares. If the owner doesn’t care if Bill screws everything up, why should I work hard?”
- “Bill barely shows up and no one says a word. If he isn’t getting fired for coming in late and leaving early then I sure won’t get fired for ducking out.”
- “Hell, I’ll just get my check and if the company burns down it’s not my problem. If the owner doesn’t care that Bill is screwing everything up, why should I?”
- “Bill is getting paid all that money to manage the warehouse and he’s not doing shit. I’m getting half the money he is. Why should I work twice as hard as Bill for half the money?”
Bill is a cancer growing on the company. Promptly firing Bill tells the other employees that
- You’re paying attention to the employees’ performance.
- You do care if someone doesn’t do his/her job
- People who do a crappy job will be fired
Every time the owner or the senior manager lets someone get away with doing a bad job they’re telling all the other employees that
- It’s OK to do a bad job
- No one will be fired for doing a bad job
- No one cares if employees do a bad job
- No one is paying attention to the kind of job the employees are doing.
You’re Not A Welfare Bureau
I’ve heard employers say, “Gee, I can’t fire Bill. He needs this job.”
Are you a division of the Welfare Agency? Is your company an nonprofit charity? Is it your job to give money to incompetent people? No, it’s not.
If Bill really needed this job he wouldn’t have come in late, left early, failed to supervise his workers, lost paperwork, failed to check the invoices, etc. If Bill doesn’t care enough about keeping his job to do it properly why should you?
When an employee does a bad job and his/her mistakes cannot be corrected with additional training or better tools then you did not fire that employee. He fired himself. You just made it official.
One of the very most important things an owner can do is quickly fire bad employees.
Paperwork Counts
A surprising number of small business owners think that they shouldn’t have to do paperwork. They look at paperwork as a conspiracy of lawyers and the government to ruin their life and that they are morally justified in not doing it.
That’s the same argument your kids give you for not cleaning their room or doing their homework.
It’s bullshit.
You don’t let the guy who’s putting down pavers tell you that he shouldn’t have to level the underlayment or calculate the correct drainage slope or do any of the other steps that are part of the job because they’re “just silly rules.”
If you’re going to do a job, then do it right. If you’re going to be in business then do the work. Part of your work is paperwork. Period. If you’re not willing to do it, then don’t try to run a business.
I’ve seen companies where the owners refuse to give their bank account information or their business credit card statements to their accountant. The tax deadline approaches and they beg the accountant to get an extension. When the extension is five days away from expiring they finally dump a cardboard box full of papers on the accountant’s desk and tell him/her to “fix it” while complaining about the government causing them all these problems and how much the accountant is costing them.
Bullshit.
Paperwork is part of running a company. Do your job.
BTW, the accountant who will even put up with this crap will charge extra for fixing these problems at the last minute. An owner’s emotional resistance to dealing with the paperwork will cost him/her thousands of dollars in extra CPA fees, fines and penalties.
While this dysfunctional owner will want to blame others, especially “the government” for this, the only person who is really to blame is that owner.
Do your paperwork on time or don’t be in business.
Doing Things On Time Counts
There are personality types who just won’t do anything on time. These people should never run a business. If you are a person who is never on time, who never completes assignments when they are due, who procrastinates, don’t start a business. Don’t run a business.
Being Smart Enough To Know What You Don’t Know That You Need To Know
In every business there are always questions that you don’t have the answers to. That’s fine. You make a list of those questions and you do as good a job as you can finding the answers. That’s a normal part of life.
The big problem is when people are too stupid to be able to figure out what the unanswered questions even are.
I once had a person tell me that he wanted to start at certain kind of business. He told me how it would work and what a great product it would be. Fine.
I asked him how much he estimated that it would cost per month to run the business.
What? He had never even considered calculating that number. His attitude was: “Wow, I need to know that?”
How much was he going to charge per unit of product? He thought about it for a moment and picked a number out of the air. That question had never occurred to him.
How many units did he estimate he could sell per month? He had never considered calculating that number.
So, he thought he was going to start a company and build and sell a product but it had never occurred to him that he first would need to calculate how much it was going to cost to build the product, how much he could sell the product for, or how many units of product he would be able to sell at that price.
Worse than that, he was shocked to be asked those questions. He paused and then started writing them down because he didn’t think he’d be able to remember them.
This is a person who should never, ever run anything.
If you don’t know that you have to figure out what are the crucial questions that you need to answer before starting your business, then you absolutely should never be in charge of running a business.
It’s OK not to know the answers. It’s not OK to be totally clueless about the necessity of figuring out what the important questions are.
Summary
- Hire the right people
- Train your employees in the basics
- Monitor employee performance
- Reward good employees
- Quickly fire bad employees
- Do your paperwork on time
- Figure out what data your business needs, get it, and apply it to your operations.
— David Grace (www.DavidGraceAuthor.com)
