Small Business MBA
5 Questions to Ask Before Starting a Business
Build a Plan to Succeed
Before a small business can succeed, it must have a strategy. Without this basic tool, the company may waver from “bright idea” to “latest trend” and back again, chasing a target they “think” they understand. This flailing approach will most likely waste precious time and available resources chasing an elusive goal that probably cannot even be expressed in words.
Building a plan allows businesses to focus resources where they can best be helpful to grow and enhance your company’s product/service offerings. It clarifies the goals and objectives in the collective mind of the company culture to ensure that the team is “marching to the same drummer”.
By fully articulating your strategy, management and staff can understand their role in making it a reality, commit to support the transformation with monitoring and accountability from all levels of the company.
Starting Points for Strategy
To build this plan, we need to find out a few things first. Some may appear to be obvious as first glance, but we will dive into each to see where we find useful, actionable information.
These five simple questions build a catalog of knowledge that will help formulate a path to get from where your company is today to where you want it to be in the future. Along the way, you will see how a simple set of tools will build a comprehensive strategic team, designed to transform and grow your business.
We will walk though several examples to see how you can apply them to find the answers for your specific small business. Together we will identify the hazards and pitfalls many other businesses encounter and apply specific solutions to smooth the path.
The ultimate goal is to gain insight into how your company operates, what it can do, who can do it, what its future goals are and how to get there. When broken to its simplest terms, we only need to answer these questions:
What Do We Do?
While you may have been successfully operating a small business for year (decades even!), many owners and managers don’t have a good understanding of what the company actually does. At first, this may seem to be an obvious question, but when we start to pull back the layers of understanding, it gets harder to see the clear answer.
If you are just starting out, the clear definition of your product / services will help you get an understanding of exactly what you want to accomplish as you build your business.
This step is applicable for businesses of every type, from a pop-up food cart to a professional services organization. A basic understanding of what it is you do is key to building and operating your business. You may change these ideas over time, but this will provide a foundation for which you can objective start to put the pieces of your organization together.
To begin, think about the list of products or services your company provides (or will provide). These are the things that customers actually pay for as a line item on invoices or receipts and come in the form of either products (a physical or digital “thing” or a service).
Add a bit of detail to each of item in your catalog, what does each one do for the customer? What need of theirs does it fulfill?
For a good example of this, let’s take a look at a hotel where the property is the product… or is it? While a hotel does ostensibly rent rooms to guest, the need it is performing is a bit more complicated.
At its most basic level, hotels provide shelter for a period of time, but they also serve as meeting places for families, a place to rest on a journey, a venue for an event or a convenient place to access business clients.
When most people think about the room they rent from a hotel, they place their decision in the context of these factors. Business travelers stay close to clients, travelers want to be close to the road or airport, event coordinators want space to facilitate the activities and wedding planners want an aesthetically pleasing location and support for the festivities.
At the end of the day, renting a hotel room is just paying for the privilege of sleeping in a bed in a clean room. However, when the guest pays for the room rental, the needs the hotel fulfilled can be vastly different. How you think about your product determines how you will build it, price it, market it, sell it and even enhance it over time. Understanding the needs of the customer shape that journey from an idea to a successful business.
Who Are We?
A truism I once heard in a management coaching session stuck with my through the years: Your company is never going to be any better than the sum of the people who make it up.
Whether your company is a single person working late to bring an idea into reality or a small team coming together to provide a product to the market, people are the heart of the enterprise.
Who are those people? (even if it is only you, ask yourself that question) What do they bring to the company? What skills do they have that can be focused on taking the business from where it is today to where we want it to be in the future? What skills, certifications, licenses or capabilities are missing?
Take a moment to list the people in your company, itemizing what they bring in terms of experience, certifications, skills, relationships or knowledge.
Take care of the people, and the people take care of the business
Knowing your company on a personal level is the core requirement to becoming an effective leader. Having a true understanding of the scope of capabilities of those people is a good start.
Beyond this initial catalog, what skill or experience is missing? Can the current team be trained or certified to cover the gaps? Do we need someone else who has a better understanding of this business function?
How these people are organized will play a key role in the success of your business. While most small businesses start out with a rather “flat” management structure, having an understanding of how the team will be managed as it grows can help facilitate a smooth transition as the company grows.
Lastly (and certainly not of the least importance) is what will motivate the team to make a success. While money is important, it will not keep a team focused and driven.
Ross Perot famously said, “[As a manager] I take care of the people, and the people take care of the business”. How will you as a company (even a company of one) take care of your people? What will engage them in the overall success of the business?
What Do We Have?
Understanding the operational landscape of a business is a key component of any traditional business plan. Typically, this plan will look at physical assets and financial liabilities to come up with an overall of the status of the business.
Beyond this accounting-level reckoning, the intangible assets that come along with a business are often even more important than the financial ones. Does your location have a particular appeal to your customers by being beautiful, close to other places where you they will be, convenient to suppliers or do the doors open wide enough to easily get raw materials in and finished products out. “Assets” cannot always be calculated in monetary terms, but they have value to the business.
People are assets as well. Does an employee have a relationship with a client that will make it easier to get them to purchase the product / service? Is there a staff member who has a particular experience level that makes processes move smoother or improve production?
Likewise, liabilities are not always financial in nature. Does your company have any intangible aspects that make it difficult to succeed? Is your location convenient for customers? Do you have a cost-effective method to get products in the hands of consumers? Is there a better way to produce or deliver your product?
Going back to the hotel example; if located far from a main road, even a beautiful well-managed property is less likely to attract travel-related customers. If the management believes that their core clientele are travelers, they will have a difficult time giving them a reason that outweighs the convenience of proximity. This is a liability in one aspect, but can be an asset if the focus is corrected to other client bases.
Making a list of ALL tangible and intangible assets and liabilities can help small businesses focus on what can be done within the operational landscape. Having it in writing can help making objective assessments, capable of being tested. (How far is “too far” from the main road? How many customers drove this far anyway? What is the breakdown between business-related customers and travel-related customers?)
Where Do We Want to Go?
There are large libraries that can be filled with business goal setting books. There are as many ways to develop targets as there are businesses. One thread that runs through them all (even if it is not articulated as such) is that of defining “success”.
How do you define what a success for your business looks like? Is it a monetary target? This is by far the most common, if superficial goal. Money alone does not define success in a larger sense. Many business owners make their financial targets but give up the business because it has eliminated their personal lives, or caused them too much stress.
A business owner can hit a financial goal, but still be a “failure” if it does not satisfy them on other levels at the same time. Money is not enough for most small business owners. The satisfaction of bringing a business to life, producing a product or service can be a driver.
From my own personal experience, my small business goal was to achieve an independence from my previous corporate lifestyle. That desire underpins all of the business decisions I make, even if subconsciously.
Look at your business through many lenses. Find what works for you as a business owner. In grandiose language, capture the “dream” and make it a reality.
This perspective on business also helps the business owner set priorities. If the goal is personal satisfaction over short-term profits, the investment of time and resources flow one way. If you need constant revenue to build the business, that will also build a set of priorities that form your decision process.
As with all things in this article, having this written out helps focus attention where it is needed. Managing with a full understanding of the how and why you made decisions will build a stronger, more resilient company in the long run.
How Will We Get There?
Once you understand the complete picture of all of the underlying goals for your business, owners can start to build a set of objectives that achieve them. Think of “objectives” as the set of stepping stones that make up the path to a “goal”.
You can’t manage what you don’t measure.
All of the answers to the four previous questions start to come together to help build the answer for this final one. To find those stepping stones, a business owner needs to know how to measure “success”. We looked at that when we found out where we wanted to go, but we did not really break down what it means to achieve the target. For that, we will need to start understanding all of the information we’ve gathered in terms of measurements.
Peter Drucker said, “You can’t manage what you don’t measure.” This has never been more true than in building a small business. Most new owners truly believe that they can “wing it” and make a success. Some do. If you look at the data, most do not.
The single most common factor for small business failures is lack of measurement and monitoring of business metrics.
Every business, from a hotdog cart to a professional services firm has metrics that can be applied to see how well or poorly a company is performing. The hotdog vendor can look at units sold in one location vs another, link it to a weather forecast or other related factors and come up with an optimal schedule to work a specific area. Professional services can look at billable hours vs business development tasks and overhead work to see if they are putting an undue strain on their delivery end.
Pulling it all together, objectives are nothing more than a set of metrics designed to get to a specific milestone. The hotdog vendor may have an objective of 100 units sold per hour to meet a financial viability target while the professional services firm can make the same assessments based on specific targets for service delivery in a particular field.
Metrics make objectives which in turn build to goals. How you configure and use the assets you listed to sell the products or services you cataloged is the sum total of business strategy. Understanding the complex relationship between them all will help build your small business from an idea into a sustainable reality.
David Daniel is a former EDS, IBM and PwC CxO level management consultant. He takes his years of big business experience and tailors it for small businesses and startups across the business spectrum.
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