“What Went Wrong?”
If you are a small business owner, odds are you will be asking what went wrong with your business within five years of its inception.
Brian Head, Economist with the Small Business Administration (SBA) Office of Advocacy, recently reported that “as a general rule of thumb”, small businesses only have a 50/50 chance of survival. Other industry experts have painted an even grimmer picture – that 80% of businesses fail in their first five years. Given that, the more tools you have available at hand, the better you increase the odds of your success.
One of the biggest reasons businesses fail is that they are unable to maintain a balance between sales and operations. In other words, sales are too low and unable to support salaries and other fixed costs throughout the organization, or sales are either too high and operations can’t keep up.
Most businesses are in the former category. So often we hear; “All I need are more sales. I solve that, and all my problems will be gone”. For those business owners in this category, you would be surprised to hear how devastating it can be to have too many sales. Without the proper infrastructure in place, too many sales will create havoc in your organization. In fact, too many sales will almost always break a company faster than too few sales.
Given this challenge, how can you manage your business to keep a balance between sales and operations? In this issue of the BDC Spotlight, we’ll share an approach for developing and maintaining healthy and sustainable growth.
A Valuable Tool for Managing Growth
One of the best tools for maintaining balanced growth and creating the necessary infrastructure within your company is well known, but not truly understood as a management tool. This tool is the organizational (org) chart.
“Oh, I have an org chart,” you might say, digging through your files and producing a dusty piece of paper with a few boxes and names.
But this is not what we mean. In our practice, a well-defined org chart can serve as a road map and as a predictive tool to build an ideal business.
A Common Pitfall: The People-Based Org Chart
Many business owners have jotted down an org chart at some point. Often, however, these are “people based” org charts, populated with boxes that say, “Sally”, “Joe” and “Chris.” The problem with this type of chart is that accountabilities are often unclear, positions are vague and the people holding the positions find themselves building their roles around their strengths and weaknesses instead of around the needs of the organization.
With a “position based” org chart, you outline staff positions to produce the results your company needs to grow and prosper. In fact, a strategic business owner can use the org chart to design the company as it would ideally look in the future, determining which roles and skills the company will need to meet future revenue and profitability targets.
2017 or better with: “Your Future Company”
To get started in designing your “ideal company,” imagine what you’d like your business to look like in two years. Consider these questions:
- What will revenues be in two years?
- What will gross and net profits be?
- What products and services will my company deliver?
Then, consider what structure of organization could produce these results. Begin to build an org chart that depicts the key roles and skills that will fulfill the goals of the business.
Typically, an org chart has at least three main departments:
- Sales and Marketing
- Administration and Finance
Sales and Marketing
Within Sales and Marketing, three key activities must occur:
- Development of marketing strategy
- Proactive lead generation, such as advertising
The first position you need to include is a managerial position, accountable for the productivity of all three areas.
The next position must produce leads, using whatever method of lead generation your company favors, such as web advertising or telemarketing.
The next key position is sales; a salesperson takes the qualified leads and converts them into sales.
The Operations department must perform two tasks well:
- production of goods and/or services and
- training and development of personnel
The main goal of the Operations department is to work efficiently and productively. One key to achieving optimal efficiency is to create layers or levels within the department that include senior positions as well as entry-level positions that get “trained up” to take on work of increasing sophistication, importance and accountability. By tiering the department, you can assign the right type of work to the right level, ensuring that you’re not paying senior-level staff, for instance, to do entry-level work.
Finance and Administration
Your Finance and Administration department provides support services for the entire company. These include:
- HR support
- Office organization and maintenance
- Information technology (IT) support
This entire department is overhead – in other words, non-income generating. Your org chart can help you identify the level of administrative and financial support you need to keep your other departments operating efficiently.
If you take the time to define the structure of your future company, you’ll have in your hands a strong outline for building a successful organization. And, in all likelihood, it will help you to view your organization from a new perspective, causing you to make key personnel changes now rather than wondering “what went wrong” down the road.