How not to run a small business

Posted on June 28, 2011


If you are self-employed or own a small company you are probably aware of how difficult it is to run a successful business.  From my experience, the majority of small businesses that fail do so not due not to a lack of talent or money but for one of the following reasons:

Not having a business plan

Not having a business plan is like taking your car for a drive without knowing where you are going.  It might sound exciting going on a journey without a fixed destination, but if you don’t know if your journey will be of 100 or 1000 miles, how are you supposed to know how much petrol you need? It is vital for a business to have a business plan – even if it is not particularly sophisticated or detailed – as it will help those managing the business to remain focussed and evaluate what needs to be done and  how much money and effort will be needed to get to where you want to get to.  It may not be an easy ride, you may have a few flat tyres along the way and you may have to improvise a bit, but, at least if you know where you are going and what you want to achieve, you should be able to avoid driving in circles.

Mixing business money with personal money

This sounds obvious but it is a very common mistake especially when a small business grows quickly.  It is easy for people to get business money mixed up with  personal finance and end up not knowing how much money the business is making (or not).  Your private money should not finance your business and, conversely, your business should not finance your private life.  What belongs to the business should stay in the business although, obviously, taking a salary is fine, as long as it is a sensible amount and the business can afford it.  The rest of the money made by the business should stay in the business ready for difficult times or for future investment (in the business).

The business not being a priority for the owner

If your business is not a priority for you, you should not have one. Or to put it another way, if, for whatever reason, you cannot devote sufficient time and effort to your business you are wasting your time and your business will probably fail.  Indeed, you may be better off working for someone else.

Setting up a business is like growing a tree from a seed – it takes water, effort and everyday commitment; ie you have to be there to nurture it.  I personally think that when a business starts to run like clockwork it is time for me to move on as I do not like ‘business as usual’ and prefer the challenge of change projects and consulting.  In essence my point is that before wasting time, money and effort setting up your own business you should make sure you are cut out for it.  If not, my advice is not to bother starting one.

Actions not reflecting business goals

Let’s assume you do have a business plan, you are committed and you do keep business and personal finance separate, what else can cause failure?  Another common problem is when what you (or your team) do does not reflect your business goals.  I was consulting for a furniture manufacturer whose new business goal was to create a “brand” of furniture for sale instead of only making customised products, as the later required a lot of skill, and brought in too little money for the effort required.  When I went to the showroom it was full of beautiful handmade pieces of furniture but the “sales person” was more interested in designing something for me from scratch rather than selling what was already available there. Needless to say one of my recommendations was that the CEO explained to his staff what his new business goal was. 

Relying too much on one person

I’ve experienced this a few times.  People hire a consultant or new staff member to deliver business change or improvement.  Very often they do what has been requested and the employer just leaves them to it.  This is fine until the person gets sick or leaves potentially leaving the business back where it started. If you have a ‘Shining Star’ you need to understand what and how they are delivering the results to ensure you can build on their legacy and way of working if and when they move on.  I recommend that you guard against getting too reliant on one person (ie avoid having a single point of failure).  The business process should be well defined, clear and make sense to everyone, not only to the person who is directing the business or your ‘Shining Star’.  By ensuring good business process becomes fully embedded you are more likely to deliver success in the long term.

Posted in: SMEs tips