Enhancing the Managerial DNA of Your Small Business

Enhancing the Managerial DNA of Your Small Business

Enhancing the Managerial DNA of Your Small Business

Pat Roberson-Saunders

Barron H. Harvey

Philip Fanara, Jr.

Gwynette P. Lacy

Pravat Choudhury

Enhancing the Managerial DNA of Your Small Business

Copyright © Business Expert Press, LLC, 2014.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher.

First published in 2014 by

Business Expert Press, LLC

222 East 46th Street, New York, NY 10017

www.businessexpertpress.com

ISBN-13: 978-1-60649-550-6 (paperback)

ISBN-13: 978-1-60649-551-3 (e-book)

Business Expert Press Entrepreneurship and Small Business Management Collection

Collection ISSN: 1946-5653 (print)

Collection ISSN: 1946-5661 (electronic)

Cover and interior design by Exeter Premedia Services Private Ltd.,

Chennai, India

First edition: 2014

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.

This book is dedicated with great love and gratitude to our spouses: Calvin (Ken), Edith, Vicki, George, and Sumitra

Abstract

Most people who start businesses do so with little or no formal education in business or management training and experience. This book has been written expressly for these people, as well as for others with similar backgrounds who aspire to start their own businesses. The aim is to help fill in some critical gaps in managerial knowledge that cause many of the problems that small business owners face as they try to navigate the business world with inadequate knowledge of how to manage a business.

With no attempt to compete with conventional small business textbooks or catchy how to books on small business management, this book is deliberately focused on five core topics: strategic planning, financing, marketing, managing cash flow, and managing costs. The authors believe these to be the essential building blocks for enhancing the managerial DNA of a small business. Equipped with this enhanced DNA, the small business owner is postured to think about and take actions on behalf of his or her business that will lead to optimal success. In addition, the book incorporates as appendices three topics that are very important to small businesses: break-even analysis, legal business structures, and intellectual property protection.

Informed by state-of-the-art academic knowledge but conveyed in a practical way that is replete with examples which small business owners can relate to and easily understand, the book has been written collaboratively by a team of experts who worked with hundreds of small business owners over a period of almost a decade. It incorporates the topics and methods that consistently proved to be successful with those practicing small business owners.

Keywords

break-even analysis, business structures, financing, intellectual property, managing cash flow, managing costs, marketing, small business management, strategic planning

Contents

List of Figures

List of Tables

Preface

For small business owners who are already running a business (as well as for those desiring to start a small business), this book strives to serve as an executive guide that will concisely fill in some of the critical gaps in your managerial knowledge and skills. As we will discuss later in the background section, years of expert consultation with small business owners led to the determination of the topics covered within these pages.

Background

Under a grant from the U.S. Small Business Administration (SBA), the authors conducted an intensive weeklong pilot program for 30 small business owners. The program content consisted of all of the topics presented in this book, along with several others. However, program participants expressed in program evaluations and subsequent contacts that the topics included in this book were the most useful and had the most impact when applied to their businesses.

In the aftermath of the pilot program, the authors conducted a 12-city tour to cities in every corner of the continental United States, as well as Alaska. Focusing, during that tour, only on the topics that proved most useful in the pilot program, the authors received rave reviews from small business owners in every city (and were asked to return to two cities to repeat the program).

Like you, the participants in these programs were very busy small business owners. In the case of the pilot program, these owners set aside an entire week to devote uninterrupted time and efforts to learning (and catching up on) how to properly manage their ventures. Participants in the tour program only spent a day covering the content, but found the time to have been highly beneficial.

The pilot program and the tour led to a series of programs that focused on the same content (and sometimes other advanced coverage). In some instances, the format of these programs was the same as for the pilot program (intensive weeklong programs); while, in other cases, programs were spread over several weeks, with a full day having been devoted each week to a single topic. These sessions were conducted with small business owners and were continuously refined over a period of almost a decade. Now you have the opportunity to benefit from the content presented to your counterparts over the years, with the added benefit that you can maintain a copy of the coverage for your reference whenever you find the need.

Pat Roberson-Saunders, Editor

Author: Chapter 1 (Introduction) and Appendices (Break-even Analysis, Legal Business Structures, and Intellectual Property Protection)

Barron H. Harvey

Author: Chapters 5 and 6 (Managing Cash Flow and Managing Costs)

Philip Fanara, Jr.

Author: Chapter 3 (Financing)

Gwynette P. Lacy

Author: Chapter 2 (Strategic Planning)

Pravat Choudhury

Author: Chapter 4 (Marketing)

Acknowledgments

The authors wish to express appreciation to the hundreds of small business owners who participated in our executive education programs over the years. Working with and mutually sharing knowledge and experiences with you helped to shape the ideas and methods that fill the pages of this book.

We extend sincere appreciation to the manuscript reviewers who helped us to shape and fine-tune this book. Those reviewers were:

Eugene Fregetto, PhD, Clinical Associate Professor of Marketing, Managerial Studies, College of Business, University of Illinois at Chicago, Justin G. Longenecker Fellow, United States Association for Small Business and Entrepreneurship (USASBE).

Joan Gillman, MS, Director Emerita of Special Industry Programs, University of Wisconsin–Madison, Author, Justin G. Longenecker Fellow, United States Association for Small Business and Entrepreneurship (USASBE), Former Executive Director of USASBE.

Dorothy P. Moore, PhD, President, DJM Consultants, Inc., Professor Emerita of Business Administration, The Citadel School of Business, award-winning author, Justin G. Longenecker Fellow, United States Association for Small Business and Entrepreneurship (USASBE).

We also wish to thank the many officials and staff members of the U.S. Small Business Administration who worked with us and provided invaluable support to us over the years. We expressly wish to mention the following people in this regard: Calvin Jenkins, Delorice Ford, ­Darryl Hairston, Cherina Hughes, William Fisher, Jackie Fleming, Sheila Thomas, Stan Fujii, Loretta Taylor, Eugene Sawney, Art Collins, Mike McHale, and Patricia Branch.

Our appreciation is also extended to H. J. Lee Bennett, III for his creative production of the inside graphics of this book. Thank you for your responsiveness and patience.

Finally, sincere appreciation is extended to Destiny Hadley of Business Express Press and Shyam Joseph of Exeter Premedia Services for the high level of professionalism, thoughtfulness, and courtesy demonstrated throughout the production of this book. Your suggestions and assistance contributed significantly to the quality of our work and we all very much appreciate your efforts.

Chapter 1

Introduction

This introductory chapter is designed expressly to give you an understanding of what this book seeks to accomplish, as well as why and how. With this understanding, it is hoped that you will be persuaded to read the entire book with the determination to make the perspectives that are shared here a part of your regular thought process as you go about the day-to-day management of your business. It is the firm belief of the authors that, if you do, you will greatly increase your ability to steer your business toward the accomplishment of your goals. As you will learn, this book is intended as a valuable handbook for small business owners and consultants, rather than as a textbook. Therefore, the approach here is not to overwhelm you with all (or even most) of the things that a small business owner needs to know. It is unlikely that any single book could thoroughly accomplish that feat and, even if one could, you would not likely have (or take) the time to read it. Instead, our goal is to share with you what we believe to be the most important things that small business owners need to know in order to have a reasonable chance of guiding their businesses to success.

About This Book

This section provides the definition of small business that guides this book. It also describes the almost decade-long executive training program for small business owners that helped to determine and fine-tune the topics that are included in this book. Subsequently, we discuss the assumptions that we have made about you and your business. We further discuss why it is important for you to know as much as possible about how to manage your business, and end the section by presenting a rationale for and an overview of the book’s contents.

Small Business—Defined

At the outset, it is acknowledged that definitions of small business can vary widely, depending on the source (government versus private-sector advocacy groups), as well as the measure employed (e.g., revenues versus number of employees) or industry (a larger number of employees is allowed for small manufacturing firms as compared with professional services firms). However, using the U.S. Small Business Administration (SBA) definition, a small business is an independently owned and operated entity that is organized for profit but is not dominant in its industry.¹ This definition reflects the concept of a small business that is used in this book.

Assumptions About You and Your Business

This book begins with the premise that, if you are like most small business owners, you began your business with little or no formal education or managerial experience that equipped you to start a successful business. The typical story goes something like this: You had what you believed to be a good idea; or what seemed to be a great opportunity came along; or you lost your job or simply became fed up with working for someone else. You decided that you should start your own business, so you did. However, over time, you have had so many unforeseen problems making the business work that you have thought more than once that you should simply shut the doors, walk away, and go find a job.

If that is not your story, you are very fortunate. However, for centuries, it has been an all-too-familiar story for millions of entrepreneurs and small business owners. It was for this reason that this book was developed. The express purpose of this book is to try to fill some critical gaps in the preparation of the typical small business owner described earlier. This is not a conventional small business textbook, for, if it were, it would cover considerably more topics. Instead, this book centers on topics that the authors have found to be frequently addressed by experts, as well as areas of insecurity among small business owners who started businesses, while having knowingly been managerially unprepared.

One of the most interesting articles and one that you should consider reading is, A Small Business Is Not Just a Little Big Business.² Why? By virtue of its very title, the article points to the fact that many of the things that are known about business are based on studies of big businesses. As a consequence, many of the things discussed and solutions offered in typical business research are more applicable to large than to small businesses. For example, as a small business owner in the United States today, you are in the vast minority if you have employees. Only 17.4% of businesses in the United States employed people in 2008 (down from 21.8% in 2007, possibly due to the recession).³ However, the larger businesses always have employees, for the obvious reason that a number of people are needed to spread the workload associated with producing the products and services of such businesses. If a large business wants a change in how it markets its products, it can turn to the marketing vice president or director of marketing and simply assign the task. As an individual owning and managing your own venture alone or with a partner, you will often find that, if you do not do something, it will not be done. Of course, small businesses differ from large businesses in a number of other ways (e.g., availability of funds, in-house expertise, access to markets, etc.).

Book Contents—Description and Rationale

The foregoing point acknowledged, the focus will now shift to you—as a small business owner trying to manage a business—and what can be done to help you master a critical learning curve to make your business successful. In this regard, there are four questions that will be addressed here to orient you to what you will find within these pages, and why.

Why Are Management Knowledge and Skills So Important for Business Success?

Unless you are one of the few exceptions, you can probably answer this question very easily. Why? If your story is something like that of the typical entrepreneur who was described earlier, although you had the courage and determination, you began your business with some concerns about whether your management knowledge and skills would be adequate. In fact, small business owners typically cite management problems or lack of management knowledge and skills or lack of management experience among the problems encountered in managing their businesses.⁴

The truth of the matter is that even the best ideas at some point must be tested by the reality of how business works. Successfully starting and growing a business requires a fundamental appreciation of business basics. If you do not know these basics, the business will either suffer or fail. Yet, you need more than a command of basics. You need to develop an informed managerial mindset that equips you to see and deal with your business as a whole. If you cannot take the pieces of your business and blend those together in such a way as to make the business operate effectively, you are not fulfilling your role as the head of your company. For this very reason (managerial skills deficiencies), leadership roles have been lost by some very successful founders of entrepreneurial ventures (e.g., Will Durant at General Motors); while some business founders either voluntarily enlisted the services of people experienced in management (e.g., Filo and Yang at Yahoo!); or were involuntarily forced out (e.g., Steve Jobs, who left but later returned to Apple and led it until shortly before his death). Hence, even with tremendous and highly marketable ideas, the success of a business over time is highly dependent upon the quality of management leading that business.

So What Are the Most Important Things for Me to Know and Why?

While many individuals who have owned and managed businesses recognize management deficiencies, some of these deficiencies cause more immediate