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A collection of 51 common mistakes that business owners make—and how to correct them for a more profitable operation.
A collection of 51 common mistakes that business owners make—and how to correct them for a more profitable operation.
Caution: this book is not for the faint at heart or those who are overly satisfied with their current business results. I wrote this book for the select few entrepreneurs who are serious about taking meaningful action in their business. The world is full of business people who talk about what they need to do, but the real professionals actually do something about it. This book is premised upon that paradigm, which means it is quite possible that parts of the book will actually tick you off. When you find yourself annoyed with me, and it will happen, please keep reading. There are hundreds of points and observations in this book. You don't have to agree with all of them.
My goal is to challenge your thinking, not to throw platitudes at you. In fact, there will be some points in this book with which you completely disagree. Disagreement is not an issue in and of itself. Many of the points in the book are my subjective opinion, but they are based on years of case studies and personal experience. In fact, every point in this book may cause you to be uncomfortable. Before discounting the points, I challenge you to consider each of them in turn and recognize the nuggets that are applicable to your life or business. However, do not discount the points with which you are uncomfortable without first asking yourself why it makes you uncomfortable. Could it be that your discomfort is caused by a real belief that the point is not true or applicable, or, in fact, does it really apply and hit too close to home?
Warning #1: I will get in your face a bit. My style is to challenge you, which is a style that works well for me in the coaching world. As a professional business coach, it is my job to ask you tough, probing questions that make you REALLY think. More importantly, it is my job to ask questions that make you act. Moving this very personal style over to an impersonal book is difficult because you cannot see my expressions and overall demeanor. I promise that my tough questions are an act of compassion, and so that style may not translate perfectly to a book. Consequently, I want to remind you that I will challenge you and that I will get in your face, because I want your business to be GREAT. Every CEO I have met has the talent and capability to drive their business to great heights. However, many of them are falling short of their true potential. Let's work together to take your business to that next level of greatness.
Warning #2: I use the phrase "small business." I am a small businessman, and most likely, so are you. I have been told that some people get offended by the word "small," but small means merely "non-big." I like Uncle Sam's definition of a small business. The SBA defines a small business as less than fifty million dollars in sales and fewer than five hundred employees. To my mind, a fifty million dollar company is a nice enterprise, and maybe that is something for all "small" business to aim for.
If you are serious about taking your business to the next level, then let's get to work.
Chapter Two What's Good for G.E. Isn't Always Good for G.E.
Alright, I owe you an explanation for the title of this chapter. The real title is "What's Good for General Electric Isn't Always Good for Gus's Electric." Most of the business press coverage is written for or about large businesses like General Electric, and significant coverage of a business issue becomes conventional wisdom. Closely-held businesses cannot always follow the same wisdom, however. I refer to the instances when the conventional wisdom doesn't fit a Myth-Buster.
If you are familiar with the term "thinking outside the box," then you understand 10% of the value of a myth-buster. A myth-buster is also innovative, creative, and dynamic. One of the biggest problems with conventional wisdom is that it is PAST TENSE. It WAS wisdom, a static assertion. You have to decide if a business assertion is still wisdom, whether it fits your business, and most importantly, whether that business assertion will continue to be wise in the future. True wisdom is specific to your business and is fluid. The timeline below illustrates my point.
In the 1960s, the conventional wisdom was to create conglomerates of diverse companies with no common thread. Bigger was better. Today, this conventional wisdom has been thrown out in favor of highly focused smaller companies that can dominate a category.
In the 1970s, conventional wisdom at automotive companies dictated a supervisor-to-employee span of control of around 1 to 10. Employees were deemed to be less productive if they were not tightly supervised. The Japanese challenged this conventional wisdom with a highly empowered workforce and a span of control of around 1 to 50. This strategy proved a competitive advantage for the Japanese until U.S. automakers adopted a similar strategy.
Some of the best business ideas challenge the conventional wisdom, but again, a myth-buster goes beyond thinking outside the box. A myth-buster challenges the typical modus operandi and combines it with a creative solution. Imagine the grief the inventors of the ATM must have endured. They must have heard, "Who would want to bank with a robot instead of a human?" Conventional wisdom becomes conventional wisdom typically because it is wise AT THE TIME. However, wisdom is fluid and can also be specific to your business or to a given business situation. You must be willing to challenge the world's conventional wisdom but also your own accepted wisdom. The discussion of the following errors is meant to jumpstart your ability to challenge convention.
Fatal Error #1: Hiring Your Competitor's Rejects
If you hire "experienced" people, you are really hiring your competitor's rejects. I know, you don't believe me, but I can prove it. Every CEO wants to hire the perfectly qualified person for a given position, which typically means the employee has done the job before, for someone else - the competition. When you hire the "perfect person" from the competition, however, you are hiring a reject. Here is why. If you are a chemical distributor needing an accounts payable person with SAP experience, whom do you want to hire? Someone with chemical industry experience, accounts payable experience, and SAP experience, right? It seems perfectly logical. This is really a recipe for disaster.
This strategy is a disaster because you are making an incorrect assumption, that your competitor will let a truly great employee leave. Picture this: Sally is your ten-year tenured payables clerk. She is truly a great employee. The department would fall apart without Sally. One day, Sally walks into your office and says,
Mr. CEO, I love working here. You are the best boss I could ever ask for. I always figured I would retire from here. I don't want you to take this as a shakedown, but ABC Company offered me a job for $1.50 more per hour. Normally, I would have said no, but my boy is sick and we really need the money. I just wanted to say thanks for everything you have done and let you know I will be leaving in two weeks.
What would you do? Most people would pay Sally $1.50 more per hour rather than have their payables department fall apart. You lose a lot if you lose Sally. You lose ten years of experience and competence. You lose ten years of training. You lose Sally's relationship with your vendors/customers. So what do you do? You hang on to Sally for dear life! Guess what, SO WOULD YOUR COMPETITORS! You are deluded if you believe the person you are interviewing is one of these great employees. The fact that the employee is sitting in front of you means that the "please don't leave, Sally!" conversation did NOT happen with their boss. Therefore, you are talking to someone the competitor did NOT try to keep (a reject, plain and simple).
I realize there are exceptions to my story. Everyone has had one: a failed business owner, a competitor going out of business, a competitor's cash flow issues that preclude giving anyone a raise, etc. I will take all of the truly indispensable employees I can get from my competitors' bad luck or bad choices. However, these circumstances are the exception, not the rule. Pretending these anomalies will repeat over and over is not a good plan.
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Are you using your gut instinct to hire because you have faith in yourself, or because you are being lazy? I will give you the benefit of the doubt and say it is because you have confidence in your instincts. Either way, however, you can trust your gut but trust your testing methods MORE.
There is an old saying: "Every employee looks like a movie star on paper." Many potential employees are better at interviewing than they are at performing the job. As far as I can tell, the ability to puff up a resume or to talk well during an interview has little to do with FUTURE job performance.
Occasionally it makes sense to go outside the company for a high-level person of specific talent, particularly if a company is growing. Employment growth may exceed a company's ability to grow talent, which creates a need to buy talent. However, if you do buy talent, be prepared to pay well or you will surely be hiring a reject. You should stick to the "hire aptitude" plan for entry-level people.
Tom had an awful time hiring quality customer service personnel. He could only pay $8 an hour and remain profitable, and therefore, he was forced to pull from a workforce with marginal skills. Eventually, Tom realized that hiring people with experience was simply hiring the rejects of his competitors. Instead, Tom focused on hiring people with aptitude for customer service and teaching them the specifics of his business. Tom used a Customer Service Aptitude Test in combination with a computer skills test designed by his current staff. Tom now says that his staff is the best ever, and because he can hire fewer experienced people, Tom's average wage per employee is $0.38 per hour less than before adopting this strategy.
I firmly believe that you should completely give up on the hope of hiring experienced people and start with inexperienced, high-aptitude employees instead. Once you have identified the high-aptitude people, train them to handle the specifics of your business. Aptitude is discovered by testing, so stop using your gut to hire. It is not that accurate.
Every business has positions where pre-employment testing could result in better hires, but the appropriate personnel at many businesses do not even realize that an abundance of testing mechanisms already exist. I constantly hear the complaint that this person is sloppy or not detail-oriented, but the issue is easily avoided by giving a secretarial skills test to all applicants. This test yields virtually zero percent false positives because a sloppy person simply cannot pass the test. Therefore, bad candidates never qualify for the position and you never have an employee who makes a mess of things.
Personality profiling, such as DISC or Meyer's-Briggs, can help you weed out people who would have a difficult time succeeding in certain positions. Additionally, drug testing is perfectly acceptable in most work environments. Drug-free employees tend to be much more trustworthy and dependable. If you cannot find a ready-made aptitude test, create one yourself. Think of the skills and traits needed to perform well on the job, and create a test accordingly.
Testing provides an adjunct for your own judgment or sensibilities, giving you hard data upon which to base a hiring decision. Testing also identifies the appropriate training that candidates may need to be successful, and testing allows for specific placement in the type of work assigned at a much faster rate, which lowers the cost of your training.
Here are some examples of the types of tests you might consider with specific examples:
Detail oriented: DISC or Secretarial Skills Test
Salesmanship: There are a wide variety of tests to measure sales ability. Tests range in cost from $10 to $250 each
Customer service abilities: Customer service online tests
Computer skills: Online testing services that test general skills or specific program skills
Assembly skill: Mechanical aptitude tests or assembly tests
Visit www.51errors.com/reject.html for DISC links as well as sources for online assessments. If you are looking to truly create a systematic hiring process, check out www.faqdesigner.com.
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I frequently ask CEOs, "How many of your best employees did you steal from the competition?" The answer is always "none." The bottom line is that most, if not all, of your superstars came via the tried-and-true method of the "cream rising to the top." Hard-working people with high degrees of aptitude rise to the top. Hire such applicants, not your competitors' rejects, and then train the daylights out of them so the cream can rise even faster. The "cream" of your current employees probably rose in spite of your lack of training. Imagine how fast the cream can rise WITH training.
Fatal Error #2: Revolving Door Policies
As the cartoon below illustrates, sometimes an open door turns into a revolving door. Employees are constantly bustling to get input from the boss. Open door policies were designed for big businesses that need a strategy to break through communication barriers. Small businesses don't have those barriers. The only thing an open door policy does is upset the chain of command and take time away from the most important resource in the company-YOU! Every CEO out there is a bottleneck for their business. This jam is caused in two ways. First, your time and talents and their scarcity (that is, you are the only one with said talents) acts as the "brakes" for your company, slowing the company down when you wish to speed up. An open door policy trades your precious time even-up for a subordinate's time, which is a horrible trade in most instances. Second, providing an end-around for people who are struggling with their direct supervisor will cause everything to be dealt with at least twice, and probably more than that. Your time and that of your people is the only asset that you can never replace, so make sure you are making the best use of it. It is a good idea to note that people who make your office door a revolving door are a sign of deeper troubles, and it probably lies within themselves.
Open door policies can also confuse your employees by subverting the chain of command. You would be far better off running your business like the military than non-hierarchically. Major Smith would never think of walking into General Jones' office with an issue. He is forced to work it out with Colonel Johnson. Running your business without a clear chain of command makes each and every employee work less efficiently. By having an open door policy, you are encouraging your employees to break the chain of command as well as allowing them to suck you into minor problems that are not your highest impact activity.
Small business typically runs like a chaotic fire-drill anyway. Things are somewhat unorganized, undermanned, and chaotic. An open door policy only reinforces this dynamic.
Alan prided himself on his interpersonal skills. He knew the hobbies, kids' and spouses' names, and the personal histories of all thirty of his employees. Alan also prided himself on his open door policy.
His policy worked well for a while because he was exposed to information he would have never heard through regular channels. However, over time, Alan's people took advantage of the policy and stopped their work to enter his office, plop down in a chair, and complain about co-workers or how much they were paid. The last straw was when Alan had an important presentation and could not get a minute to himself. Employees kept interrupting him with issues that were important to them but not important to Alan or the company. Alan's high impact activity, the presentation, was adversely affected by the constant interruptions created by Alan's open door.
Small businesses need to become MORE structured, not less. The inherent problem with an open door policy is that it creates a permanent mechanism for a business to be unstructured. Worse, gossip is encouraged and rewarded, and employees now have a direct line to the top to demand raises and other concessions. The loss of communication created by a closed-door policy, a policy which admittedly could reduce communication, is far outweighed by the increase in structure and the efficiency of business processes.
Excerpted from The 51 Fatal Business Errors and How to Avoid Them by JIM MUEHLHAUSEN Copyright © 2008 by Jim Muehlhausen. Excerpted by permission.
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Posted May 16, 2009
I was blown away by the content in this book. The 51 Fatal Business Errors is more like a reference manual for successfully operating a profitable business. As someone who has started and run several different businesses, I only have time for practical, real-world advice and ideas. 51 Fatal Business Errors definitely delivers in that regard. I highly recommend this book for any business owner or anybody who wants to become one, while avoiding the critical mistakes too many of us have tended to make.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.