There is a fallacy that to achieve business success all you need to do is provide a good product, at the right price, to the right customer, and you are set and done. This is unfortunately nothing but idealistic thinking, simplified sadly by marketers, social media and the mass media that tout the overnight success stories as being the norm.
The reality is that building a successful, future proof business is hard work. It requires the business owner and their team to understand and address a complex interplay between the key layers of the business. It is this interplay that I would like to discuss in the following article.
Note: This article combines that of two perspectives: knowledge gained during my MBA studies, and my real-world business experience which now spans 20 + years. The views in this article are mine, some of what I discuss is evidence based, others are from pure experience in the real world.
I cannot even count the number of times over the last 20 + years that I have been in business that I have wanted to give up; to just go get a well-paying job and be done with it all. Heck, what am I saying? Truthfully, I have done just that on two occasions. Fed up, hitting a wall, I quit business, got a job. And then of course the bug bites, and I am in business once again.
Failure is part of business. Period. Either learn to accept this and learn to learn from your mistakes, or, put frankly, go get a job. With this in mind I wanted to share with you some important lessons that I have learnt about business success and building a future proof business that can withstand the test of time.
Do you run a growth business, or are you simply self-employed?
I am asking this question because you need to understand that there are huge differences between owning and running a growth business and being self-employed. In my view, a growth business is a true business. It is one that exists to create value for the owners, in the form of an asset which can be capitalised upon when the owner decides to exit that business. Furthermore, a growth business is one in which (eventually) the business owner plays little role in the actual day to day management of things. Rather, in such a business they step into the board level position from where the owner can steer the ship using strategy and relationships.
A business owner that works in a business where they pick up the tools each day, with no plans to step off the tools and no desire to grow beyond a set level that gives the owner an income, is a non-growth business. In such instances the business owners are self-employed; granted, they own a business, yes, but that business is really not more than them and maybe a handful of staff. Without the desire to become more, the desire to step up in terms of their role as an owner, these businesses rarely achieve significant growth, tending instead to plateau and run a flat course.
Now obviously there is more to the story than what I have outlined in the above two paragraphs, but discussing that topic is not the focus here. It is however where we need to start. You see, from my experience, and from everything I have seen and read over the years, most businesses out there are owned by what I categorise as self-employed business owners. Most businesses are small businesses, like your fish and chip shop, the local one-man mechanic, the truck driver and so on. While some of these business owners have grand visions of business success, others are the opposite; they are happy to just run along, make enough money to live a comfortable life and that’s it. There is nothing wrong with this in theory, however, in reality, this can be a very dangerous position to be in – I’ll get to this in more detail shortly.
On the other side of the discussion you have the business owner that is running the growth business. They have made a deliberate decision to grow, to become something more than just a one person show, and they have already achieved, or have plans to achieve, a point in time when they can down tools to focus on being that strategic leader. The trouble here, again from what I see and have read, is that while many strive to achieve this, many fail. Of those who do achieve this, even fewer achieve the dream of owning a business that can remain sustainable and viable for the long term, till the day comes when the owner can exit and reap the right rewards for their hard work over all those years.
The common mistake in business
There is an all-too-common mistake in business. It is a mistake I have made more than once (hmm – makes me ponder – does that mean I am incapable of learning from my mistakes??). It is also the biggest mistake I see business owners make each and every day: believing that to achieve business success all you need to do is to do what you do, and to do it really well!
Yes yes, I can hear you…. ‘But Peter, isn’t that what successful business do?’
And you are right – of course it is! Unless you do this, your business will not survive; business success will be at best a fleeting moment of glory. We all know that. But here is the thing: if all you do is focus on doing what you do, and doing that well, then you only ever see the trees, and never the forest!
It is because of this that so many business owners never go beyond the self-employed status. They never move off the flat plains and onto the path of true business growth and business success. It is also because of this that the growth business may grow, but it never becomes truly sustainable and viable beyond a few years.
Paradoxically, it is because of this that many businesses fail and collapse. To only focus on doing a good job, without focusing on the bigger picture, opens the business to threats and events that eventually may well lead the business to fall on its own sword.
The core is what your business does, every single day
Every single business in existence has a core set of functions that relate to the day to day. It is these core functions that deliver on promises made to customers, that enable the business to be a business. Look at the diagram below, I have outlined these core functions.
‘If you want to build a sustainable, future proof business, then doing these well is mandatory’.
As you can see, every business has 8 core components that must be addressed to turn a profit (note: there are variations to this, but in general, this applies to the majority of business out there). In no particular order, here is an outline of each of these (for the sake of simplicity, when I refer to product, I am also referring to a service)
- Product: The right products are sold.
- Customers: The business works with the right customers.
- Pricing: The product has the right price.
- Operations: The business operations are well managed – this includes things such as purchasing, service delivery, logistics etc.
- Financials: The numbers are positive, adequate money is made to reinvest, the books are clean and tidy etc.
- People: The right people are on the team, doing the right jobs.
- Sales and Marketing: You cannot make money if no one knows about your business and products!
- Partners: Every business has other businesses they rely on. They include your suppliers, other service providers, contract partners etc.
Ensuring the core is well tended to is the foundation upon which great businesses are built. Like the human body, a solid core leads to a solid body. Perhaps it is because of this that so many business owners out there focus so much on the core, thinking that they must do the core well, in order to become and to stay successful. This is correct, but as I have pointed out earlier, it a big mistake to believe that this is all there is.
Doing what you do really well is only part of the overall formula for business success
You would probably have an admirable six-pack if all you focused on each training session were core exercises (note to self – do more core exercises!). The problem however is that the core is useful for a set of functions. But what happens when a lion starts to chase you, and all you have done is focused on your core? Those washboard set of abs won’t be of much help in a situation where you need the ability to interpret a situation quickly, make the right decision, then implement that decision, which in this case would be to either fight the lion, or run away. In either case, you would need more than the core to either be able to do battle, or, to have the speed to run away.
The same things exist in business.
Beyond the core, there exist a set of systems, processes, technologies, practices and legal obligations by which a business is run. These should be understood and used by all business owners and their teams, but sadly, the reality is far from where it should be. I cannot tell you how many times I’ve come across business owners who either have no idea of all this, or, who have an idea but are far from completely embracing these important business areas.
Let’s look at these in more detail, refer to the diagram below:
As you can see, I have highlighted 5 key areas that act as both protectors and enablers of the business. These areas help protect a business, the business owner, and shareholders from threats (I will talk more about threats further in this article), and enable the business core to function by providing structure, rigour and tools. Diving into this in a little more detail:
Systems and Processes: In short, this is about creating repetition, consistency, accuracy, quality, and measurability. Systems and processes help define what and how things need to be done to achieve an outcome. Without clearly documented systems and processes, businesses tend to:
o Flounder as they grow
o Fail to grow in a profitable manner
o Fail to make as much profit as they otherwise could
o Do more work than they need to in order achieve an outcome
o Be more human heavy and manual, or in other words tend to be more error prone and slower
o Resist change because the systems and processes are not there to support change
Technology: Refers to any tool the business uses to achieve an outcome. Technology enables and supports the core. It also often tends to underpin systems and processes, which in todays world rarely functions without some form of technology underpinning them.
Governance: Now this is a tricky one, and is the area least understood by the business owners I have dealt with over my career. According to Wikipedia: ‘Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation’. In other words, governance ensures that a business abides by all laws, government, or agency requirements, and is run according to ethical and business best practice standards.
Legal: Covers all aspects of the business from a legal position, ranging from having the right insurances in place to having client agreements in place. This also covers issues around what is and is not legal business practice.
Leadership and Culture: Much can be said about the impact the business owner and managers in a business have on the overall success of the business. The pure fact is that leaders make or break a business. How they behave, their values and the decisions they make affects everything and everyone. Culture is an outcome of the leadership combined with the behaviour, personalities, and values of everyone else in the organisation. I would go as far as saying that without the right leadership and culture, a business will never be truly successful, and will more than likely struggle to grow and prosper.
Together, these 5 key areas act like superpower boosters: when your core is well looked after, and your 5 key protection and enabling areas are also in line, then your whole business is elevated into a different playing field. Forgo any of these components, and your power diminishes. All 5 areas are must haves for true business success.
…….Insert end of article commentary and scrolling credits…..
Oh – hang on! Don’t leave yet!
I wish this were the end of the story. But, alas, there is far more to this whole ‘business’ thing than I outline above. You see, we can do all we can to run our business as well as possible, but sometimes, actually quite often, a curve ball enters the story.
The curve balls of life and business
‘You cannot step twice into the same river’ ~ Heraclitus of Ephesus (Greek Philosopher)
I am going to get all philosophical on you for a moment, so bear with me. Existence, in all its form, is forever changing. In fact, the only constant in existence is that of change. This philosophy is prominent in Buddhism as an essential doctrine which makes assertions about the transient, evanescent and inconstant nature of all existence, and is called Impermanence (you can read more on this by doing a simple Google search). In simple terms, this means the ‘state or fact of lasting for only a limited period of time’ (Oxford Languages).
The importance of the topic of change in a life and business context cannot be downplayed. Change is constant, forever and impacts everything, everywhere. It is for this reason that I now need to talk about change in the context of business and highlight some fundamental lessons I have learned the hard way.
Threats are constantly coming your way
In 2007 for a period of 2.5 years I owned a very successful, fast growing specialist medical recruitment agency. The business had in excess of $1.2million of signed contracts within 15months of starting, and the team grew to a headcount of 9. I certainly ran a tight ship in those recruitment days. By that stage of my business career I had made enough mistakes to understand the importance of the core and the importance of the 5 key protection and enabling areas. I worked hard, with my business partner, to create a business structure that was able to scale rapidly.
Despite my best efforts, that business still failed. Why is that? How can it be that such a rapidly growing, profitable venture servicing a market segment that had clear, strong needs for our services could stop growing and fail so fast?
The answer to this question has one simple answer consisting of two parts:
“We failed because we failed to recognise the threats coming our way, and when we eventually recognised these threats, we were caught off guard and were unable to respond appropriately”.
I won’t go into the details here of these events, but I will say that external events, mainly political, regulatory and legislative, destroyed the medical recruitment sector as it was at that time. This was spurred on by the high-profile case of a well-known Surgeon who the media called ‘Dr Death’, and whose exposure led to the chain of events that forced me to shut the company down. We did not do anything wrong, other than be in the line of unprecedented changes that caught us off guard.
Have you ever had this exact same thing happen to you? I have met many other business owners with similar tales of short-sightedness, getting caught off guard, making mistakes, and reacting instead of being proactive. Everyone makes such mistakes, fact.
Let us examine this answer in a bit more detail, by splitting it out into the two parts:
- We failed because we failed to recognise the threats coming our way: As I alluded earlier, thanks to the impermanence of everything just because the core of your business is humming along quite nicely today, does not mean that it will be like this tomorrow or the day after. I really do not want to be a ‘Negative Nelly’, but facts are facts. Threats to your business, to its entire existence, can appear seemingly out of nowhere, catching you off guard and justifying the common phrase of ‘business is like a roller coaster ride; one day you are up, things are great, the next day you are down, and it all looks like doom and gloom’.
- When we eventually recognised these threats, we were caught off guard and were unable to respond appropriately: There are certain things you can do to help you and your team become and stay aware of imminent threats to your business. It is great to have this insight (or even foresight), but, unless you know what to do with the information and what to do when the suspected threat appears, failure in some form or another is probably going to be the imminent outcome (I say probably because lady luck does sometimes shine on us, but that is not something I would say you should rely on). So, knowing when and how to react is pivotal in the quest to ride the roller coaster of never-ending change.
I will now head deeper into the topic of threat and threat awareness.
Did COVID catch you and your business off guard?
Mid to late 2019 I was working with a group of board members, helping them implement a strategy for a $300million construction project. We were well down the path with the implementation and was close to securing the next round of capital injection from a Chinese group. The project looked good to go, many millions of $’s had already been invested in the years prior to get to this pivotal point in time.
Then, very quickly, it all came crashing down. Wuhan made headlines globally, and the age of COVID-19 began.
The project team heard of this virus just as the Aussie media picked it up. Our Chinese investors talked to us about this ‘possible’ problem, about how things in Wuhan were changing. We did not know right away what to make of this, but, as the news of this thing called COVID-19 became more and more prevalent, we knew we had to start planning for the inevitable.
That inevitable came fast. By the time we were in mid Jan 2020, the proverbial hit the fan. The investors we had lined up were forced to pull the pin, their businesses were shut down thanks to the pandemic, and they could not move forward as planned. Money dried up. Thankfully, we had enough foresight to see what was happening. We began laying the foundations for the possible risk that COVID-19 would impact our ability to secure the investment deal, and this act helped the board save the project from complete ruin.
Unfortunately, many other businesses were caught completely off guard; today as I write this in mid Jan 2021 a lot of those businesses no longer exist or are but a shell of what they used to be.
Were we lucky in that project? I say no. I do not believe in luck in business (the topic of luck in business is something I will definitely write about, but let’s not get deep into that right now).
Threats come and go all the time
Rather, because of our combined experience in business, the board and I knew all too well that when in business, there are always threats to look out for. In fact, at any point in time there are two types of threats that may come at your business:
1. External Threats
2. Internal Threats
External threats are threats consisting of a spectrum of factors coming from outside the business, impacting a business either directly or indirectly. A well-known, proven framework called the PESTLE analysis is a popular tool amongst consultants and savvy business owners seeking to gain clarity over the external threats that a business may encounter. This acronym neatly summarises the most common external threat factors:
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
You can read more about what each of these factors include, here.
Internal threats are threats that come from within the business. These threats can range from poor culture, resulting in lost customers thanks to poor customer service, to internal sabotage and machinery break downs that cause valuable lost time and resources. A widely used tool known as a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) is helpful in reflecting upon the internal lay of the land. You can read more on that tool here.
I have illustrated this threat layer as it applies to our core and the supporting functions, have a look at the image below:
As you can see, threats encircle everything. It does not matter what you are doing, threats can come from any angle, at any time. Being aware of threats is absolutely critical. In fact, I can give you two powerful reasons for saying this:
1. Being aware of threats is fundamental to building a sustainable, future proof business.
2. Opportunity lies in threats. Knowing how to use the power of threats and turning them into opportunities is what all successful business owners do.
Circling right back to the start of the article, I mentioned that:
“Most businesses are small businesses, like your fish and chip shop, the local one-man mechanic, the truck driver and so on. While some of these business owners have grand visions of business success, others are the opposite; they are happy to just run along, make enough money to live a comfortable life and that’s it. There is nothing wrong with this in theory, however, in reality, this can be a very dangerous position to be in.”
Applying our understanding that change is constant and that threats are ever prevalent, you can now see why I said above that being in a ‘status quo’ type position, where we just plan to plod along in business is dangerous and why this should be avoided. When threats come, when change comes, such businesses rarely walk away unscathed, often resulting in bankruptcies and forced shutdowns.
Take a quick breather!
Let us now take a quick recap. Catch our breath for a moment, as we are not quite finished with this story…..
So far, we have discussed:
i) The all-too-common mistake in business: believing that all you need to do is to do what you do, and to do it really well!
ii) The importance of the core set of business functions that relate to the day to day.
iii) Doing what you do, really well, is only part of the overall formula for business success.
iv) The philosophy and the view that ‘you cannot step into the same river twice’, how change is the only one constant.
v) Threats and how they impact your business each and every day.
In the paragraphs and sections above, we have built awareness about our business. Awareness by itself however is only going to get you so far. Even when you run a tight ship, when your core and all the other elements discussed have been adequately tended to, unless you tend to one last layer in the puzzle, you will rarely go beyond being a ‘reactive’ business.
Only proactive businesses can ever become business leaders
I have always been successful in growing every business I have ever started. Most of the time, these businesses were built from nothing. I have never had handouts. Never a silver spoon was given to me. What I was taught however at an early age is that in life, you can either lead or you can follow.
Again, getting philosophical here, to some extent we are the masters of our own domains. What we do, how we think, act, the decisions we make, all determine what happens next. Whether in life or business, you can choose two paths: that of the reactive, or that of the proactive.
Reactivity is what the flock does: they move in patterns that are set, changing only in response to a situation or an event. Do not get me wrong, reaction has a place in business, in the sense that reaction can prevent the often-haphazard nature of being proactive. But reaction by itself stifles true growth and prevents a business from turning into a sustainable, future proof business. As we have seen, business must be built on a framework that can support change, which in turn can only happen when the business is proactive and forward thinking.
The proactive moat you can build around your business right now
I have never been a fan of video games. Never really saw the point, preferring to be outdoors instead. My kids on the other hand, whilst they love the outdoors, are avid fans of games, especially games requiring teamwork and strategy. It is quite a sight sometimes at our house:
- The kids, my boys are 7, daughter 8, huddled together as the game loads (usually Lego Batman – yes – there is such a thing!)
- They discuss strategies – who will be what character, who will have what weapon.
- They talk about how they will take down the Joker or some other common enemy, and what they will do if the enemy proves more powerful than they thought.
- During the game, the banter is amusing. As the game progresses, strategies and tactics fluidly evolve during this chit chat, and the gaming plays out in this fashion.
Unbeknownst to my kids, this banter is a basic form of the important strategic process businesses must undertake if they are to become proactive organisations.
We can define proactivity as the process of self-initiated behaviour that aims to solve a problem, before the problem has occurred. It refers to controlling situations, making changes in advance, and taking actions (doing), instead of waiting for things to happen before stepping (which is reactive behaviour).
When proactivity is applied to our concept so far, we get the following diagram:
In my view the moat around any business is the circle of proactivity, comprised of 4 key areas:
- Strategic Planning
- Situational Awareness
- Innovation
- Digital Transformation
I have deliberately approached my list in this order. I strongly believe that strategic planning is the driver of proactivity, and the driver of every business decision made at the core. The other three components support the strategy, all forming the critical elements of the business that wishes to be proactive and a leader in their space.
What is really important to understand about the circle of proactivity is that by actioning the circle, you are in effect taking control of the threats that come your way. Now, control does not mean that you can control the threat per se; rather, it means one of the following:
- A threat is no longer a threat.
- A threat turns into an opportunity.
- Should a threat materialise, you have already implemented things to counter the threat (you have taken a proactive step).
- Should a threat materialise, you know exactly what needs to be done and you have the mechanisms in place to implement the defence (you know how to react).
Let’s take a closer look at these four elements, what exactly do they mean?
Strategic planning: Is a process that consists of two key components:
- Developing the overall strategy.
- Developing the actual plan of how the strategy will be implemented.
Thinking of this in a different language, your strategy is the map, the plan is the ‘how you will get there’. The topic of strategic planning is deep, far out of the realms of this article. Having said this, I do want to make mention of some important points about this process:
- If you think of business being a journey, then the analogy I can say about strategy is that a business without strategy is like walking around with a blindfold on. Now and then you will get somewhere (the question of whether or not that somewhere is the right place then comes up), and now and then you fall off a cliff or walk into a hungry lion.
- One of the most powerful aspects of the strategy development process is that it gives the business owner and their team a momentary opportunity to down the tools, hop into the helicopter and fly above the trees that make up their forest, such that they end up having full clarity and visibility over the forest and the horizon around them.
- A strategy is useless without a plan.
- And a plan is useless without action. It’s motivating to talk about how your business will become the ‘number 1 builders of widgets’, but, if all you do is talk…well, what can I say, not much will happen, and opportunities will simply pass you by.
Situational Awareness: Is the process of becoming and remaining, aware of your surroundings from a business context. Situational awareness is comprised of several components, including:
- Data capture, analysis, and interpretation
- Internal meetings, including shareholder meetings, management meetings, team meetings
- External meetings with key partners and other stakeholders
- Maintaining up to date industry knowledge
- Awareness of external happenings (refer to PESTLE)
- And any other activity used to build and maintain an awareness of the landscape in and around your business
What is key to note here is that situational awareness, like strategy, must be acted upon. It is no use knowing something, then not doing something about it! The outputs of situational awareness feed into the entire business, helping you ‘predict the future’ and act accordingly.
Innovation: (My simple definition) innovation is doing something either in a new or unique way, using something in a new or unique way, or, doing something completely new.
Often when I speak to people about innovation their eyes glaze over, and the barriers come up. There seems to be this tendency in the business space to view innovation as the realm of the ‘big end of town’, as something that is complex, time consuming, expensive, and simply not possible in the busy small to medium business. The reality however is that this is far from the truth!
You see, innovation does not have to mean huge, radical changes, if you do not want it to mean that! Think of innovation as a spectrum. On one end, you have tiny, micro innovations that may seem trivial at first, but on further review they allow for the business to do something better, more effectively, more efficiently. On the other end, yes, you have ground-breaking, earth shattering innovative ideas that mean you need to setup a new company and build something that has never existed before. (On a personal note, in my business, this is exactly what we have done. We have spent the past 18 months building something truly innovative – but more on that another time…)
What is important to understand about innovation is that:
- Innovation is part of the secret sauce to becoming a market leader
- Innovation can be applied across the entire business, from core up
- Innovation does not necessarily mean doing something expensive or time consuming
- Innovative thinking when applied to threats can help you not only mitigate against threats, but helps turn threats into opportunities
A final word here: if your business does not have innovative thinking as part of the way of life, then you will eventually be left behind by the competitors that do think about innovation and implement innovations.
Digital Transformation: What a mouthful! I will be honest with you; I have never been a big fan of this combination of words as it does make this very powerful, important process come across rather unapproachable for the average business owner. Yes, I’ve almost (only 4 months left as of today!) got my MBA with a specialisation in this said topic of Digital Transformation, and I have been living and breathings this for many years as a consultant, so I get what it means in all its form, but realistically most business owners I speak to about this topic react with a quizzical ‘Digital what???’.
In a nutshell (and again I will mention that this is my interpretation) Digital Transformation is the process of implementing digital technology in order to future proof the business, while making it more ‘human-centric’. What this means is that we use digital technology to help create new forms of value (such as a more effective way of manufacturing a widget or completing a task – which in turn acts to future proof), while impacting the people by making internal people more productive, more engaged and to make their roles more meaningful (where possible). For external people, such as customers, the goal is to give them greater value while giving them a better overall experience with the business.
Those of you reading this who have experience in this space, or those coming at things from a very corporate, or dare I say it ‘capitalistic’ viewpoint, may decide you need to argue my interpretation of this definition. I get the capitalist viewpoint that Digital Transformation could be seen as a mechanism to ‘clean the numbers’, reducing human headcount in order to make the bottom line look better. But in my humble opinion a business will struggle to be successful without happy, engaged people. When completing Digital Transformation, the question of what to do with excess human hours, because of the implemented technology, should not be that of ‘who do we get rid off(?)’, but rather, the question should be ‘what can we now do to elevate people in their roles so that they are evolving in their position within the business?’.
My final word on this: An empowered, engaged team is a very powerful force to reckon with!
In reality, what I outline in this article takes time, persistence and the ability to learn from mistakes
Putting all of this together and reflecting upon that last image again (I’ve included this below to save you scrolling up), you should hopefully by now understand that there are multiple layers that need to be addressed in EVERY business, if that business wishes to become one that can stand not only the test of time, but the constant threats and changes that are hitting the business each and every day.
This whole lengthy article can be summarised in the following manner:
- Your core is what your business does, each and every day, to fulfil its promise to customers.
- This is supported by the 5 key areas of Systems and Processes, Technology, Governance, Legal and Leadership and Culture. These together help keep the business on a steady course, making the core more effective.
- There is no such thing as constant, apart from change. Every business is at constant threat from external and internal factors, requiring business owners to remain vigilant and aware at all times.
- The circle of proactivity is what every business owner should understand and use in order to make their business (and help keep it) competitive, viable and future proof.
So now you have an idea on what it takes to achieve business success and build future proof business. What next?
Understanding the concepts is one thing. Putting them in practice? Now that is a different ball game all together!
Reading this article you may have questions around some of what I outline. You may have questions relating to the application of these concepts to your business. Whatever the case, the next step is to take a step! Google your questions. Comment on my article and ask me anything relevant. Send me a private message or email. Go and talk to your Advisor, if you have one, and if not, find a good business Advisor. Paying for good quality advice will give you returns in many multiples!
Lastly. Do not do nothing. The absolute worst thing that you can do in business is simply to do nothing (unless doing nothing is the strategic move you need to make!). Do something. If you fail or make a mistake, then that is not a problem – learn from it. And keep going.
If you have read this article in full, or even skimmed it – thank you. I do hope you can put some of this advice to good use! And of course, if you know of anyone that could benefit from this article, please, share it with them.
Cheers,
Pete