Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

January 27, 2011

Manager Salaries Raise Overhead

Filed under: Growth Management — Tags: , , , , — Mike Van Horn @ 11:09 am

As we add employees, I must hire managers, and much of their time is not billable. Their salaries become overhead added to all the jobs. So our labor rate is creeping up, and our gross margin shrinking. How can I justify this, especially to myself? (Question from MM on “Ask Mike Van Horn.”)

mvh response. I see several ways to justify this to your bottom line and to yourself:

1. A good manager should pay for herself in several ways:
— Improved billing by your staff, i.e., by making sure all client work is billed for
— Improved staff efficiency via training, improving systems and procedures, better scheduling and coordination, and dividing work by specialties
You need to set targets for increases in staff productivity so you (and your managers) can track to what extent their efforts are paying for themselves.

2. She frees you up. Since you no longer have to be overseeing everything, you have more time for:
— Business development, strategic alliances—the keys to growth.
— Free time! This helps recharge your mental and spiritual energies.

3. To prepare for the eventual sale of your business, you must have a strong management team in place.

If your manager is not doing these things for you, then she is not the right person.

Here’s another way of looking at it. You’re not actually adding a manager, you’re adding a CEO. You’ve always had a manager—you! You’ve been so busy managing, you didn’t adequately fulfill your CEO responsibility. Now you can.

You just weren’t looking at your pay as management overhead. Now that you’ve replaced yourself as manager, you must account for her pay.

The new position is CEO–you—and the overhead increase goes to pay the CEO salary. But this is an essential investment for achieving your growth goals.

August 10, 2010

O Woe Is Me! I’m Doomed!

Filed under: Growth Management — Tags: , , — Mike Van Horn @ 10:58 am

Here’s “small business growth killer #1,” and it’s a point of view that pertains to a lot of people, probably most of us at some time. Since I’ve been there too, I’m putting it in first person.

“Things aren’t working well for me now, and I’d really like to make my business work better. So I take steps to make that happen. But secretly I’m afraid there’s no solution. There’s nowhere to go. I’m on a downward track and it’s only a matter of time till I crash and burn. It’s scary to even look at that. I’m doomed! I’m stupid for going down this wrong track for way too long. I’m going to have to give up everything I’ve done and shift to a whole new business model. I’m way too old for this. Why didn’t I do this years ago? Look at all the opportunities I’ve missed! What a dunderhead I am! I’ll never learn. I’m doomed. I just want to crawl into a hole and forget about it. Why can’t I win the lottery?!? “

Now even if I don’t have these thoughts consciously, they’re running in the back of my head when I wake up at 3:00am.

But this below-the-surface negative energy detracts from my positive “go-get-‘em” energy, so making progress becomes a real slog. I’m constantly sabotaging myself by missing deadlines and dropping commitments. This happens because I have to drag this load of negativity around with me all the time.

What can I do about this? First of all, I can ‘fess up. Tell someone what’s going on in my mental back room. Someone credible. Not someone who will give me sympathy, and bemoan how tough things are. Not someone who’ll make a negative judgment about me. Not someone who then tells me their own hard luck story. It needs to be someone who will listen, then say, “I get it. Now what are you going to do about it?”

That’s the “business therapy” function of The Business Group. It makes a huge difference to our members who confide in their peers. I unload my sad story and fears onto them, and instead of sympathizing or judging, they problem-solve. They say, “Why don’t you do B instead of A?” I often find that my group has given me a $10,000 idea! My business improves. The negative load is lifted — at least until the next thing comes along.

Or my Business Group members may say, “The old way isn’t working. Looks like you need to change your business model. We give you permission to do this. No blame. What would work better for you? What would it take to do that? What are the next steps? How could we support you? What do you commit to do by the next meeting?” This takes a significant load off me. Then I can look around and notice opportunities I couldn’t see before because I was so blinded by fear and resistance. Then, I think, “Wow! I could do that!” And so I do.

A wise anecdote states, “When you are ready, the Universe will provide for you.” What this means is, if I open my eyes, I’ll notice things that were there all along. I meet a great connection. Someone calls out of the blue. “Create your own luck” means stop wallowing in bad luck and apply my talents in a way that people who appreciate what I offer can connect with me. Hire me. Pay me big bucks. Thank me profusely.

There’s nothing like a run of enjoyable, appreciative, lucrative clients to dispel the fear of failure!

But I must be careful not to bury my head in my work again, pull in my opportunity antennas, and once again start down the slope to, “It doesn’t work.” This is why The Business Group has regular planning workshops, review sessions, and monthly commitments. To keep all of us honest, happy, and prosperous.

August 2, 2010

The 3 Barriers to Small Business Growth

Your business is growing and profitable, then BOOM, you hit a speed bump. Or you get stuck in a swamp. What happened? The bigger you grow, the tougher it can be to grow yet larger. I call this the “paradox of small business growth.”

As your company grows, you’re likely to run into three barriers at different stages of growth. Seems to me these are dang near universal!

Barrier #1. You’re a solopreneur, yet you want to grow beyond what you can handle working by yourself. But you get stuck in “the business is moi” trap.

Your growth challenge: Learn how to find good employees, then trust and manage them well.

Barrier #2. It’s you and the crew, but further growth is limited because everybody reports to you, and it’s running you ragged.

Your growth challenge: Learn how to be the CEO and entrust day-to-day operations to your skilled managers.

Barrier #3. You’re a successful, strategic CEO of your growing company, and now it’s time to move on to the next thing—sell, retire, start something else. But you’re so tied to the business, you can’t bear to turn it over to others.

Your growth challenge: Learn to let go.

I’ve been working with owners at all three levels for a lot of years. Here’s what they have in common: They have a management style that has worked very well to get them where they are. But to get to the next level—and they definitely want to get there—they must change what works. “It works, but break it anyway!” And this is very painful.

Many can’t make the leap. They decide to stay the same, and come up with very convincing explanations why further growth is not desirable for them. Alas.

There are straightforward ways to tackle these barriers. Once you see them laid out, you say, “Oh yeah, I could do that. I just need some guidance.”

This fall I’m going to offer a program that addresses each barrier. (You can only be at one barrier at a time.)  I’ll elaborate on each of these barriers in later posts.

In the meantime, I’d love some examples from the Peanut Gallery. If you read one of these and moan, “Ohh, that’s me right there you’re talking about!” let me know your story. Where do you want to go; what’s in your way?

We learn best from each other. You learn to transcend your barriers by seeing how others have done so (or even by watching them be stuck).

October 15, 2009

What are the leading indicators of business success?

Asked by John Cameron on LinkedIn

Good questions, John!
With the entrepreneurs and small business owners I work with, here are some of the personal success indicators I look for:

— Desire to be a manager and executive, not just a worker and detail person. (Many prefer just to keep working away.)
— Habit of stepping back and looking at the big picture regularly
— Planning, even in the face of uncertainty; then review their plan regularly, take corrective action, and update it as needed
— Willing to hire top quality people–even people smarter than they are
— Delegate as many things as they can to others, to free them up to focus on strategic issues
— Willing to invest in their own business; to take a risk; to hire a person they cannot afford right now, but who can help them break out
— Get support from peers and experts who have been where they want to go. Listen to and learn from these people, even when it’s uncomfortable.
— Continual learning: improving management skills, mastering new technologies, broadening industry knowledge

Note that these are about the individual, not the business concept or model. However, I also look for:

— A business model that promises profit margins adequate to pay them well, but also to fund growth, pay back investors, and provide a cushion for tough times.

Also, notice that I said nothing about working 24/7. I do not think that correlates well with business success.

I have a Business Viability Test that I use to assess business models. I haven’t yet included that in my e-tools, but I think I will.

August 12, 2008

When to grow out of a home based business

Filed under: Entrepreneurship — Tags: , , — Mike Van Horn @ 12:50 pm

Q: “When is it time to grow out of my home-based business?”

 A: When I ran my business out of the house, my wife would say, “Mike, every flat surface in the house is your desk.” Clients would come in and plop down on the sofa. Our part time office assistant worked in the room next to the kitchen. I was always on; things always had to be cleaned up, ready for business. There was a big temptation to blur the time between work and home life. Did I work at home, or just sleep at the office?

It’s true that some good-sized businesses are run from homes. These are usually virtual business, where numerouis people work for the business, but remotely. Support people: bookkeepers, web designers, marketing strategists, virtual assistants. But also line people: field reps or technicians, contractor’s crews, and others who are paid per result not per hour.

This depends on the kind of business. A business that you essentially run out of your head (or from your computer) can be run from your home for a long time.

Many people run businesses from their homes that do not fit zoning requirements. But aside from the legalities, just how many people can you fit in your house? So the real crunch comes when you need to have a team of people work together in an office.

You must balance your desire to minimize overhead and avoid paying extra rent with several factors:

– The number of people that need to work together regularly

– Greater productivity and efficiency due to better workspace. Houses are often poorly laid out for office space.

– Image. How you come across to your desired customers and even your employees

– Revenue potential. By moving into an office or commercial space, how much could you boost your revenue and profitability? Is it enough to cover the increased overhead and then some?

– Readiness to grow further. 

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