Managing your resources can be a challenge for many small business owners, but if you’re at all like I was, I believed I had a better handle on things that I did in reality. That’s not to say I was a disaster, but rather, hindsight being what it is, I can see lots of areas where I could have done better.
What I learned during that time has caused me to look at small business resources in basically three categories:
I don’t think there’s anything special about the way I categorize, but it helps me wrap my head around things. When you think about the resources you try to leverage for success within your business, you’ll likely need to do something similar—because there isn’t really a one-size-fits-all approach to managing all the resources within your business.
Personally, I’m not a big fan of the concept of “managing” people, though I still use the phrase from time to time (because it’s what people relate to). I’m convinced that people respond better to “leadership” than “management”. What’s more, I don’t think I’m alone in feeling this way. In fact, at OnDeck, we don’t call it Human Resources, but rather People Ops. And, although I’ve never spoken to Lorna Hagen, our Chief People Officer, about it, I’d guess she feels the same way.
Larger businesses have the luxury of departments with specialists to handle the day-to-day people issues like benefits, hiring, and firing, but small business owners tend to be actively engaged in these functionary aspects of “managing” their people. Nevertheless, leadership comes from the top of the organization regardless of the size of the company—so it’s important for every business owner to have a plan for leading the people who work within the business.
Over the years, I’ve come to appreciate that great leaders facilitate an environment where three things happen:
1. Employees have autonomy in how they do their jobs:
I’ve met very few people over the course of my career who came to work every day with the idea, “Today I want to fail.” Most people want to be successful. As leaders, we just need to make sure they understand what success is and get out of their way. What’s more, I’m convinced those closest to the work tend to understand it the best, and given the opportunity, will make thoughtful decisions regarding their work and how they do it, with the goal of being successful. I believe leveraging the value of employees requires us to encourage and facilitate this type of autonomy. It also requires us to spend time removing the roadblocks that keep people from performing at their best. A compulsion to micromanage employees is a sure way to limit your ability to maximize the value of your most important resource, your people.
2. Employees have the ability to make commitments:
Because engaged and autonomous employees understand the value of their contribution to the success of your small business and are actively engaged in helping your business be successful, they will not only be willing to make commitments that will ultimately impact their performance and your success, they are more likely to keep commitments as opposed to arbitrary-feeling deadlines from “the boss.” Making this work for you will require you to make sure your employees completely understand what you’re trying to accomplish with your company (beyond making money for you) and how their individual contributions contribute to those goals. Don’t be afraid to share with them the reasons you started your business in the first place. What were the needs in the marketplace you saw that you’re trying to fill? What are the benefits your customers experience with your products or services? When you are successful at engaging your employees on that level, they will become an important part of helping you achieve that success.
3. Employees see the value of their contributions and feel recognized for their efforts:
This doesn’t imply that employees require a regular gold star on their foreheads, but it does suggest that employees need to know that you see the value of their individual contributions to the organization and, when warranted, are recognized for it. Unfortunately, far too many employees feel like their boss doesn’t really understand what they do or what goes into doing it—in other words, they feel unappreciated and taken for granted. If that describes any of your employees, you’ll never be able to get their best work. With that said, I consider myself a fairly low-maintenance guy, but I have to admit, a little bit of sincere recognition for occasionally going above and beyond is motivational. Your employees will likely appreciate it too.
Michael Gerber, in his book The E-Myth Revisited, suggests that many entrepreneurs are technicians who have skill at making a product or delivering a service and jump into business ownership as a result. Although they may or may not have any experience running a business, they have expertise with the potential to drive value for their customers.
As a result, managing the resources associated with delivering that product or service is likely the easiest part of running their businesses. Nevertheless, it’s easy to fall into the trap of thinking that because they understand that part of the business; they have it all figured out. This is one of the mistakes I’ve made a time or two.
One of my best friends is a CPA and small business accounting expert. Whenever we would get together he would ask me questions about my business and make suggestions that seemed like a bunch of accounting mumbo-jumbo to me at the time. Over the years, I’ve really come to appreciate his advice and realize the value of diving a little deeper into the “numbers”.
For example, he would argue that it was the accounting process that allowed successful small business owners to know that they had adequate parts inventory to maintain production levels for a manufacturing plant—or help a business owner keep control of the cost of goods sold and ultimately the profitability of the sale of those goods.
Adequate capital is one of a business’ most important resources. And, as I mentioned above, the accounting process is an important way to monitor and measure the capital that’s used to create products or deliver services.
Most entrepreneurs don’t start a business because they’re super excited to dive into the accounting process. Nevertheless, over 500 years ago a monk name Luca Pacioli, the father of modern accounting, suggested there were three things needed to run a successful business:
1. Adequate cash
2. A capable mathematician to work with the numbers
3. An accounting system that would show at a glance the financial health of the business
I believe Pacioli’s list still applies today. In fact, my CPA friend argues that every business needs what he called a “Profit Expert” who could understand and establish financial metrics to tell the business owner what was really happening within his or her business.
He didn’t have a preference for whether it was the small business owner or a hired accounting professional, but he argued that the profit expert was critical to financial success. Unfortunately, he felt like the accounting function was one of the most neglected parts of the average business.
In addition, the financial data you should be collecting and evaluating during the course of doing business can be an invaluable asset to help you successfully run your business. Managing that asset is every bit as important as managing your people and your product or service.
Beyond whether or not you have cash in the bank at the end of the month, make sure you understand exactly what your financial reports are telling you. If you’re unsure, seek the advice of your accountant or other trusted financial advisor. You might even consider taking a small business bookkeeping or accounting class to better understand what you’re looking at.
It will also help you when it comes time to borrow. You’ll be able to determine if financing really makes sense for your situation, whether it will help you generate additional profits, or whether it will add additional financial stress to your business.
Managing the capital you use to keep your business growing and thriving is one of the most challenging parts of running a small business. Don’t ignore this critical driver of business success.
Regardless of how you categorize the resources in your business, the goal should be to maximize their value to increase profits, grow, and thrive. Whether it’s your people, what it takes to deliver your product or service, or the capital you use to make it all happen, wisely managing resources is one of the things the most successful small businesses do well.