Small and medium-sized businesses can easily fall into pitfalls that cause failure when operating. The interview between manager Drucker and Inc magazine will help you refer to and avoid these mistakes.
Interview between Drucker and Inc. magazine.
Inc: Many Companies start with a bright outlook. They operated very well in the first few years then suddenly reported difficulties from nowhere. If they pass, they will still be "stunted". In your opinion, what are the mistakes that entrepreneurs often make?
Drucker: Young or growing businesses often encounter four main mistakes, which I call business pitfalls. The first mistake arises when entrepreneurs are faced with the fact that their new product or service is not successful in the market they intended, but is successful in a completely different market. Many businesses have "evaporated" because the founder insisted that he knew his product was better than the market thought.
Reduced contract value by 50% for 1 year until December 31, 2019 ✓ Call 028.222.00.919
So, many entrepreneurs don't know they are successful?
The reality is much worse than that. Many entrepreneurs "refuse" to succeed. Quote? There are countless, the most typical being a businessman who has lived over 100 years old. That was John Wesley Hyatt, the inventor of the rollerball. He thought that this body device was used for cargo ship shafts. Previously, the railway industry still stuffed thick rags into the wheels and then dipped them into the ends to reduce frictional resistance. However, they are completely satisfied with that manual method, and see no need to change. Hyatt went broke because he insisted on convincing them to do things his way.
When Alfred Sloan, the founder of GM, graduated from MIT at the top of his class in the 1990s, he asked his father to buy out Hyatt's defunct company (Unlike Hyatt, Sloan was willing to Ready to expand his vision of the product, it turned out that it was ideal for cars, which were just coming to market two years later, and Henry Ford was a customer his biggest product for 20 consecutive years.
The story is interesting, but do entrepreneurs often deny success like that?
Yes, most new inventions and products fail in the markets they were originally designed to serve. I've seen this over and over again. In 1905, German chemist Alfred Einhom invented the drug novocaine for use in serious surgeries, but it was not suitable. Dentists wanted it, but the inventor wouldn't let them use his product for the "mundane purpose" of drilling teeth. Towards the end of his life, Einhom traveled around the world preaching the value of novocaine as an anesthetic!
Recently, I learned of a businessman who had written a software program that he was convinced all hospitals should have if they wanted to run well. But the hospitals told him their systems were not what he thought they were. No hospital cares about that product. However, a town leader happened to see this program and found that it was exactly what they needed. Small cities across the country rushed to send orders. But he refused!
Why do entrepreneurs turn down unexpected successes?
Because it was not in their plans. Entrepreneurs believe they have everything under control. That leads to the second pitfall. They think profit is the most important thing for their Company. But profit is secondary. Cash flow is the most important thing.
Growing bodies need nutrition, a fast-growing company needs lots of cash. You have to continuously invest just to break even. This is completely predictable, so it's not worth getting stuck with cash. I have saved many fledgling businesses by telling owners who saw life in rosy terms that now is the time to find funding for their next investment. If you have 6 months to a year to prepare, there's no reason why you can't get the money you need with generous loan terms.
In your opinion, why do entrepreneurs find it so difficult to grasp the concept of cash flow?
It's not just them who sees that. Warren Buffet once said that if he wanted to find out how a company was doing, he wouldn't listen to safety analysts. They only talk about profits, which has nothing to do with it. He will listen to the bank's credit analysts, because they talk about cash flows. I have never seen a stock market news report talking about the liquidity and financial position of a growing Company. They simply refer to marginal profits and profitability.
Why so? Is it a “product” of business schools?
Are not. Basically, entrepreneurs do not have any knowledge about finance.
Suppose businesses pay attention to cash flow, overcome cash crises and grow faster, even more than expected. What is the third pitfall?
As a business grows, business owners often find themselves too busy. Hair growing too fast puts pressure on them. Production demand exceeds machine capacity. Management requirements also far exceed their capabilities.
The businessman started running around like a one-armed wallpaper installer. They look at sales, look at profit forecasts. Those things make them think they will get rich next year and earn tens of millions of dollars. They don't know that they are no longer capable of managing the Company anymore.
You know, I've been working with entrepreneurs for 50 years and I can confirm that there really is a limiting curve, and 80% entrepreneurs are within this curve.
Even if the business grows at a normal pace, they will face limited administrative capacity by the end of the fourth year.
Is that when they no longer have enough administrative capacity?
That's right. At first, founders often do it all themselves. He has assistants but no colleagues. Then suddenly things got worse. Quality deterioration. Customers pin money. They can't deliver on time anymore.
But all young businesses make mistakes, even many mistakes. So what are the symptoms that show they are no longer capable of managing?
I always ask the people I mentor how they react to opportunities. Suppose a customer says: If you produce 10,000 products of X, we will sign a contract. Do you see this as a burden or an opportunity”? When they say, "Of course it's an opportunity, but I'm worried because it's too big a burden", I will answer: "Hey man, you don't have enough management capacity anymore."
To avoid a crisis, you should sit down and set up an admin team. Among the initial 40 employees, evaluate who has administrative ability. You could find 4-5 people (perhaps that's enough) and say: “I want each of you to reflect alone this coming weekend and consider all the people you work with, in That includes me too. But don't look at yourself, look at others and think about what abilities they have." Then, please sit together, take out a white sheet of paper, and list the main activities of our Company. Today, we call that work establishing core competencies.
Young entrepreneurs do not have enough financial resources to hire an outside management team. But right here in the Company, Tom is very good at customer service, so you can let him run the office. Give him more work in the next few months or years or get him an assistant. And there's Jane in the production department, but she has a very good relationship with everyone. Therefore, your person in charge of production can also become the person in charge of human resources.
And your team could meet once a month, maybe on a Saturday, and within a year you'd have an admin team. It takes at least a year, maybe up to 18 months, to build a team.
And to actually start working as a team?
Yes, but also know that even though Joe is a very difficult person to work with, he is a very good financial person and you need someone like that. Or also know that John is about to become the No. 1 Sales and Marketing Director but has very poor relationships with customers. John may be the best person you have, but he is not qualified for a higher position.
Is that a difficult decision for entrepreneurs to make, especially if John has been with you since day one?
That's right, if you start building a team 18 months in advance, John will know that it's time for him to step aside. You can do it but you can't wait until everything falls apart.
What is the fourth pitfall?
This is the most terrible trap. That's when the business blossoms, and the entrepreneur begins to put himself before the business. They have worked 18 hours a day for 14 years and built a $60 million business and an effective management team. Now they begin to ask themselves, “What do I want to do? What is my role? These are the wrong questions. If you start like that, you will definitely kill both yourself and your business.
So what should they ask?
They should ask: "What does the business need at this stage"? The next question is “Do I have these abilities”?
You have to start with what the business needs. Sometimes we need help from outside.
I've had hundreds of clients in that situation. Because when I asked them why they came to me, most of them said that the wives complained that they weren't doing a good job anymore, that they were destroying themselves, their families, and their businesses. Sometimes their attractive daughters also say the same thing.
If their son said that, they would immediately brush it off with the thought: “Is he trying to get rid of me to get the business? But when it is the words of a wife or daughter, they have to think seriously.
It's also possible that the person complaining is a shareholder, their accountant or lawyer. Often people have to "smash" the boss hard to make him raise his head to accept the harsh truth that he doesn't like his job anymore. He needs to know that he is not focusing on the right thing.
Do you think that new-age entrepreneurs are able to avoid the pitfalls you describe?
Are not.
No? When are they trained like that, with so many Master's degrees in management?
Are not. School doesn't give you experience or wisdom.
