Why do small businesses have such a high rate of failure? What can be done to lower it?
4Ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation
This is such an important question right now because so many struggling economies around the world desperately need their countries’ entrepreneurs and small businesses to succeed. The jobs that small companies provide and the high-quality goods and services their employees produce can give powerful boosts to a faltering economy.
Unfortunately, studies show that about half of small businesses fail in their first five years – for a variety of reasons. Insufficient capital. Inexperienced management. Lack of – or incorrect – focus. An irrelevant product or service that does not meet or inspire market needs.
But let’s assume a company gets all of the above right – even though capital is hard to come by these days. The company can still sink if it does not attract and engage the right people.
Let me take a step back to make my meaning more clear. The hardest part of building a company at the outset is recognising the need to invest ahead of the growth curve, and then having enough capital to do so. The kinds of investments I’m referring to are ones you’d expect: materials, inventory, technical infrastructure, marketing, real estate.
Generally, the largest investments are in pay and benefits. This is where many small businesses get into trouble: By trying to minimise “people”-related costs, a small-business owner can inadvertently stunt the company’s growth. That said, investing in people is not just about spending money. It’s also important to expend intellectual energy on ways to inspire great work.
So, to answer this question more directly, small businesses have such a high rate of failure because their leaders do not put enough money or time toward employing, retaining and maximising top talent.
When I speak to small-business owners, I encourage them to follow a few guideposts:
LOOK FOR CHARACTER AS WELL AS SKILLS WHEN HIRING
Even in a down economy with high unemployment, the pool of the most talented people in any given area is shallow. That pool gets even shallower when the bar for hiring is skills PLUS strong character. This is the pool you want to hire from, even if it takes a little longer to fill a role.
Interview people through the lens of building a culture of trust. Ask yourself: How will they lead – by instilling fear or by encouraging greatness? How will they treat their direct reports, suppliers or customers – with respect or with condescension? Over the years, I have seen that character is more important than experience. People can learn the nuances of a job, but passion for doing the right thing cannot be taught.
Remember, the first people in the door will hire the next generation as you grow, so layer the organisation with teams that are smart, respectful, collaborative and just plain nice.
TREAT COMPETITIVE COMPENSATION AS A STRATEGY, NOT AN EXPENSE
Back in the late 1980s, at the beginning of my management of Starbucks, I wanted to be the retail employer of choice. I felt that I could achieve this only if, after hiring bright, friendly people to work in our shops (and our offices), I paid them more than the going wage in other restaurants and stores. I also had to offer benefits that were not available elsewhere.
Doing so came with a price. Back then, health-care costs were soaring and most companies were cutting benefits – much like today. Some of my investors accused me of irresponsibly raising expenses when the company had yet to turn a profit. I explained my position with data, showing that competitive pay and benefits would increase retention for existing employees and thus cut recruiting and training costs. Ultimately, my argument to investors proved true.
That was a long time ago, but treating overall compensation as a strategy for success, and not just an expense, remains critical. Today’s pay and benefits mix should be a sustainable blend of things beyond merit pay – stock options, retirement-account-contribution matches, tuition reimbursement, health-care coverage – that each hold value and add up to a total package that addresses people’s well-being on several levels.
For more articles, Click on IIPM Article
Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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4Ps Business & Marketing, in a strategic alliance with the new york times service, presents a column by howard Schultz, Chairman, President and CEO of Starbucks corporation
This is such an important question right now because so many struggling economies around the world desperately need their countries’ entrepreneurs and small businesses to succeed. The jobs that small companies provide and the high-quality goods and services their employees produce can give powerful boosts to a faltering economy.
Unfortunately, studies show that about half of small businesses fail in their first five years – for a variety of reasons. Insufficient capital. Inexperienced management. Lack of – or incorrect – focus. An irrelevant product or service that does not meet or inspire market needs.
But let’s assume a company gets all of the above right – even though capital is hard to come by these days. The company can still sink if it does not attract and engage the right people.
Let me take a step back to make my meaning more clear. The hardest part of building a company at the outset is recognising the need to invest ahead of the growth curve, and then having enough capital to do so. The kinds of investments I’m referring to are ones you’d expect: materials, inventory, technical infrastructure, marketing, real estate.
Generally, the largest investments are in pay and benefits. This is where many small businesses get into trouble: By trying to minimise “people”-related costs, a small-business owner can inadvertently stunt the company’s growth. That said, investing in people is not just about spending money. It’s also important to expend intellectual energy on ways to inspire great work.
So, to answer this question more directly, small businesses have such a high rate of failure because their leaders do not put enough money or time toward employing, retaining and maximising top talent.
When I speak to small-business owners, I encourage them to follow a few guideposts:
LOOK FOR CHARACTER AS WELL AS SKILLS WHEN HIRING
Even in a down economy with high unemployment, the pool of the most talented people in any given area is shallow. That pool gets even shallower when the bar for hiring is skills PLUS strong character. This is the pool you want to hire from, even if it takes a little longer to fill a role.
Interview people through the lens of building a culture of trust. Ask yourself: How will they lead – by instilling fear or by encouraging greatness? How will they treat their direct reports, suppliers or customers – with respect or with condescension? Over the years, I have seen that character is more important than experience. People can learn the nuances of a job, but passion for doing the right thing cannot be taught.
Remember, the first people in the door will hire the next generation as you grow, so layer the organisation with teams that are smart, respectful, collaborative and just plain nice.
TREAT COMPETITIVE COMPENSATION AS A STRATEGY, NOT AN EXPENSE
Back in the late 1980s, at the beginning of my management of Starbucks, I wanted to be the retail employer of choice. I felt that I could achieve this only if, after hiring bright, friendly people to work in our shops (and our offices), I paid them more than the going wage in other restaurants and stores. I also had to offer benefits that were not available elsewhere.
Doing so came with a price. Back then, health-care costs were soaring and most companies were cutting benefits – much like today. Some of my investors accused me of irresponsibly raising expenses when the company had yet to turn a profit. I explained my position with data, showing that competitive pay and benefits would increase retention for existing employees and thus cut recruiting and training costs. Ultimately, my argument to investors proved true.
That was a long time ago, but treating overall compensation as a strategy for success, and not just an expense, remains critical. Today’s pay and benefits mix should be a sustainable blend of things beyond merit pay – stock options, retirement-account-contribution matches, tuition reimbursement, health-care coverage – that each hold value and add up to a total package that addresses people’s well-being on several levels.
For more articles, Click on IIPM Article
Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Proves Its Mettle Once Again.....
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM RANKED NO.1 in MAIL TODAY B-SCHOOL RANKINGS
Planman Technologies
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