Lesson in New Biz Management
People typically start a business in an area where they have the knowledge and skills to deliver something valuable to customers, but that's no guarantee of success. However brilliant entrepreneurs might be in their chosen fields, certain business skill gaps eventually can make them just another start-up casualty. The smart ones will outsource operational aspects of the business such as accounting and year-end tax preparation, but other skill gaps aren't so easy to delegate. Those gaps might not always be in computerized business systems or interpersonal relationships, but in simply knowing how to run something they've never run before – a business.
"There are many amazingly talented people who do fascinating things that they want to bring to their clients," noted Jacqui Sakowski, owner of Sakowski Consulting, LLC. "I'm just astonished by some of the business ideas they have, but they often have very little understanding about how a business is actually structured, and what all the pieces are."
Mae J. Laatsch, a small business and entrepreneurship instructor for Madison College, said while most start-up firms need an advisory group that includes a Realtor, a lawyer, an insurance agent, a banker, and a CPA, the reason for new business failures is easy to pinpoint. "The reason small businesses fail is one, a lack of management skills and, two, financial issues. But mostly it's lack of management skills," Laatsch said. "I've had people come in who wanted to expand and to hire employees, but they didn't have any idea of how to go about it."
According to Neil Lerner, director of the UW-Madison Small Business Development Center, the proper entrepreneurial mindset should not center around business ownership, but business management. "As the manager, your main job is to understand the key things that need to get done to execute, get the business launched, and start serving customers," Lerner stated. "As the manager, you are not expected to be an expert in everything because that's not possible, but once you understand the key things, the next step is figure out how you're going to get things done."
Since entrepreneurs typically are risk takers and even visionaries, they aren't necessarily inhibited by self doubt. So it isn't always easy for them to acknowledge that they might not have the full skill set. Yet between UW-Madison, Madison College, Edgewood College, Herzing University, Dale Carnegie and others, there is no shortage of convenient executive programming.
What are the important pieces to consider? According to Lerner, most of the people who take the Center's classes don't have a business degree, so they are coming back to school for basic, functional business areas: finance, marketing strategy, and sales. These are all operational issues that should be part of business planning that predates the actual launch of a business, but the execution usually requires additional education.
Marketing should be approached from a strategic point of view, and considered separate from promotion. "That is an area that's difficult for a lot of people to hone in on – their target market and why people will buy from them," Lerner said. "Other times, if they have a very specific experience they are taking from employment, they understand the target market concept really well."
It's the same thing in the sales realm. Unless entrepreneurs plan to hire a salesperson, they have to feel comfortable wading into this area themselves, and it can be "difficult and intimidating," Lerner said. Beyond the basics of sales prospecting, planning the sales presentation, and explaining the benefits of doing business – all of which can be learned – a business owner should have an advantage in sheer passion. "Of all the attributes of a good salesperson," Lerner said, "being passionate about what you can deliver to the customer is a key."
Financial management involves more than being able to read a balance sheet or a profit-and-loss statement, or how to use them as management tools. It also involves the fine art of cash-flow management. As Lerner explains, there are several tricks to this trade. "Cash-flow management is the key to a small business," he said. "There are some tricky aspects and timing aspects to managing cash flow. Understanding the difference between your profit-and-loss statement and your cash flow, which is basically the balance in your checkbook, is one way to simplify it. There are some differences where, if people don't really learn them, they can get tripped up."
Planning is everything
Even before launching the business, the need for education – self-education through books or through college programming – is evident in crafting a business plan. Sakowski, who spent six months networking before starting her business, quoted Dwight D. Eisenhower, who planned the Normandy invasion, on the importance of preparation: "Plans are nothing. Planning is everything." Translation: "The questions we ask and answer in a [business] plan are critical to the success of everything," Sakowski said. "Life never goes according to plan, but plans can give us significant clues."
Sakowski said the biggest value that business planning provides is not how to target market or make the right financial assumptions, but in telling you whether it makes sense to start a particular business. "The question is: can we make a living doing something with real value that people will pay for?" she asked.
Laatsch agreed, citing lifestyle concerns as a potential barrier. "How about running a bed-and-breakfast or becoming a wedding photographer? Kiss your weekends goodbye," she stated. "You have to live a totally different life, and you don't have any time for yourself with those types of businesses."
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