Small businesses are a tricky thing – there are lots of mistakes that business owners can make.  Not paying attention to their customers, not keeping up with technology, constantly trying to be a hero, not understanding cash flow!  All of these will eventually kill or cripple your business, but the biggest impact, the mistake that most business owners make is not addressing their ‘People’ problems.

Because of their size and the need to be part of a community, a small business is driven (good and bad) by the quality of the people and with only a few employees (relative to big corporations) there’s no where to hide!

Let’s say you’ve got a small company with 10 employees…and 2 of them are problems.  That’s 20% of your work force!  But it’s actually worse than that – typically people problems bring everyone else down as well – so those 2 issues might have you at 50% effectiveness.  It’s doubtful you’ll be around long at that pace in this economy.

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  photo by Jerry

A lot of thought over the years has gone into what makes a business great. In the business classic “Good to Great” by Jim Collins, 5 years of painstaking research led to a lot of interesting conclusions about what separated great companies from good companies (and all the rest).

Some of the key drivers included things like great leadership, and disciplined focus but one of the fundamental keys to a great business is that they have great people. In other words, using Collins terminology you have to get the right people on the bus if you want to succeed.

But what are the Right People?  How do you evaluate them?  Let’s hear from Jim Collins first:

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Why do you do what you do?

What motivates you (or your employees…) to work really hard, come up with great new ideas, do the hard work of leading, planning, making things happen?

The traditional business school answer is that you’re motivated by money and / or the fear of getting fired.  If you want someone to work harder or get better results, you offer them a bonus or threaten them.

However if you’re a business owner…or if you’ve spent much time out in the work force you may have realized that the simplistic (but widely held) belief of the carrot and the stick as the only way to get employees to do things doesn’t really ring true.   (photo by oakleyoriginals)

If you ask most business owners why they got into business for themselves the most likely answer is that they wanted to be their own boss.  I know dozens of people in the corporate world who willingly gave up promotions in exchange for being able to work from home.  It’s not about the money (or at least it’s only partially about the money).

It’s that break between what’s commonly practiced in business motivation and what experience (and as it turns out science) tells us that Dan Pink’s latest book Drive is all about.

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Plan for success photo by WorldIslandInfo at FuturistMovies

About 1/3 of Small Businesses fail in the first 2 years, and just over half fail within 4 years (according to an SBA Study done in 2005).  These are always controversial studies – how do they define Small Business?  How do they define failure?  Wouldn’t there be a big difference (higher?) failure rate in the last 2 or 3 years?  All great points, but in general we can agree that there are a lot of businesses that don’t make it.

On the other hand, there are also lots of examples of businesses that are still in business but aren’t really making it.  I ran across an interesting article in Fortune Small Business that initially caught my eye because it was about a local Kansas City business.  The article on ‘Why Small Businesses Fail‘ is about a home furnishings boutique in Prairie Village called the Curious Sofa (caution the site loads with music on).  If you haven’t been, Curious Sofa is a great store with lots of interesting stuff  to look at.

Here’s the part from the article that I thought was really interesting:

Dusenberry’s financials explained clearly why her business has potential – and why she’s in trouble….But here’s the thing: Her statements show that she’s lost money eight years in a row.

Every year, Dusenberry said, she told herself that she was going to work harder and sell more stuff, but working harder doesn’t fix a broken business model.

Working hard, loving what you do, and having a skill or product that other people want enough to pay for are all part of the puzzle, but there are other things that are even more important and if you don’t figure them out, it can be a long way down.

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