Preparing For Change

The challenges facing small business are changing. We know that future business performance is currently shaped by the wavering economy, shifts in supplies, and preference from consumers. I am in several conversations each week focused on preparing businesses for change, helping them strive to be ahead of their peers, and develop plans to excel in the near term.  

It is not possible to predict the future of your market, but you can prepare how you react to change by following a pattern of thinking as suggested below. And you can rely on guidance from the past, according to a quote often attributed to Mark Twain: “History never repeats itself, but it does often rhyme.” 

Whether businesses thrive or struggle to produce, entrepreneurs who have been around long enough have previously seen the same patterns of change. Use their experience and the experience of other small business owners to help you better prepare.  

The game of business is about managing finite resources for both short- and long-term needs, regardless of whether your business plan includes potential difficult operating environments or a lift from a new line of service. I am hopeful that the following operational examples will serve as a guide to lead discussions with your management team or trusted advisors about where you are planning to add or cut back in your operation. These discussions may keep you from cutting costs indiscriminately, operating outside of optimum margins, or potentially damaging your brand. 

As you plan or make changes in the core business disciplines of finance, operations, HR, or marketing & sales, prepare your thoughts on change by ranking each item in the following four categories. As you rank changes, consider the experience of those who came before you, and if all else fails, give them a call. 

Essential

These are items that are necessary for survival and healthy operation of a business. In operations this could include hiring an operations manager, promoting a supervisor, or increasing vehicle count to handle the volume of business you are processing. While these items may not always meet the requirement of being essential, they are often needed as you continue to grow. The expenditure to hire, promote, or add a vehicle often increases revenue and results in a better-performing operation. It is likely that the outcome will be somewhere between the two extremes of going well (leading to an increase in revenue) and completely failing (leading to a reduction of revenue and an addition of cost). If you are ok with either outcome, it may be time to move forward with the decision. 

Treat

This category includes items we can justify but may not be necessary. This could include extras that make life easier, drying faster, or marginally increase profits. Often in operations this is a new piece of software, a nice-to-have tool, or higher-end equipment. In your management team ask how the treat will increase operational efficiency and, most importantly, if it will make money. Be cautious in approving treats that do not provide either of these benefits. 

Postponable

This category includes items that are in the Essential or Treat category but can be reasonably put off. This could include replacing equipment, tools, or vehicles. As these items reach their end of life, replacement is considered due to cosmetics or reduced function. It is important to remember that eventually these will be considered Essential, however you should consider your current financial position and forecast. If favorable, there is no need to postpone, however a poor financial outlook should result in holding off on new purchases.

Expendable

These items are, in your opinion, unnecessary or unjustifiable. Operationally, this could be purchasing additional equipment that you would normally rent once or twice a year, hiring a part-time employee to make up for inefficiencies of full-time employees, or purchasing a more-expensive vehicle when a more-reasonable choice is available. In business, those who control the pocketbook can go a long way to justify an extravagance or expendable item, but I have found there is often regret in spending more than is necessary to run the business. Be conscious of the cost and weigh whether the dollars could be spent in a more-efficient way to produce the same results. You might be surprised at what you can live without. 

I encourage you to work through the disciplines of your business and ask your team the difficult questions that allow you to categorize your decisions. Look back on decisions made by entrepreneurs in the past, letting their experience guide your view of current events and help you make better decisions than you might on your own.