Is your noblest quality your business’ worst nightmare?
In drama, a tragedy is a story in which the hero’s virtue goes too far and has horrible consequences.
Small businesses can be real dramatic. Here are three tragic flaws I see in small companies all too often:
1. Unmitigated patriotism in your business.
“We have the best people, customers love us, and no one is better…” These are noble and loyal things to say. They may even be true – most of the time. However, this extreme devotion often manifests in poor business practices:
- “…therefore, we can’t outsource. It will compromise our quality,” which leads to high job cost and stagnant processes.
- “…so, we have to do things the way we know is right regardless of what the customer wants to pay,” turns into selling on price and delivering on virtue.
- “…which is why we can’t take on new business until we have all the permanent resources in place,” which is tragically un-scalable.
2. Owners not paying themselves a market rate salary.
“I funnel all of the profits back into the business. If there is money left over, I take a draw at the end of the year…” What was a smart way to preserve cash flow in a startup is a tragic misstep in a mature company. This kind of self-help financing often manifests in daily business:
- “…so it is OK if we don’t make money on labor, because we make money on products.” Then we have unhealthy conversations about value with our customers.
- “…this helps us be more profitable.” Except that these companies often judge their profitability against unsubsidized companies.
- “…therefore, if we lease this truck instead of buying we will save money.” Companies that subsidize cash flow tend to misunderstand finance in general. Profit and cash are two different things!
3. Every customer is unique so our processes need to be customized for each project.
“We don’t want to be a cookie-cutter solution…” is a noble sentiment that I hear all too often. What customer wants to pay for bespoke services in an industry that functions on best practices and standards? This is one of many ‘put the customer first’ flaws that end up being misplaced priorities:
- “…therefore we don’t want the small projects because our systems and processes are too expensive to make money at them,” inevitably leads to either underserving a good customer that happens to have a small project (or many of them), or it means that when small projects come along, there is no simplified system of checks and balances to preserve quality.
- “…which is why we sometimes have to walk away from projects that can’t afford to do things right.” Now the business is judging prospective customers on the fit and finish they can afford. This is fine if you only want bespoke buyers, but even well-heeled folks want a fair price for simple needs.
- “… is our value proposition: customized attention to detail.” This often turns into team members interpreting the company strategy and rejecting important work because it doesn’t fit an unnecessarily high standard.
Do you hear these virtuous posturing statements anywhere in your company? They may make you feel proud, but to me they are a sign of impending failure. Virtue by its nature is stubborn. Too much of a virtue is tragic.