We’re Doing It Wrong – Part 2

Part 2 – You only have 1 “complexity” in your business

For the most, over 95% of the Alberta economy is made up of small businesses and yet 85% of these small businesses don’t see their 3rdor at most their 5th year anniversary!

You may be asking yourself right now “what does this have to do with me? My business is making a ton of money and we have very little complication”.

Ok…if this is the case, how about we add a bit of “recession” in the mix? I know you know, but we’d rather not think about “2008” happening again. Well, the likelihood of “2008” not happening again is short-sighted. It will happen again if history has anything to say about it! The bottom line is that an economic recession elevates complexity significantly for our businesses, but what is our best shot at surviving a recession? We focus on what the “complexity” actually is in our business before a recession hits again.

As a business grows from a small sole proprietorship to a mid-size organization with more than 250 employees, the only “complexity” that will either make or break the business is “people complexity”. As the business grows, there is nothing else in the business that becomes more complex than its people complexity. Wouldn’t it be fantastic to know that you have all the other business variables under control and that you could face this people complexity head-on…you could actually plan and anticipate these complexities before they actually hit you and your business. You absolutely can!

Here’s the first piece of where I know we’re “doing wrong”. As your business grows 3 important aspects must be on the top of your mind…peopleprocess and systems. Without these 3 critical success factors…it’s “game over” for you and anyone else that hopes to have their business grow.

We try so hard to increase cash-flow, focus on efficiencies, introduce new policies and procedures, work ourselves to the bone with no end in sight…because we know that if we don’t keep up with the pace, our business will surely fall off the tracks.

I would agree…don’t keep up with the pace and you will undoubtedly fall off the tracks but dare I say that we are working too hard and not smart enough. We also are focusing on complexities that are not the target where we should be focussing on what and where the real complexity is as our businesses grow.

The real complexity as I stated earlier, is your human capital asset – that’s it! In fact, a recent study by Davidsson et al. (2009) in Canada showed that the following had very little relationship with company growth:

  1. Financing
  2. Age of the company
  3. Where the company is located i.e. geography etc.

The only variable that stood out clearly was a business’s human capital assets being a positive and significant factor in companies reaching a high level of success, in terms of both growth and profitability. Conversely, human capital allows a business to insulate itself from other negative factors that traditionally impede a business’s ability to grow sustainably.

If you can think of anything else in your business that trumps the human capital complexity, I would love to hear your thoughts as we make our way through this series of blogs.

Join me next time and I’ll remind you what works…but also show you that it works…”trust me” as they say.