Ok, I admit it. I’m a psychology wonk. I never thought my Psychology degree in 1980 was good for anything, BUT in looking back on my business career, I realize it has helped me a lot.
In my work with business people, I have noticed that often their view of managing their own company is similar to Maslow’s hierarchy of needs.
In working with people who are learning to run a business, they often follow a common pattern. We’ll call it the Howman “Hierarchy of Business Management”.
Customer Service. (Basic Needs) Customer service is like oxygen. We can’t live without it. It is the basis of the culture in the organization. No customer service culture? You are the DMV! Customer Service without advancing to the next level? You’re bankrupt. BUT, there are many entrepreneurs who never leave this level. And as a result, the business cannot scale. Think about a one chair barber shop. Nothing wrong with this if it’s what you want.
Revenue Focus. (Safety) Most entrepreneurs find safety in top line growth. Very typical level two management. (See the Inc. 500/5000). Very important and you cannot survive very long without consistent growth. Most businesses should, no, MUST grow at 5-%15% per year for long term survival.
P&L Focus. (Psychological Needs) Having the biggest whatever on the block.
It’s often difficult to manage profitability while growing a company. Guess what? You’ll need to do both! I am amazed however; at the disproportionate amount of time most of us spend managing the SG&A section of the Income Statement. The old saying that “Profit is an orphan and expenses have children” is very true. But the best advice I ever got on the subject happened when I was asked to read 20 business plans over a weekend. When I complained to a business friend about what advice I could possibly offer anybody if I had to read all 20 plans, he said “Tell them all their margins are too low!” He said it’s universally good advice to get business owners to focus on improving their gross and net margins. It’s true. I believe if we spent the same amount of time improving margins as we spent trimming expenses, we’d have a better company.
The Balance Sheet Building Value (Self-Actualization). It’s all about building long-term value. If you are focusing here, YOU are becoming a self-actualized business owner.
The Exit (Peak Experience). Whatever your long-term goals are: Passing the business on to your kids, the employees, a sale or going public, the exit should be your peak experience. That’s why we do what we do. If you’re young, you may be lucky enough to do it several times. Or it may be a once in a lifetime opportunity for you. Good luck.