Or why smart managers ask awkward questions early.
In independent, often family-owned, stores, owners and managers multi-task for a living. Their day or week’s activities are often (too often?) driven by events, employee issues, supplier crises, weather and so on. The sheer adrenaline [rush] of such a life is what many owners love about having their own business rather than working in a more structured corporate environment.
We work with many such businesses, ranging from $1 million to $40 million in sales. The owners of these stores work harder and longer than most people in their customer or employee base realize, but they tend to be very task-driven. After all, many of them are in it because years ago, the product — such as flowers, produce, Christmas or gift — was their first love, and opening a store to sell what was their passion seemed like a perfect life.
Fast-forward 20 years and those people have more product than they ever knew existed, unfair dismissal claims on their desk, POS spread sheets stretching for miles and a payroll of $40,000 a week to make. So much for selling your hobby!
As December is a huge month for many, the traditional “How did we do last year?” discussion is sometimes delayed until buyers are literally heading for the plane to the winter buying shows. Not a good way to run a business.
The biggest challenge to small-business growth seems to be that awkward transition from a big-small company to a small-big company. And some proprietors never do make that move up. To do this means a disciplined step back to see your business as an outsider might, with an agenda focused on asking, listening, validating, processing, probing, learning, acting and moving forward. Easier said than done when the buyer called in sick and you are off to market at 3 a.m.
Relevant or Just Interesting?
The trick with any business analysis is to separate the events and actions into the relevant and the interesting. It is interesting to hear that the West Coast had the best early spring ever, but that is only relevant elsewhere if it affects the price of a certain product you are buying from the West.
Unfortunately, a big end-of-year postmortem is too much, too late. Those that do it find that there is a recurrence to the problems, such as, which department lost money or couldn’t keep staff. Issues like this really need to be addressed and those profit drains plugged long before year-end.
We often meet regular clients and review the month or season using this type of analysis, to pull out key learnings and agree on action priorities for the coming period. The value of any reflective analysis of past events and performance is to see what can be used as opposed to what should merely be noted. And that can be a hard lesson to learn.
I encourage owners and managers to ask awkward, sometimes self-incriminating, questions to probe a situation that, in hindsight, could have been addressed much earlier in the year.
For example,
• When did quality from that dependable, favorite supplier start to decline? In late summer, when the produce department finally tallied up its markdowns and waste? Or in early June, when whoever received the stuff didn’t alert their supervisor about the poorer quality this year?
• How much longer are we going to hold off on telling that rep to stop calling? He ties up our key staff for hours and he is only our third-choice candy supplier after all.
• At what point should we have noticed that Jenny was losing interest?
• When did Mick and Sherry start going off-site every day at lunch?
• Has no one asked why Kelly sits alone in her car every break and all through lunch?
• How many times did that cashier give Mr. Smith a staff discount before one of us spotted it?
• Why did Fred not run that gross-margin-dollars-by-supplier report like he was told to five months ago?
• Since when did the end caps in Linens become much more crowded than we all agreed after that training class?
All these situations are drawn from my real-life experiences that someone in those companies could have answered, or at least drawn the company’s attention to earlier in the year. The aim of subjective, reflective analysis like this is not just to wring every dollar out of every customer or employee. Examples like these can either save a bad customer-service situation or rescue a good employee before the tipping point is reached. Yet, I don’t see this kind of objective, honest, nonconfrontational management practiced as a part of everyday management.
Review the Task, Not the Person
Many of us (including me) escaped from large formal, corporate organizations with their laborious process and timid decision-making, but there is something to be said for the way they dot the I’s and cross the T’s. Large organizations (well, good ones anyway) have a system that allows superiors to ask subordinates those regular, sometimes awkward questions.
However, in many small-company reviews, meetings, goal setting and coaching, there may be heavy, intense take-it-or-leave-it postmortems with little room for negotiation and training.
Too many managers critique and suggest changes based on the person, not the result, asking, “Why didn’t you finish?” rather than “What slowed down the process?” and “How could we do it better next time?” Objective managers review the task, the goal, the resources, the process, not the person.
Small businesses, where owners work alongside employees (who may have also baby-sat them as kids), tend to have less objective processes and are run by subjective, personality-based management.
Worse yet, because win-lose confrontation is sometimes the only style of approach, nothing may be said until an employee quits, and I am told, “Oh, he just didn’t work out.”
With the cost of hiring and training a replacement said to be between five and 10 times the salary of the worker who left, these discussions can be very cost-effective.
Case Study
Being “on-budget” wins recognition and maybe reward, but if a 5 percent growth in sales was offset by a negative change in something else, managers need to know and act early.
For instance, we had a client whose sales, in a year when others struggled, were up 9 percent or by $170,000 (high fives, big thanks all round). Overheads and expenses had stayed about the same — more high fives. Once the champagne corks had stopped bouncing around the office floor, we noticed that the Cost of Goods (COG) has increased by $130,000 and inventory had swollen by more than they wished to admit … ooops.
The company aims for a markup of more than two times on cost, so an increase in sales of $170,000 would require purchasing to rise by no more than $85,000, preferably less. Anything over that meant that they lost gross margin points even though the sales dollars rang the register. The extra COG of $45,000 ($130,000 minus $85,000) means that extra sales of $90,000 (45 x 2) on top of the $170,000 rise must be achieved to restore the balance.
So, how did a successful company, having a much better year than its competitors, fall behind like this?
I suspect that strong sales at the register and weekly reports of an increase in the average customer spend created a culture where buyers lost their caution, especially after that crucial point in the season when the initial excitement is over for the consumer. So, buying continued, encouraged by happy suppliers who themselves had lots of inventory to move. Also, because sales were strong, the buyers didn’t feel as restricted on where they bought; so top prices were paid to top-level suppliers just to have it in stock. I am all for having the essentials in stock but when were four different colors of one style of concrete birdbath considered never-outs?
And this happened in a company with buying budgets, long-term employees, a conservative owner and a consultant!
Hindsight is always 20:20 and this will be a good learning experience for the relatively new manager. New weekly meetings are going to be focused on margin using the POS data and the dreaded words “Open to Buy” are being quietly uttered!
Cultivate a Different Approach
Everyone makes mistakes and that is part of the growth of a team. No one should be embarrassed to admit a mistake and work to improve or avoid a repetition, but whether people embrace this philosophy depends on the company culture. And that starts at the top.
So, leaders should establish weekly formal but nonconfrontational questions and reviews of events or results as part of a no-big-deal style, and plug those profit drains early. What do you know, it might even become your passion!
