Dangerous High Percentages of Small Business

Jim Blasingame A rabbit was being chased by a hungry fox. Running for his life, he hopped over a turtle as he made haste across a small stream.

As he tucked himself safely inside his shell -- not wanting to become collateral damage in the rabbit's emergency -- the turtle inquired about his anxious neighbor's prospects, "Hey, Mr. Rabbit, you gonna make it?"

To which Mr. Rabbit replied resolutely, "I've GOTTA make it."

A college professor friend of mine likes to say his small business owner friend (that would be me) "lives by his wits." The professor's observation is more accurate than he knows. When small business owners wake up in the morning, we're sometimes like Mr. Rabbit: We don't know if we're going to eat or be eaten.

Close To The Edge
So why do small businesses live so close to the edge of survival? Why is every challenge or opportunity so momentous? Why are our circumstances so much more dramatic than our Big Business cousins? The answer is actually quite simple, and can be found in the math. When we calculate several aspects of our world, the answers often indicate dangerously high percentages. Consider these examples:

Gaining or losing a sale or a customer
A sale and a customer for a big company are important, but the loss of either typically will not be critical to its survival. Big companies have thousands of customers and may make as many transactions every day. The loss of any one opportunity will likely be no more numerically momentous to them than a lake losing a drop of water.

For a small business, every sale and customer is critical because, by definition, each represents a much larger percentage of our total opportunity universe. When we lose any opportunity, whether a sale or a customer, it takes a bigger mathematical bite out of our future viability.

When a key employee leaves
One monkey doesn't stop a big show. When a key player leaves a big business, there are probably at least three very capable players standing by to be promoted off the bench. And any hiring that results typically isn't to replace the person who left, but rather is a lower level search to replace the last person in the long promotion chain reaction. As a percentage of the team, that new-hire will represent at least a three-digit value that will have a minimum of two zeros between the decimal and the first number. And the importance of that replacement to the success of the big company is usually not significant at that time.

The word that best describes the talent pool for small business is, thin -- often razor thin. When a key member of a small business's team leaves, the impact varies from a major inconvenience to a major set back. The reason is because small business managers usually don't just manage, they often have production responsibilities as well. And even if there is a capable replacement on the bench, the promotion chain reaction will be more likely to take minutes rather than days. Percentage-wise, the subsequent new-hire will represent a value with only two places following the decimal, the first of which may not be a zero. And since there are more jobs to do in a small business than people to do them, the importance of finding the right replacement is great, but the danger in not finding the right person is greater.

When capital infusion is needed
When it comes to capital acquisition, our larger cousins are blessed with multiple options, including the equity markets, offering corporate bonds, and bank loans. In any given period of time, one or more of these will likely provide the needed cash infusion. But the operative term is, multiple options, each of which is a fraction of any big business's capital acquisition universe.

Small business is the stepchild of the capital markets -- perhaps more like an orphan. Other than bank loans and whatever retained earnings we can hold on to after taxes, the best way to describe our other capital acquisition options is found in the names of the twin brothers of desperation, Slim and None. Consequently, the percentage of capital acquisition options our bank loan proposal represents is probably 100 -- one of the few times when this number is considered bad.

Back To Nature And The Fundamentals
In nature, certain organisms have acquired adaptations and defenses that allow them to succeed in environments that would be dangerous, if not fatal, to others. I think this is also the case for that organism called a small business.

Faced with the dangerous large percentages inherent by definition, which translate to limited options, small business owners acquire a special kind of "I've GOTTA make it" resolve. This attitude helps, but resolve alone isn't enough. The only way for a small business to overcome the reality of our numbers and operate with less desperation is to combine our grit with a focus on operating fundamentals. For example:

• Service customers within an inch of their lives.
• Build and maintain good relationships with banks (the plural is intentional).
• Hire and manage employees as stakeholders rather than workers.

In 218BC, during The Second Punic War, Hannibal crossed the Alps with 35,000 men and a squadron of elephants. His army faced a critical point where forward progress and options were diminishing. Sensing disaster in the eyes of his men, and realizing that this was a test of his leadership, the great Carthaginian general is said to have uttered those words that small business owners say to themselves, and their people, every day, "We must either find a way -- or make one."

Write this on a rock... Some days you're a rabbit, some days you're a general. Either way, you've GOTTA make it with a combination of grit and operating fundamentals.

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Category: Entrepreneurship
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