This article are provided for information purposes only, and are not intended as legal advice.


Business strategies – does you ego get in the way from making a good business decision?

August 6th, 2009

Have you ever worked for a boss and questioned their reasoning?  If you are the owner, you can make all the decisions but you will only know if you made the right decision after the fact, sometimes many years later.  How do egos get in the way of running a business?  They can affect growth, buy or sell a business decision, succession, product innovation and customers.

 

Let’s look at each of those areas – affecting growth.  To many business owners, size of the company means status and the bigger the company the more status you will earn.  As a result, you may want to continue to buy many businesses even if you do not have the cash flow to carry the debt.  You got bigger and bigger and kept doing acquisitions but no one ever looked to see if you kept any of the business that you were buying.  Many years ago,  several public companies were acquiring many small mom and pop businesses and consolidating them into larger corporations.  The manager of the consolidated businesses was one of the small businesses owners.  In one case the manager of a $2 million business ended up  running a $100 million subsidiary.  Did they have the capabilities to do that?  Another public company was consolidating businesses but many of the original owners left after they sold the business.  The culture of the business under the new owners was different. As a result, many of the staff and employees of the acquired companies left and so did the business.  No one was monitoring to see if any of the business was being retained.  This was growth for the sake of reporting number of acquisitions, the companies over paid to acquired the business and lost much of the business within 2 years.

 

Succession.  Many owners believe that one child should be running the business after they retire.  How many children are capable of running what the parents had created?   The parents/founders were the entrepreneurs, the next generation or even the third generation of children are not.  They may not have the vision or the knowledge to continue to run the business.  Historically, the first generation builds the business, the second generation may improve the business but many fail.  If the second generation did not fail, there is a high probability that the third or fourth generation will lose the business.  It is often better to look to outside talent than to force your children to run a business that they do not have the expertise nor desire to operate.

 

Product innovation – if you control the market share and you do not continue to innovate, your competitors will eventually build a better mouse trap and you will begin to lose sales.  Egos assume that your customers will only buy from you no matter what the cost is or the quality of service.  Many large suppliers do not like to be reliant on only one supplier, they want more than one supplier in case something goes wrong with the first company and they cannot get the product.  Chrysler built the first mini-van but their competitors all developed different and often better products.  You have to continually improve your product in order to keep out the competitors.  Blackberry has a unique market place however many companies are trying to offer competing products.  The iPhone tries to compete with a different product but catering to the same clients.  Blackberry continues to innovate and improve their products therefore their competitors are always behind in what they are offering.  This keeps the customers from wanting to switch to the competition.

 

Customers come first, if you are not servicing your customers properly they will leave. If you give them the impression that you have a captive market and they can’t go anywhere else to buy the product, they will continue to look for alternative sources of similar products.  After many acquisitions, particularly service related business acquisitions, your business is people.  If you do not treat your employees well they will leave.  After their non compete clause expires, they may even go after your old customers.  Many customers leave because of the poor communications from the new firm to the old firm and missing client imposed deadlines.  The customer is always right therefore you have to still treat them the same way if you are a small firm or large firm, they came to you for service, make sure that they still get the service even if you are considerably larger than before.  If you grew too large and no longer provide them your service, at least let someone else should be delegated to take over your customer accounts, don’t assume the customer will wait until you are no longer busy.


Filed under: Business strategies — Gary Landa @ 9:51 am


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