Govern Your Small Company Like a Big Company from the Start
The best small companies will be big one day, and they will need the corporate governance structures that ensure big organisations are profitable and adhere to compliance requirements.
Consider enlisting the assistance of a small advisory board (two or three individuals, ideally with at least one independent non-executive) to keep you focused on long-term planning, advise you on big decisions, and help you during times of personal or business crisis. To bring together a board, take these three steps:
- Write down the tasks you would like your advisory board to help you with and create a timetable of proposed meeting times. This document clarifies your own thinking, and helps you occasionally review whether your board is meeting your needs.
- Brainstorm a list of peers and mentors who could provide the kind of guidance you are looking for. Consider what is in it for them, beyond payment. It could be the chance to help you grow an exciting business, repay you for help you have provided in the past, or simply because they want to see you succeed.
- Canvass peers and mentors for those who are willing to join your board and provide them your notes about their roles and the proposed schedule.
If you do not have a board, establish a process of regular financial reporting and review (at least monthly), find a great accountant and listen to their advice.
- Move quickly, and make small bets
- Being alert does not cost a business.
“If you see an emerging need or trend in your industry, be the first one on your block to blog about it, ask your customers about it, and turn it into a new offering,” says business author Phil Simon. He says you do not necessarily need to sink a lot of money into your new endeavour, but you need to act decisively to trump your rivals. “The worst that can happen is your small bet will fail. But you’ll know how to improve it before any of your competitors do. Being first fearlessly is a characteristic of successful platform companies.”
Make your small innovations in the context of larger trends. Australia’s leading research organisation, the CSIRO, has identified six trends in the world we must prepare for:
- More from less: How will businesses manage for increased demand with limited resources.
- Great expectations: Consumer and social expectations of all products and services will continue to rise.
- Virtually there: Prepare for the digitisation of every aspect of life as we reach Web 3.0 by 2030.
- The Silk Highway: The centre of global economic activities is returning to Asia after 200 years.
- Forever young: Our ageing population is living longer, impacting on health care and retirement models.
- Going, going, gone: There is a short window of opportunity to preserve Australia’s biodiversity, habitats and global climate. Our potential to establish outselves as the food bowl of Asia depends on intensifying agricultural systems in a sustainable manner.
Stay lean (do more with less)
When businesses start out, overheads tend to be kept low. As they grow, their thrifty attitudes tend to lose lustre in favour of fancy new office headquarters and lengthy payrolls.
But business expert Amanda Miller Littlejohn says that SMEs that manage to remain lean can weather the dips in the economy more easily than organisations that find themselves bogged down by staff and space costs. “Hiring contractors and allowing employees to work remotely has been a hallmark of consulting and other entrepreneurial ventures for years. Remaining in start-up mode with low overheads is not only economical, but a smart move for any size business,” she says.
Take marketing seriously
Two aspects of marketing that are not losing their importance are social media and market segmentation.
- Social media
- Marketing segmentation
Embrace social media
It no longer requires large marketing budgets to get your brand noticed. The emergence of social media means that even the smallest start-up can generate a buzz that can quickly go viral. However, companies – large and small – often fail to get a return on their social media marketing campaigns.
Effective social media marketing involves more than having a presence on Facebook, Twitter, LinkedIn, Pinterest or Instagram. “Always use a marketing plan and treat it as a core component of your business,” business website, Under 30 CEO, advises.
Points to consider with social media marketing include:
- Selecting the right social media channel for your market: the one your customers and prospects use. A wealth management company is likely to appeal to the professional audience LinkedIn attracts – as such, a presence on photo-sharing site Instagram is probably not appropriate.
- If you do not have the resources to dedicate to a full-scale social media campaign, start with small steps. Joining a discussion about your industry on LinkedIn or Twitter is a good start. If you do, carefully select the person who will manage your social media presence. They may need to undergo training, and a strong knowledge of company policy is essential
- Can you instigate a regular blog that might benefit potential or existing clients? Be sure the subject matter is useful to your customers: endless overt marketing disengages audiences.
- Don’t forget the simplest form of marketing. “There’s still a lot to be said for word-of-mouth marketing. You can get your customers to handle most of your marketing for you, if you play your cards right,” Under 30 CEO says. “Offer incentives in exchange for testimonials: for instance, a free product in exchange for a blog review. It doesn’t take a big marketing budget to generate brand recognition.”
Do not be afraid of market segmentation
Most small SME owners are reluctant to choose a niche – after all, nobody wants to eliminate part of a potential market. But a strong focus on a core customer will deliver a clearer path to the kind of outstanding customer service that is increasingly in demand.
Market segmentation means choosing a subset of the marketplace that you can focus your sales efforts on. Entrepreneur and author, James Clear, says big businesses tend to be good at carving out their corner of the market. “Segmenting your market comes down to making choices. Who will you serve? Who will you avoid? And which segment can you focus on to improve profitability?” Clear asks. Red Bull positions its energy drinks in front of a young, adventurous crowd: in line with its segment of the market, he says. “Have you wondered why Red Bull owns a Formula One racing team? That’s why.”
The world is changing: are you?
While change has always has been a business constant, in the era of the digital revolution the pace of progress is breathtaking. The Australian Institute of Company Directors’ Directing for Change roundtable, held last year, uncovered four key elements for businesses to focus on to ensure they are keeping up.
Develop flexible and resilient business models that can adapt quickly to changing markets: Business owners should consider innovation as a core business competency, similar to how marketing’s role was elevated in the 1980’s and that information technology has been for the past two decades.
Although it is the key to furthering innovation, Australia ranks poorly against its peer nations for research/business collaboration. Collaboration with suppliers and partners overseas increases the breadth of your connections and provides market insights not available elsewhere.
Diversify your thinking
Diversity of thought at every level of your organisation – at the staff level, in management, and on the board – is key to attaining exposure to a broad range of strengths, expertise and different ways of thinking that are vital in a period of accelerated change. Diversity must go beyond the traditional measure of gender and encompass other areas of expertise such as science, technology, engineering and mathematics. Entrepreneurial insights can be missing from a board – business owners should consider sitting on the board of a start-up for greater exposure.
Some things remain constant even through a period of accelerated change. These principles, such as consumer desire for convenience and value, allow for a frame of reference for new technologies and models. Remember the organisation’s strengths – large established organisations have access to capital, developed distributions channels and strong management models. Acquiring, rather than developing, innovation may be the best solution – for example, by partnering with an allied company, acquiring or merging with a rival.
Find productivity gains
Some small steps can make a huge cumulative effect on the bottom line of your business. Try these:
- Decide where you can and can not compete: This is particularly important with trade-exposed industries where it may be difficult to compete on labour costs. If this is the case, look to utilising existing assets to do higher-value activities,
- Consider the whole supply chain: Do not just think about manufacturing the product. Investigate how to drive innovation up and down the supply chain. Invest in the supply chain, paying particular attention to digital platforms and how they make doing business easier for your customers.
- Create an internal cannibal: In the drive to find new products, be prepared to cannibalise existing parts of the business. Says one director: “Give your cannibalising business free reign – be brave – give less of your research and development budget to mature businesses.”
Dare to dream
The last word comes from self-made American billionaire Warren Buffett, who is widely considered the most successful investor of all time. Today, buying a single share in his Berkshire Hathaway holding company will set you back over AUD215,000. It is an inspiring achievement. “Berkshire was a small business at one time,” Buffett explains, “it just takes time.” He and his business partner, Charlie Munger, never tried to suddenly expand Berkshire Hathaway into something four times bigger. “We just consistently kept doing what we understood and, if you have fun doing it, then it’ll be something quite large at some point. Nothing magical.”
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