The Facts of Business Life

by Bill McBean

  Chapter 4

  Fact 2: If You Don’t Control It, You Don’t Own It

  What does control, or management, mean for an owner? If you asked a dozen business owners that question, you could get as many as a dozen different answers. That’s because control, and what it means, differ not only from one industry to another but from one owner to another. As a working definition, we can use the one offered in Burton Kaliski’s Encyclopedia of Business and Finance (Macmillan, 2002), which defines internal control as “any action taken by an organization to help and enhance the likelihood that the objectives of the organization will be achieved.” Regardless of how you define it, though, it’s important to bear in mind that more companies go out of business because there is too little control than because there is too much. This is a point you cannot afford to ignore.

  To my mind, control means developing and implementing procedures and establishing parameters around which employees are expected to do their jobs and be motivated to excel at them. This doesn’t mean that the owner should be a dictator who determines every move each of his or her employees makes. What it does mean is that he or she decides what needs to be controlled, that is, in which areas processes are needed; determines exactly what those processes or procedures should be; and makes sure they are followed. The fact is—and this is something that every business owner knows or should know—that without control a company’s sales, expenses, gross profits, and net profits will never be consistent. Without control there will constantly be chaos within the company, an ongoing need for crisis management, and continuous employee and customer dissatisfaction, all of which are a recipe for disaster. And as a business owner, it’s your responsibility to establish that control. As I’ve mentioned before, and will again, ownership is not for the faint of heart. If defining what to control and consistently enforcing it—that is, managing an organization—is not in your personal DNA, then ownership won’t be a good career choice for you.

  There are a good many people who view control as something distinct from management and, because of that, place less importance on it. But as far as I am concerned, establishing and maintaining control over how your business operates essentially is management, and as such is fundamentally critical not only to an owner’s success but to his or her enjoyment of that success. To my mind, then, control must stand on its own alongside leadership, marketing, and other important business disciplines. In fact, once a leader has determined where a company is going, decided how the company is to be an operated, and established processes to make sure it is operated that way, it is control’s function to make sure the business is run along the guidelines established by the owner. In the end, it’s the only way owners can guarantee that the way their companies perform will satisfy not only their customers but themselves as well.

  The Benefits of Control

  Being in control forces you to determine and define what you want.

  Being in control means that employees know what you want and expect of them, and how they will be rated.

  Being in control makes it easier for you to pinpoint problems when employees are not performing as expected.

  Being in control provides you with a platform on which to base job performance and evaluation.

  Being in control eliminates most of the unpleasant surprises that businesses are prone to because it enables you to look into the future and see problems before they become crises.

  Being in control enables you to provide consistency in delivering your products to the customer, which is a key to customer satisfaction.

  The Realities of Control

  Establishing and maintaining control is difficult to do.

  Establishing and maintaining control is not something you can do on your own; it requires others in the company to help.

  Establishing and maintaining control requires patience, constant coaching, and sometimes a firm and unrelenting hand.

  Establishing and maintaining control requires you to reward those who do it right and discipline those who do not.

  There are four areas in which it is essential that ownership control or management be implemented—information, processes, people, and products. But since every level has different requirements, control must be exercised differently at each one. The one constant, though, is this: You must inspect what you expect. Regardless of where your company is in its life cycle, unless you, as the owner, constantly watch what’s going on and make sure that the company is running as you want it to, it will run away without you.

  Level 1: Ownership and Opportunity

  At Level 1, as Steven Covey has noted, a business is only a mental concept rather than a going concern. Given the four areas in which control should be exercised, it might then be difficult to see exactly how it can be an important factor at this level. And to be honest, control does play a less significant role than leadership or planning at this point in the company’s life cycle. That does not, however, mean that control is unimportant in the ownership and opportunity phase. In fact, it’s an essential tool that aids owners in the decision making that takes place at this level. This is because control helps pinpoint the relevant data and makes sure it is accurate and factual. It also plays a major role in holding the owner’s emotions in check, and giving him or her the patience needed to review and analyze all the relevant data. In other words, control enables owners to make sure that the decisions they make at this level are based on rational thought rather than emotion.

  The Benefits of Control at Level 1

  Being in control enables you to keep your emotions in check.

  Being in control helps guarantee that decisions are made based on facts rather than incorrect information or assumptions.

  Being in control enables you to identify what can be controlled as well as what can’t be controlled, both of which need to be factored into any decision.

  Being in control focuses you on what needs to be controlled and which of those areas are most critical for the business’s success.

  Being in control makes it easier for you to identify conflicts in the information gathered and gives you the patience to sort them out.

  Being in control gives you advance intelligence regarding potential opportunities or potential threats by keying in on current market trends regionally and nationally and enabling you to act on that intelligence.

  Control of Information at Level 1

  Controlling information at this level is essentially a matter of determining which information is important in making ownership and opportunity decisions and which is not. Doing so is basically a three-step process. The first step is prioritizing and defining the kind of information you need to make an informed ownership decision and evaluate the opportunity. The second is gathering and compiling the data, and making sure it is factually accurate, current, and from a wide range of sources rather than just one or two. The third step, which is often the hardest to do, is focusing on the facts rather than on your emotions. In fact (no pun intended), if you are at all uncomfortable with the decision you make, it would probably be a good idea to have someone else review the information as a kind of reality check. While controlling information is essential at every level, it is particularly important at this one because here you are making fundamental decisions on whether you even go into business and, if you do, what kind of business it will be—decisions that can have a long-term impact on your life.

  Control of Processes at Level 1

  The ownership decision process at Level 1 essentially consists of two steps. The first is simply laying out the reasons ownership is attractive to you, listing your alternative career choices (both current and future), and matching them up. Doing so enables you to focus on the first two questions that have to be answered: “Is ownership for me?” and “Is this my time?” No one can answer these questions except you, and that’s why the ownership decision process (or the expansion decision process) starts here.

  The second step is looking at the reality of the situation and asking
yourself a series of important questions, such as:

  Do I have the experience for ownership or expansion?

  Do I have someone to go to for advice?

  Will I be able to raise the needed capital?

  What burdens will getting the money put on my current business, my family, or both?

  Can I make money right from the start?

  Do I like this business?

  Can my kids take over for me someday? Do I want them to?

  These and other reality-based questions have to be answered before you can make a decision about whether you want to be an owner.

  The opportunity decision process at Level 1 is much like the ownership decision process, but it “feels” like it has more of a foundation. This is because the business and the industry have some history, and you can see and touch your competitors. Even so, as in the ownership decision, the opportunity decision basically requires gathering information, that is, answering questions about the various opportunities you are considering, such as:

  Will it make money? How much money?

  What needs to happen to make the business profitable?

  Is the industry healthy?

  How long will it take me to pay back my debt?

  What are the threats to this opportunity? Can I overcome them, or do I have to live with them?

  What can turn this opportunity from a good one to a great one?

  As with ownership, you have to keep yourself firmly grounded in reality when evaluating an opportunity. And it’s the process of asking questions like these that slows you down and forces you to look at the facts realistically.

  Control of People at Level 1

  At Level 1, since you are still only in the planning stages of your business, “people” means you. So controlling people means controlling your emotions, exercising patience, employing common sense, and keeping a balanced and unbiased point of view. Doing so, in fact, is a key component in getting what you want, because it enables you to intelligently analyze the relevant data you have collected for both the ownership and opportunity decisions. But there is more to it than that, because there are always doubts, or should be, where opportunity is concerned, even for the most experienced owners. The more times you face the situation, the wiser you become, but that doesn’t mean it gets any easier. It just makes you more aware of the importance of being in control of yourself and relying on facts rather than emotions.

  Control of Product at Level 1

  Although at Level 1 your business doesn’t actually exist yet, you still have a product, and that product is you and the talents and capital you bring to the table. And in order to sell that product, you have to control it, which means you have to control how you present yourself to others. If you are trying to borrow money from a bank, the bank is looking at “you” as a risk, and is primarily concerned with your ability to do what you say you can do and pay them back. If you are purchasing a business, the owner is looking at “you” in terms of your ability to pay, your chances of success, and how much you want what he or she has. In situations like these, if you present yourself as a calm, intelligent, mature, experienced, and talented individual—or as close to that as possible—you are much more likely to be able to convince these first “customers” that they should “buy” what you’re selling—yourself.

  Level 2: Creating Your Company’s DNA

  Although control plays what might be considered a supporting role at Level 1, it’s considerably more important at the remaining four levels. In fact, control plays such a major role in creating a company’s DNA that, without the help of control, very little of what the owner wants to accomplish will happen. That’s because when DNA creation and control intersect, or join together, they form the “backbone” of the company. And it’s the quality and strength of that backbone that will separate success from failure and moderate from great success.

  A company’s DNA represents the established procedures through which the owner wants the company to operate, as well as how employees interact with each other and with customers. Control at Level 2 is simply the reporting mechanisms that show the owner, and his or her key employees, which processes are being run correctly and which aren’t. These mechanisms, in turn, generally force owners and/or those key employees into some sort of action or reaction. And that action, reaction, or, for that matter, inaction sends a clear message to every employee about the strength, passion, and resolve the owner has when things don’t work the way they should—hence the development of the business’s backbone, which lets employees know how far they can push before you push back.

  Most owners actually understand the importance of procedures and controls as well as the effects of combining them. Unfortunately, though, because some owners do whatever they can to avoid confrontation with employees, they continue to tell their people how they would like to have things work but fail to put in any controls. Not having controls does decrease, if not eliminate, confrontations, but it also decreases or eliminates the likelihood of the owner’s having things done the way he or she wants. At the other extreme are those owners who micromanage their businesses and try to put controls on almost everything, which chokes the life and character out of a business. Obviously, neither extreme works over the long term.

  As an owner, then, you have to find your “control balance,” that is, a point between the two extremes where both you and your staff are comfortable. And when you find that balance, you’ve not only given your business a great gift, you’ve given yourself one as well. Because once a business’s backbone is formed, proactive employees will use it as their guide to doing their job, and the company’s character—the one you want—will start being created. And when that happens, sales and profits soar, and the workplace is functional, efficient, teamlike in operation, and consistent, all of which are vital to customer loyalty.

  The Benefits of Control at Level 2

  Being in control enables you to put your “stamp” on the business.

  Being in control enables you to consistently reinforce how employees are expected to treat others and be treated in return.

  Being in control alerts you when customers aren’t being properly served, when sales are missed, or when customers are not being followed up on and encouraged to return.

  Being in control enables you to make sure your employees know what’s expected of them in terms of their job performance.

  Being in control enables you and your managers to recognize the company’s strengths and weaknesses.

  Being in control helps your employees become better at their jobs because by consistently monitoring and evaluating results you can recognize their training needs and provide them.

  A company at Level 2, like a company at Level 1, is still largely a mental concept rather than a going concern. In terms of the owner’s situation, however, there is a significant difference. At Level 1, neither ownership nor opportunity has been decided on as yet, while at Level 2 ownership is a given, and an opportunity has been taken or is about to be entered into. And because of that, regardless of whether an owner is opening his or her first business, trying to improve an area of an existing business, expanding or buying a new business, or totally reengineering the business, he or she should know beforehand how they want the business to operate and what controls must be put in place to make sure that it operates that way. Most important, whatever the situation, the owner can never lose sight of the fact that when DNA and control come together they form the backbone of the company, and that the combination shapes the character or personality of the organization.

  Control of Information at Level 2

  We all know that knowledge is power, but only if that knowledge is based on information that is relevant, timely, and accurate. Otherwise, it’s junk. The bottom line is that of all the areas owners can control, information is not only one of the most important but also one of the most underrated. When you think about information regarding your company you probably think first about internal financial informati
on, that is, sales revenue, gross profit, personal expenses, fixed expenses, net profit, and so on. But while it’s important for you to gather, understand, and analyze this kind of financial information, it’s not the only kind of information you need. It’s equally important that you gather information on, among other things, market size and demographics, number of customer contacts versus actual sales, product innovations, competitors’ sales, and others. The good news about information is that it’s relatively easy to come by. But the bad news about information is also that it’s relatively easy to come by.

  With so much information available, it’s possible that you can be overwhelmed—even paralyzed—by it. That’s why it’s so important that you make every effort to control it, that is, prioritize it, and focus on the information that will help you meet your success goals. There are basically three ways of doing this. The first is to decide which information will help operate the business on a daily, weekly, monthly, and yearly basis, and make sure that information is provided regularly to those who need it. The second is to continuously check the information for accuracy. Some individual or department has to be assigned the task of seeing to it that any information used for decision making or determining the business’s current condition is monitored for accuracy. And the third is to make sure that your employees use the information the way you want it to be used. That means you have to tell them how you want things done and make sure they do it that way. Control is not just about pointing out that something is right or wrong—it’s also about what happens next.

  Control of Processes at Level 2

  As I’ve mentioned before, creating processes is part of establishing the company’s DNA. But no matter how good the actual processes are, without control even the most well-intentioned processes will end up being reinterpreted and redesigned by employees for their own benefit. As an owner, you can’t allow that to happen. The way to avoid this is to set up check points within each key process to make sure that what’s happening is what you want to happen, that is, that what’s happening will work and be of benefit to the company.