Latest / The Enterprisors / Six Silent Failures
Transcript
- Tim Meadows-Smith: Welcome to The Enterprises. This week's episode, the six silent failures of mid-sized Britain. There are roughly 13,000 UK businesses over 10 million in revenue. Most of them are not scaling. And it isn't because the market is wrong or the product is weak. It's six specific failures, all happening at once. And almost none of them are being named out loud. This episode names all six. Tim. Let's put a number on this for our audience. How many businesses are we talking about and why does that number matter? Well, there are approximately 13,000 businesses still led by their founder who've got over 10 million. It's a very small number, frankly. There are 60,000 who've got over 10 million and are run by ⁓ somebody other than the founder, but there are only about 13,000 that ⁓ were founded and are still led by the same person who've got over 10 million because there are only 0.4 % of all the businesses founded that ever get to 10 million. Wow. And you said there are six failures, specific failures, which I can't say very well, specific failures. and they don't happen like one at a time. They kind of compound or they will happen at the same time. Why are they happening all at the same time? Well, because running a business is a complex thing. There are many things that you have to get right all at once, all at the same time in order for the business to work and be successful. And the difficulty is that the country, society, government, the education system has sold young people the myth that you can run your own business straight from education as a career choice. And you can, but the success rate is tiny. And it's because it's a difficult job that requires a well-owned and hard to acquire skills that need to come together and stay ahead of the size of the business. So it's relatively simple to run a business where you have ⁓ one cow that produces 15 pints of milk a day and all you've got to do is sell 15 pints of milk. If you've got a whole herd of cows that have to be looked after and milked and then the milk has to go into bottles and it then has to be distributed and sold, it requires more skills and more difficulty. And then if you are producing milk from three or four hundred farms and bringing that together and selling it to the general population through supermarkets, it requires a whole raft of other skills, including sales and marketing and distribution and bacteriological analysis and all kinds of things that have to happen in order that you give people a delicious pint of milk that isn't going to kill people. just because you could milk a cow does not mean... Exactly. And so the difficulty is that that young person who was encouraged and inspired to start a business and has become a great problem solver has actually never experienced an organization that operates well. They've never worked in one, never seen one, never been on the inside of one, and yet somehow they're supposed to know where that is and how to get there. And it's difficult and you need a lot of support and a lot of advice from other well-qualified people who are quite expensive. and your business is quite modest and you can't afford much. And so you hire cheap people who you can instruct and tell what to do. And you are the smartest person in the room. And therefore the business is only as good as your capability and your understanding of what good looks like. Yeah, that makes sense. So let's look at the failures that we... have identified six of which we have identified. So the first failure is no vision ahead. So planning is quite a difficult thing to do. If I ask you to ⁓ take your savings and plan a one month holiday, you'll have no difficulty. You'll work out which countries you want to go to, which transport you're going to take, how to buy the tickets, which hotels you're going to stay in. what attractions you want to go to, what experiences you want to have. You'll plan the whole thing out without any difficulty because you know what it is you want to do and you can imagine the entire experience. I can. When you come to plan a business, if you've never been there before, you have to define where you're going and what the path is without actually knowing the geography or the right route. or the checkpoints, the equivalent of airports or bus stations or railway stations, and all the right measures to know how long it should take you to get from one airport to the railway station and from one railway station to a hotel. And so you have to work on the basis of incrementalism, where I am now and how do I shuffle forward a little bit. Actually what you want is to know where the end of the journey is and how you get there and what the key things are that you need to do along the way and to be able to measure process, progress. And people find that really difficult to do. so even quite substantial businesses operate without a business plan. They grow much more slowly and go out of business much more quickly. than the ones that do have a plan. So you're saying start with the end in mind? Yes. Okay. So then, then work If you don't know what the end is, sit in a room with somebody who's built something similar to the thing that you hope to build and sit with them and understand what it takes to get there so that you've got a plan, you know what the key activities are. You know what the constraints are likely to be and you make a point of buying in the skills to get you there. kind of brings us onto failure number two, not knowing what good looks like, which we also touched on in the previous episode. Yeah, we did. ⁓ Look, there are a billion people in the world who play football of some kind or another. The vast majority of them think it's just bad luck that they're not already being paid 100,000 pounds a week to play for a top football club. They don't appreciate the chasm that there is in skill and standards between playing the game that somebody wants to watch and playing the game that you have fun with with your mates. And it's the same in business. When you start out, you are the equivalent of that park player with a ball and nobody's even got the same coloured shirt on to know which team they're on. Right. So the not knowing what good looks like in a business sense is not knowing, let's take Arsenal for example, because they've just won, not knowing what Arsenal actually looks like for you to be able to achieve it. So therefore asking your local coach to... help you, it's not the same as asking, and I don't know who he is, Arsenal's manager to help you, Arsenal's coach to help you get there. Well, I think Mikaela Teta, the manager of Arsenal, would cost you a bit more than you can afford as a small business. But long before you get there, mean, if you get to 10 million, which is the kind of threshold for being ready for takeoff, you are the equivalent ⁓ broadly of being the top end of non-league football. You haven't even got into League Two. You are ⁓ probably not fully professional. You probably aren't able to pay your players much and certainly not properly or well. You're not able to afford a coach who understands what it takes to win a game. in League Two, ⁓ and you need help with how to get there. And usually the way to do it is to bring in a couple of players who've played in League Two and to see if you can attract somebody who's coached there once before to come and give your coach a few tips on the kind of things that you need to do in order to train for that next level. But the not knowing what good looks like means that we've got to the top of that level and we are with blindly think we're good. Blindly think we're Arsenal standard and therefore if we don't, if we haven't got the ability to step back and look at ourselves versus the top of the league football team, we're never going to get there anyway. So not knowing what good looks like is also not recognizing what good looks like or what bad looks like when you're not forming at that level, is that right? Well, yes, but you don't actually need to know what good looks like at Arsenal if you're playing on the park. You only need to know what it looks like in one of the organised lower level leagues. You just need to understand what it would take to win in the league above where you are now. And you keep going through that process as you grow the business. and become bigger and better. The difficulty is that we as human beings are programmed to thinking that we're better than we are. So somebody who has built their business to 10 million, it's true they're in the top 0.4 % of all of the businesses founded. The difficulty is when you compare that 10 million to the world's largest company happens to be Walmart, Your 10 million compares with 650 billion in turnover. If you want to know what that looks like physically in three dimensions, the 650 billion might be a blue whale, the world's largest animal, five times the size of an adult African elephant. Your 10 million to that blue whale is the size of a day old chick. It is absolutely cavernous difference. so, but when we've got to 10 million, we feel like some superstar who's able to, you know, be a world beater and visit Wall Street sometime soon. Not going to happen. Fairly a three, the finance function. Yes, the finance function. So ⁓ in order to get from maybe a hundred or hundred and fifty thousand turnover a year to a couple of million, you're going to need some help from an accountant. You're going to need some help with planning your cash flow. You're going to need some help with managing your costs and producing your accounts. The person who is qualified to do that for you at a price that you can afford to pay when you are between 100,000 and a million or two is entirely different from the person who takes you from 2 million to 10 million. And that same finance management accountant who can help you with business planning and other things at that level is entirely different to the chief financial officer that you need to guide the business. from 10 million to 50 million, who is different again from the person who's gonna take you from 50 million to 300 million. You go from being somebody who does the basics of organizing the record keeping and looking backwards to somebody who can see into the future and do forecasting and planning, who can look at operations and analyze productivity, who can look at and understand how you optimize your tax position, can look at treasury and investment and help you work out how you get the best return on your free cash. These are all different skills and yet what tends to happen is people take the relatively junior accountant that helped them on the first stage of their journey and remain loyal to them. until that person eventually stops the business from growing. And they're still listening to them when they're advising that 5 % growth is really rather good, when actually 45 % would be good and 5 % is costing you a fortune. Interesting. Failures 405, I'm going to lump together because they are weak planning and dreaming instead of planning. So they're very similar. So planning is a fundamental to getting performance out of a business. And I'll hold my hand up. When I left Big Corporate and I was running Hagen Dazs businesses across Europe for Grand Met, I could not wait to leave behind what I thought was their bureaucratic planning system that we lived and breathed. every month throughout our existence in order to maintain performance. And for a year, I had phenomenal success doing everything out of my head and not planning. Winging it. Winging it. I built a nearly three million turnover business in a year, but then found that I could grow no further because I was completely overwhelmed. And I probably struggled with that. for a year or two before I thought, hell, I'm actually gonna have to go back and apply the things that I've been trained to do and thought I could manage without. I hope that honesty helps people. The truth is, it's much easier to be productive in a day when you start the day with a plan that says today I have to get through 15 phone calls, I have to hold two meetings and I have to, whatever the thing is, if that's already set for you when you arrive, the amount of, and then I've got to replan this and I've got to replan that, means that you spend more time doing and less time thinking through what you've got to do next. But it also means that you can anticipate where the problems are. You can see when you're going to run out of stock. You can see when you're not going to have enough labor to fulfill your orders. You can see when you're not going to have enough money to be able to buy the stock to produce your output to sell. All of these things can be managed much more easily when you've got effective planning in place. And people are very resistant to planning and they tend to only be able to work out very short term, a little bit better, rather than long term and much better that they're capable of. Interesting. I think we probably need a whole episode on that one. Well, more than one maybe. If not more. Yeah, absolutely. Planning is a very, very big topic and people find it very difficult. We should come back to that one. And failure number six, which we have discussed briefly in the previous episode, is leaders who haven't led. Leadership is not telling people what to do. Leadership is not being the person who solves all the problems. Leadership is about ⁓ creating a vision and clarity that other people can follow and feel comfortable performing well without you having to look over their shoulder and micromanage them. It's about creating an environment in which people can thrive. It's about setting standards that and appreciates people, respects them, and has them wanting to do more for you rather than doing more for you because you've told them to and demanding more pay because they're being asked to do more. And then even when they've got more pay, deciding to leave because they really don't like the way that you treat them whilst you're paying them more. Good people don't leave. because you don't pay them enough. They leave because you don't lead them well enough. Interesting. And so these six failures don't always happen one at a time. Sometimes they happen together, don't they? They happen all together, all at once. And if you don't get on top of them very quickly, they kill your business and you end up having to close. It's as brutal as that. Of all the businesses that start, there are fewer than 25 % are paying the founder enough to live on after five years. As we've already said, get to 10 million, you're down to 0.4 % of all those who founded. Of course, there are many that survive in between, but you're not in a position to take off and properly grow rapidly a substantial business until you get to that 10 million threshold. Interesting. And are we allowed to mention your book yet? That's coming. The book, Enterpriseation, is something that I've been writing for a couple of years now and takes people through the process of being able to move from being an entrepreneur to being an enterpriser. and starting to put the processes in place that enable you to build a substantial business and not have your growth checked as a result of trying to do things by common sense, which is rare, and improvisation, which is fun if you are highly competent. But if improvisation is the best you can manage, it's a bit like the DIY person who puts the shelves up almost level and nearly here. Yeah. So we'll let everybody know when the book is out, but we don't just intend to say these are your failures. We do intend to help you through them as well. Look, this is all about understanding where the blockages are, being able to identify them before you get to the blockage and what you have to do to open up the road ahead so that you can carry on without your growth getting checked. Fabulous. Thank you, Tim.