Why Make Business Hard?

For centuries, men have gone into business as an alternative to working for others; they wouldn’t do that if they expected that running a business was really the grind it can sometimes seem these days. I firmly believe that business is not supposed to be as hard as we make it.

So What Makes Business Hard?

Experience has led me to believe there are three major factors that create difficulties for small businesses: lack of viability, lack of enjoyment and lack of focus.

I’ve lost count of the number of small business owners I’ve met who have been totally passionate about their big idea, but they haven’t thought it through fully, and there’s a flaw in the business logic that they simply haven’t seen. They lack viability, so after putting their heart and soul into their new business, they fail, often losing their savings or even their home in the process.

On the other hand, we all know of businesses that look perfect on paper, yet they are being run by people who really aren’t excited about them. They lack passion , so when things go a bit wrong, they don’t seem to have the commitment and drive to ‘go the extra mile’, to do that little bit extra, to get the business back on track. So they achieve mediocrity at best, and at worst they slowly fade away.

And how often have you encountered businesses that seem to be doing a bit of this and a bit of that, but don’t appear to excel at any of it? Anything you need doing, they’ll do it for you, but they lack focus, so somehow they just don’t inspire confidence - even in the things they appear qualified to do. You can’t work out what their real skill is - Jack of all trades, but master of none.

The Importance of Focus

There’s a science behind the need for focus. Studies estimate that the human mind is bombarded by up to two million bits of information every second. And as far back as 1956, George Miller1 concluded that the human mind can only recall 7 (±2) chunks of information at any time - that’s an average of around 134 bits, or less than 0.001% of the total information available.

To be successful running even a single business, we need to be constantly aware of a number of things that can affect it – customers’ needs, competitor activity, legislation, finances, etc etc. That means those 7 ±2 chunks of information are pretty much taken up already, so if a business starts doing a variety of different things for a variety of different customers, then pretty soon its owners will find themselves missing important information about all of the things they are trying to do.

That is why successful businesses will always concentrate on one thing at a time, only moving on when the business is well established. Examples include Microsoft, which achieved success in software before branching out into computer peripherals and online services, and Wal-Mart, which has stuck firmly to discount retailing.

But making sure you are always focussed doesn’t have to mean that you can only ever do one thing; you just have to stay focussed on one project at a time. An example of serial focus is Richard Branson’s Virgin Group, where the early music business was sold to provide funds for the next major venture, Virgin Atlantic, which was followed by Virgin Finance and Virgin Mobile (now Virgin Media). Each had Branson’s personal focus while it was being established, and was then handed over to its own focussed management team, while Branson went off to fly balloons or his next great adventure.

So how do you choose what to focus on?

The Importance of Enjoyment

Enjoyment-Performance Theory2, tells us simply that people will perform better if they enjoy the tasks that they have to undertake. It goes on to say that they will enjoy the tasks even more as they do them more and get better at them, creating a virtuous circle of reinforcement. So a business will perform at its greatest potential if the people running it are doing something they really enjoy, and are passionate about.

The great thing about running a business doing something you are passionate about is that it hardly feels like work at all. Confucius said: “Choose a job you love, and you will never have to work a day in your life.” When someone is engaged in a business that they are passionate about, all the things they need to do to make it succeed are no longer chores. Many dedicated and passionate entrepreneurs go so far as to consider it their duty to make a success of their business, in order that more people can benefit from their products or services, and can join them in their passion . So they easily make the extra effort needed to really make it succeed.

For some businesspeople who are passionate about their enterprise, it’s not what they do that drives them, but rather what that contributes to society, or to a specific community. For example, I’ve spoken to accountants who have said that what they absolutely love about providing their service to clients is that they are making sure businesses continue to thrive. The numbers themselves don’t excite them at all, but the result of their advice to their clients – successful businesses – makes the ‘hard’ work of crunching the numbers worthwhile.

The Importance of Viability

It seems obvious that viability is essential to business success, but there are degrees of viability and a great number of factors that can influence it. The factors generally break down into two main types – internal ones that are mainly to do with the business itself, and external ones that relate to the market. Let’s briefly consider some issues that can make business success harder than it has to be.

Internal Viability Factors

Internal viability factors are essentially the business’ resources (the things that it has, or has access to) and its capabilities (the things that it can do)3, and how these are combined to provide something the market needs and wants. Resources might be things like access to good transport or infrastructure links, being located near to the target customers, or having access to adequate funding. Capabilities are about what the business can do with those resources, and include things like having state-of-the-art technology and having or being able to attract the right skills, knowledge and expertise.

The kinds of resources and capabilities that a business needs to make it viable will vary dramatically between businesses. As an example, let’s compare a manufacturing business with a specialist consultancy. The manufacturer will need an appropriately-sized factory, a regular supply of raw materials, good transport links, good quality up-to-date machinery, and the money to pay for it all. In terms of capabilities, it will need skilled staff to operate the machines, technical knowledge of the best ways to produce, the ability to schedule shipments, experienced sales people to sell the products, and good financial management to make sure it doesn’t run out of cash.

Even quite a large specialist consultancy on the other hand could manage perfectly well with only very small premises, a few good quality computers, and a decent corporate image and letterhead. If it operates as a virtual business, one resource it will definitely need is a fast and reliable broadband connection. Thanks to the internet, I know of one highly-successful marketing consultancy whose ‘head office’ is a farmhouse sixty miles north of Aberdeen, and another firm doing UK accountancy and book-keeping work from the middle of the Swiss Alps!

External Viability Factors

External viability factors are those that define how the business interacts with its target customers, and usually covers the market, competitors and compliance. Market factors include how easily the business can access the market, whether the market is big enough to sustain the business, and the relative balance between supply and demand. That brings us on to competitors - if a business’ resources and capabilities don’t set it above the crowd and allow it to create a sustainable competitive advantage, then even the largest market won’t allow it to generate a viable income if there are lots of competitors. Compliance factors could range from needing a license to operate (e.g. a bus company), needing to meet general standards in a particular industry (e.g. gas main layers have operational standards laid down by National Grid Transco), to having to meet a customer’s specific criteria (eg all suppliers to Tesco have to meet a vendor qualification standard).

To sum up, because of the way the human mind works, it is important to focus on a small number of opportunities, so that you can do those exceptionally well. It is very important that the opportunities a successful business focuses on both provide enjoyment and viability. And finally, it is essential to think about enjoyment and viability separately, and make sure that each opportunity has enough of both.

After all, why make business hard?

References:
1 Miller, G (1956); “The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information” in The Psychological Review, 1956, vol. 63, pp. 81-97
2 Harrison, D (website: http://www.harrisonassessments.com/Theory.html )
3 Grant, RM (1998); “Contemporary Strategy Analysis” 3rd edn, Blackwell, Oxford