AML & Associates

By Mel Luigs, President & CEO

As a business moves from its start-up to survival and then to success as a small or medium sized business, the owner must be heavily involved and is vitally important to the organization. Many individuals completely misunderstand this role which explains the approximate 50% failure rate for most small business startups over the first five years.

Understanding the basic guidelines of the ownership role during the initial phases of an organization’s growth will not guarantee your success but will greatly speed the process. However, no one can guarantee the success of your organization except YOU. I have listened to the term “absentee ownership” for the past thirty years and continue to laugh every time I hear this phrase used to describe the individuals or legal entities that place the monetary funding into an organization. Please remember the title of this article – Roles of Ownership that cannot be delegated! If you disagree with this statement, please spend some time discussing your business with a Venture Capital firm. These firms believe very clearly in this these maxims and drive many small business owners crazy with all their rules and guidelines when they invest in a small business.

These four requirements will mature and change over time, which is normal, but none can be delegated.

The first role of the owner is that of Visionary. Please understand that I clearly wrote “visionary” and not “dreamer.” Everybody has dreams of the next great product or service. The trick is taking a dream and creating the vision. My business definition of “Vision” is changing a dream into a business plan, a clear business mission statement, and creating an organization to manufacture, assemble and/or sell the dream. This definition clearly separates the business owners from the dreamers. There are over 40,000,000 business organizations in the US today that have made that jump from dream to vision. These range from your local insurance agent, McDonald’s franchise, and your Buick car dealership to Microsoft or IBM. Every one of these organizations started with one or more individuals sitting at their kitchen table putting the plans in motion to convert the dream into a true Vision. As the organization grows, the owner can and must educate employees in the company’s Vision so that all employees share the Vision. The owner must continuously nurture and guard the Company Vision to ensure the path is straight and never varies. However, the Vision cannot be delegated.

The second role of the owner is to establish the Organization’s Culture. Every successful business is a living, breathing and growing organization. Small business owners normally spend more time with their business than they do with their families. Every business reflects the integrity, ethics and morals of the owner, whether it is by accident or designed. Naturally, successful owners design the company’s culture up front. This does not require a great deal of thought as each of us has a well defined set of ethics and morals which we have come to embrace over our lives. The only trick here is if we, as owners, decide to change our ethics and morals and use the business as our testing ground. I can absolutely guarantee a company’s failure under this scenario.

There is no right and wrong when it comes to the company culture. We have all seen highly disciplined firms, multi-ethnic firms, firms that believe in community service by all employees, firms that allow employees to work from their homes, firms that believe in healthy employees with wheat germ and fruit juice instead of coffee and soft drinks, firms that believe in high quality, firms that believe in selling the cheapest product possible and firms that only want MBA’s on their payroll. Your company culture will determine the employees you hire, the customers you call on and the suppliers you buy from. The culture has to be communicated to and understood by all employees and will be noticeable to suppliers and customers as well.

By defining the company culture, the owner automatically establishes the basic structure and internal organization of the company. How many departments are needed, how quality is used in the organization, how often financial statements are reviewed, the role of family in the company, whether real estate is held separately from the main company, whether we hire the best people or the employees we can currently afford, do we want all employees to feel like valued team members, do we want do we have an outside Board of Directors and does the company allow outside or employee ownership. The Company Culture cannot be delegated and cannot be formulated until the Vision is laid out.

The third role of the owner is to hire and retain Senior Management. After finalizing the first two roles, the owner can now determine what the company requires in its senior managers. Since the owner will delegate some or all management functions to these individuals, the Vision and Culture will define management responsibilities, the manager’s personal qualities and strengths, their ethics, their morals and their experience level. You would not buy a television until you defined what the maximum size can be, where it will be located in your house and what department store has the best deal. Neither should any owner think about hiring a senior manager until the Vision and Culture are properly established. The Vision and Culture must be communicated to every prospective senior manager and he or she must fit the Vision and Culture. It is not a matter of whether the prospective manager can accept the Vision and Culture but if he or she fits the company’s Vision and Culture. No prospective employee will be an exact fit so the owner must prioritize the importance of each piece of the Vision and Culture and weigh the fit by the prospective senior manager. Many successful companies have found outside firms that can provide personality and attitude testing to assist in determining the fit.

As the company expands and senior managers begin hiring employees and the next level managers, the Vision and Culture will be changed and degraded if senior managers are not a good fit. Failure is inevitable when departments and employees within the company start varying from the owner’s Vision and Culture. Hiring Senior Management cannot be delegated.

The fourth role of the owner is being the final arbiter of all company decisions. Decision making can be delegated to senior management but what happens when senior management cannot resolve the issue or decide where company funds are to be prioritized? No small or medium business has unlimited resources in most areas. Capitalism is a tremendous concept but it was never meant to be a democratic process. To restate a well known religious saying, “The Golden Rule in Business is He who has the Gold, Rules.” The owner must always be willing and ready to be the final arbiter in every matter, every day. When you, as an owner, hire the right senior managers and have a well thought out and communicated Vision and Culture, this role can and should be very minimal. Since we sometimes have trouble finding the perfect managers, this role can come into play often. I recall a business owner who took a two week trek into the backwoods of Colorado and come back to a company that was completely standing still because no decisions were made in his absence. The company went out of business 90 days later because the owner decided he did not want to accept this fourth role. This ownership role cannot be delegated.