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State of the Business Owner 2014

State of the Business Owner 2014

The Pulse of Small & Midsize Business

Over 4,000 companies around the world have participated in the
State of the Business Owner survey since it launched in 2012.
SOBO was created for small business owners, to help them understand the
specific behaviors that lead to growth, profitability and quality of life.

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Adopting a Growth Mentality

What if growth is far more predictable than you think?

We begin with a mystery: why do some companies grow, while others don’t? This single question is at the core of millions of hours of effort every year as entrepreneurs around the world search for the right formula to grow their businesses successfully.

In our search for an answer, we decided to talk to the people who know better than anyone what a successful business looks like: business brokers. After all, who better to talk to about your business than the people who sell businesses for a living? Our informal survey of business brokers narrowed successful businesses to two groups:

  1. Growing revenue more than 10% a year (and faster than their industry)
  2. Growing net profit more than 10% (and faster than their industry)
Growth Mentality

Based on these criteria, we went back through the hundreds of different questions we had asked our respondents over the last three years to see what, if anything, could predict both of these outcomes.

The results surprised us.

The two most important days of the week (and it’s not the weekend).

Marketing Sales Orientation

More than any other factor, the answer to a single question predicted how quickly a company would grow: How much time do you personally spend on marketing and sales for your company?

Business owners who spent at least 40% of their time on marketing and sales for their companies grew their revenue 60% faster than those that did not. We call this the Two Days for Growth rule. Even more dramatically, these companies grew their profits at an even faster rate. It seems that the stereotype of the sales-focused entrepreneur who sells based on promises they can’t keep is mostly a myth, and owners with a growth mentality intuitively understand profitable versus unprofitable sales and marketing opportunities.

Critically, this question encompassed the full range of skills in growing a company: sales AND marketing. There was no one formula for the balance in our results: some owners spent most of their growth time on sales, and others on marketing, and some used a balance of the two. Building on your individual skill set, it’s important to find the right mix for your growth mentality.

Key Takeaway 1
“The hardest thing is to keep your foot on the gas pedal. It may be cliche that ‘if you’re not growing, you’re dying’, but it’s absolutely true.” Business Owner, Nigeria, 38

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Cultivating a Growth Team

The confidence trap

The Confidence Trap

The business owners in our survey were extremely overconfident in their ability to control the future. Some studies have even argued that an irrational overconfidence is necessary to persevere and build a company.

But there’s just one problem: we found that the stronger an owner’s belief in their ability to control the future, the less profitable their business was. In other words, the more you believe you can control the future, the less it is true.

This lone wolf tendency to believe you can control everything yourself is a major occupational hazard for entrepreneurs, since, as we’ll see, ultimate success in business comes from building a team and learning how to gain control by growing that team.

“I finally accepted that after a certain point, you no longer control the success or failure of your company—they do.” Business Owner, Mexico, 43

Here’s what you’ll be talking about in a year

Despite the natural tendency to drive change by themselves, most business owners aren’t getting the results they want. While some companies grow, and reward their owners with money and personal meaning, many don’t. We tried to get to the heart of what made the difference by asking what were the best and worst decisions made in the past year. A clear pattern emerged: the best and worst decisions were usually those involving personnel.

Best Decision / Worst Decision

Cultivating a Growth Team

Team

When we analyzed our data to see what qualities in a team lead to success, we found that the most important factor was that the owner believed that their team’s ability to generate innovative ideas was a competitive advantage. We called this Building a Growth Team.

Having a growth team was a major predictor of profitability, cash flow, and an owner’s personal satisfaction — showing that when it comes to money and happiness, you can have your cake and eat it too.

So what does it look like to have a growth team? Think back to the incredibly high degree of self belief that is required to become an entrepreneur. Is that matched by an equally high degree of belief in others? Is your behavior creating a team of leaders, or a team of followers?

The importance of team building is substantiated in Liz Wiseman’s book Multipliers: How the best leaders make everyone smarter. She suggests that leaders who are Multipliers, get so much more from their people that they can effectively double their workforce at no additional cost. Contrast this with Diminishers such as micro managers, tyrants and know-it-alls who under-utilize talent and resources, and you can see the importance of building a growth team (and being able to believe in the abilities of those you hire).

Key Takeaway #2

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Following a Growth Framework

The Price of Inexperience

One of the enduring takeaways in our study over the last three years has been the one factor that better predicts success than any other. Quite simply, it boils down this this: have you owned at least one business before your current business? Business owners who answered yes were like the annoying student who always got straight A’s: they were just better at everything. Compared to owners on their first companies, they:

  • Had sustained rates of growth over the last five years three times greater than first-time owners
  • Grew faster than their competitors in 2013
  • Were more profitable than their competitors in 2013
  • Had a greater sense of meaning and control from their business
Chessboard

So what’s a first-time business owner to do? We found the answer in one of the greatest studies of all time: Herbert Simon’s studies of expertise, popularized by Malcom Gladwell in his book, Outliers. Simon’s findings showed that experts literally “see” the world differently. The same way that you don’t have to think of all the letters in a word to say it or read it, experts could organize pieces of information into larger chunks and see patterns that amateurs could not.

Expert Entrepreneurs

In honor of this concept and their successes, we dubbed owners who had owned at least one business prior Expert Entrepreneurs, and their peers as First Timers. First Timers lagged far behind Expert Entrepreneurs — even when they had been in business as long as 30 years.

So our quest became to understand what Expert Entrepreneurs are doing differently. After all, they do many of the same things as First Timers: they search for customers, they work to improve quality, they struggle with hiring and managing people, they professionalize their company by implementing systems, and so on. But we found that one key factor separated them from their peers: they run their business on a framework. The difference doesn’t exist in any one individual behavior, but rather in the belief that there is a critical set of best practices that must be aligned to maximize your chances for success.

“In your first business you think it’s your technical
expertise that matters. The second time around you realize
that it’s your ability to run a business that matters.” Business Owner, Canada, Female, 52

Build a Framework, not a Coffin

A framework is not an attempt to strangle the creativity and agility out of your business with an endless list of processes and micromanagement. In fact, Expert Entrepreneurs were only moderately more likely to have any given best practice in place than First Timers. But they were far more likely to have certain “connector” best practices in place, so that their business fit together into a coherent whole rather than a series of disconnected parts. Expert Entrepreneurs had a clear idea of how they all fit together around 3 key questions:

  1. What is our vision and our regular strategic planning process to adjust our progress?
  2. Who is our most profitable customer needed to move towards that vision?
  3. How will we turn sales and marketing into a single unit that works together to attract that customer?
Together
“The biggest thing I learned is to run my business on a tried
and true framework. I regularly see inexperienced entrepreneurs
getting excited about adding some tool or process to
their business, but they don’t see how it fits into the whole ...
and it often ends up hurting more than helping.” Business Owner, USA, Male, 40

Reinventing the Wheel

So what’s the best way to put a framework in place? It’s simple: find one that someone else has already built. That’s the whole core of the entrepreneur’s challenge: our high self belief leads to us to think that we can do everything better on our own—and that includes building a framework.

Regardless of the source, you’ll know you have a great framework when you start to see how everything in your business is connected, from Leadership to Marketing, team-building, and everything in between. At EMyth, we think our framework is a great place to start. It's called The Seven Dynamics (shown to the right). But what matters most is that you pick one, and use it to run every aspect of your business. Go all in, test it deeply, and try another if you don't find a fit. If you're interested in learning more about how to apply The Seven Dynamics in your business, schedule a free session with an EMyth Coach.

Key Takeaway #3

Conclusion: The Growth Blueprint

We found that the path to growth mirrors the evolution that an owner should follow in his or her career: creating the right behaviors in yourself, creating the right behaviors in your team, and creating the right framework to scale. The Growth Blueprint is as simple as that.

But don’t think that these are isolated, individual components. They are heavily intertwined behaviors that reinforce each other.

Following the Growth Blueprint may not always be easy either. As Thomas Edison said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.” Hopefully we’ve reminded you of the path. Now let’s go put on some overalls!

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