Why some small businesses thrive and others just survive

The three lifts were scheduled for delivery to the customer's site at 9 AM, but the customer called to inquire about their whereabouts. The site’s logistics manager took the call and reported that “they were delivered at 5:30 AM.” “It appears they had been stolen,” the customer said, “because the yard does not open until 8 AM.” This was the 5^th large-equipment theft at that branch this year and the 9^th for the company as a whole.  Jean, the owner, knew if this continued, she’d be cut from her insurance, and they could go out of business.  Jean also knew she did not have the extra equipment to cover the customer's job, so that another customer could find a new vendor.

Jean’s father started their family business. Since she took it over 12 years ago, she has increased profits and expanded the business to 4 additional locations. Lately, though, it has been increasingly difficult to stay in the black. It seems that with each additional location, the profit margin has decreased, and customer satisfaction has declined.

Now, with this last theft, her family business is at risk of closing.

Owning a business is hard work

I have owned a few businesses and consulted with several others over the years. When I first started my carpet cleaning business at the age of 20, I quickly took home 6k a week or more. Times were great, as it was the mid-80s, and that was a lot of money. I worked at least 12-16 hours a day and most often 6 or 7 days a week. It was after the 5-month mark that I wanted to take a week off, but I was scheduled out for 2 months solid. I had no one but me to do the work. If I asked anyone, I knew to take my customers for a week, they would have taken them for life; after all, we were in business for ourselves. I thought I was starting a business, but in fact, I was singing both sides of the check for a job I created.

I believe most people who start a business have experienced the same thing, unless they started the business with systems that kept them from just having a job, but running a business. Jean was at this point! When it was just her and her father, they worked all the time but profited richly. After her father retired, she focused on growing the company and bringing in other family members to manage each branch. Yet with each expansion, Jean is increasing her workload, is required to be available at all times, and has created a job rather than building a self-sustaining, resilient company.  

Answers are in the details

Jean sat down with her accountant and took a serious look at each branch's profit and loss.  The numbers did not lie. While her branch operated with 45 employees, other sites had far more. Staffing costs were much higher at the newer sites. Also, the 4 new sites have had some theft, high maintenance costs, and other expenses. Jean’s original site does not.

“Jean, you've got to figure out why your location always turns a profit, and the others do not.” Her accountant told her. He gave her some options to consider. Selling may not be the best option, as dismal sales and profits would make it hard to sell. She could consider closing a site or two, but it may only prolong the declining profits, as it would not address the issue. Her accountant said. “You know it works so well at your location, you need to figure out what the difference is. Why do you need so many more employees? Why are the maintenance costs higher, and why is your equipment getting stolen?”

Replicating what works

Jean decided to visit some of the other locations. She thought she would start at the site where the three lifts had been recently stolen. She started asking questions, having people walk them through their job and processes.  She learned that they regularly deliver equipment to sites where it may be unmanned or not open, leave it there with the keys under the seat, and do not require a customer signature. Not only did this create an opportunity for the equipment to be stolen, but customers would also complain about the equipment and refuse to pay because they had not signed and agreed that the rented items were fully functional.

Then she did the same thing at the other locations.  It didn’t take long before she noticed a pattern. The way things ran at the original site was different from the other sites. Management of the other sites had little guidance and thought they could improve the bottom line by reducing regular maintenance, reducing the number of full-time employees, increasing the number of part-time employees, and taking other perceived time-saving steps.

It was then that a light went off for Jean. She attempted to replicate the success of the first location, but she did not adopt a franchise model. Franchises succeed through the replication of proven systems, allowing the owner or operator to replicate the model and ensure success. Jean realized the problem was not that people did not want to work or work hard, but rather the processes and the lack of proven systems. The proven model was not being followed or even communicated. No wonder customer experience varied, profits were declining, and costs were increasing.

Jean needed to document the systems she believed they had, develop a training program, initiate cross-training, and implement a process to evaluate proposed changes to ensure the company's resilience.

Pay once, cry once

The first time I heard it, I did not understand it. Pay once, cry once; but as a business owner, it started to make sense. It is better to pay for a better piece of equipment than to have to replace it multiple times. Applying this mindset to materials, equipment, and services may increase the initial bottom line but will save you money and stress over time. Specifically, the system approach to building a resilient business may require an upfront investment of resources, but the return on that investment is well worth it. Knowing you can replicate training, procedures, and all the pieces it takes to create/duplicate the whole business is invaluable.

Jean thought that years ago, when she started to expand, she could have trained the manager and let them run with it. Having a manager shadow her for a few months was rather inexpensive, but Jean could now see why that may not have been the best idea.

So Jean shared her findings with her managers and delegated to each manager the responsibility for developing procedure documentation for each job and business process. This would be completed with the assistance of a consultant whom she hired.  The deliverables would consist of training materials, including manuals and online training, process and systems documentation, and other key items.

She also intended to cross-train on these roles so staff could cover other sites or other roles within their site when people were gone.  The goal was to have all of this done and implemented within 4 months, and to convene regularly over the next year to measure successes and challenges.

The contractor came in, started hosting meetings, supplied templates, and worked with the key managers to document the processes used at the original site.  While they were documenting and creating company procedures, they realized the company could also increase consistency and savings by sourcing supplies as a company rather than as individual purchases. This would encourage volume pricing when ordering supplies and using the same products, which has proven effective.

Though the cost of the consultant and the time for staff to develop these systems may have been significant, it was far less than the monthly losses or the low-cost branch-onboarding training Jean provided.  Jean wondered had she taken this approach from the beginning how much might she have saved over time?

Follow up

About a year later, Jean was working with her accountant, reviewing the profit-and-loss report for each site again. The accountant presented the numbers, “Jean, you're turning a profit for the last 6 months between 36 to 43% at each site. What did you do?”  Jean told him she “followed your advice and figured out what was different between the first site and the rest.” It wasn’t easy, but it was rather apparent that each site did everything differently. The lack of consistency ate away at profits, eroded customer satisfaction, and kept us from succeeding.

When I realized the lack of consistency, I understood I could build systems to control it. With good systems, we could replicate our original success and grow with confidence. The systems also enabled us to train and cross-train our teams, helping reduce staffing shortages. If one site needs help, there are others available. Not to mention, if we need to hire someone new, that person filling the role is set up for success, having a very well-defined training program and job process.  Key people started working together not only to create these systems but to measure their success.

Because the success of one site depends on the systems, processes, and sourcing, when someone has an idea, all are vested in hearing it, considering it, refining it, and measuring its success, while ensuring that changes to any impacted systems are replicated.

The best part of this is that I can see I will soon not just have a job but be running a company. The number of calls I get asking what to do or needing help has dropped to the point that I know my teams are capable and empowered to run their areas. When they do have a question, we always ask, "Is this area needing to be documented?"  The systems created have allowed me to manage my time better and increase profitability, job satisfaction, and customer morale. Soon, we will expand to another location, confident that we can replicate our success.

The best thing I have noticed is that we have had no equipment thefts since implementing these systems. Every customer I spoke to says the equipment is either new or well-maintained and that they knew it would get the job done if they rented from us. The numbers don’t lie; our profits are back, along with customer satisfaction.

Resilience starts with systems

Resilience is based on adapting to circumstances and minimizing negative impacts. For the small business owner, the key to building resilience is implementing repeatable systems. Such systems ensure expected outcomes, ones that can produce metrics. When a change may be needed, these metrics allow the business owner to weigh the effectiveness of any changes implemented. This helps ensure consistency in growth, training, and adaptability to a variety of factors.

Systems do require an initial investment, but systems deliver consistency. Consistency supports customer satisfaction and growth potential.  In Jean’s experience, she grew without systems, which almost cost her the business through bankruptcy. Once she recognized the need to build her business on systems, she could ensure consistency, profitability, and resilience.

About the Expert:

James Knox is a resiliency expert who enjoys solving real‑world problems in the corporate world. He loves outdoor activities like rock crawling, fishing, and hunting. He has also served as an elected official at the local, city, and state levels. His work in resiliency has taught him how to prepare for challenges and support his family’s self‑sufficient lifestyle.