Brian Frontin
Independent Management Consultant
Strategy and Crisis Intervention Services

Entrepreneurship generates tremendous value for individuals and their families, expands and strengthens economies, fulfills customers’ expectations, and facilitates job creation. Without doubt, the importance and relevance of small and medium-sized enterprises (SMEs) have been affirmed in both developed and developing societies, particularly over the past decade. With information becoming a globally-accessible resource, barriers to entrepreneurship have fallen rapidly and is no longer limited to a privileged few. There has also been a concomitant expansion of facilitation efforts by Governments and NGOs to encourage individuals with new ideas and inventions to convert these into stable and sustainable businesses ventures

We recognize that entrepreneurs and business-owners are continually faced with a number of challenges in their quest to build successful companies and operations. These range from access to financing and competition to trade barriers and macro-economic ‘shocks’. However, it is important to observe that these challenges are often outside the direct control of entrepreneurs and consequently, foresight, adaptability and responsiveness are the tools needed to manoeuvre and survive these occurrences.

But are there approaches within the control of entrepreneurs that, if employed, can strengthen both the foundation and operating frameworks of their companies? Over the past few years, we have worked with a number of entrepreneurs and business owners in the Caribbean and have made some key observations on how the absence of certain strategies compounded business challenges or led to eventual failure. We have highlighted three (3) areas that we believe are high-impact and should be high-priority to SMEs regardless of geographic location or industry type and now provide the details below.

1. Implement a Corporate Governance framework

The definition of corporate governance most widely used is “the system by which companies are directed and controlled” (Cadbury Committee, 1992).

The Organization for Economic Co-operation & Development (OECD) – Principles of Corporate Governance states:

“Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”

A Corporate Governance system is essentially made up of a framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its all stakeholders (financiers, customers, management, employees, government, and the community). In many of the companies we worked with, particularly family-owned entities, there were high levels of informality and absence of policy and procedure documentation. More often, the patriarch or principal shareholder would be the central figure that ‘set the rules’, but from our observation, these rules were wielded more as a control mechanism and ‘shifted’ according to the circumstances. This translated into frustration amongst employees, particularly those external to the familial network who often times, also occupied roles of shareholder and key management positions, regardless of background, experience or qualifications. The absence of documented business strategy as well as risk management policies made it difficult for owners to navigate through crises or unexpected business challenges and led to reactive decision making that placed the company into further trouble.

There is a prevailing sense that Corporate Governance frameworks and their application are reserved mainly for large corporations and Government bodies, however, this is a myth that needs to be urgently dismissed. Adhering to Corporate Governance principles allows for the creation of necessary checks and balances, particularly in small businesses where the margin of safety is very thin and major errors often lead to immediate collapse. A sound framework guards against fraud and corruption and keeps management accountable for their decisions (yes, even family members). It also inculcates and helps promote a culture of transparency and accountability – because when things are going wrong or mistakes are made, you want your employees to feel free to alert you early-o’clock and with solutions; not cover it up or fear your wrath or bias. Timely regulatory adherence and disclosure of business performance provides relevant stakeholders (particularly financiers) with a degree of comfort and reliance on the credibility of the shareholders which is crucial when negotiating financing for growth or even survival.

As to framework availability, there are several Corporate Governance codes that exist world-wide (and available on-line) which can be adapted to your company’s situation and environment. There is no ‘right’ prescription, rather, a willingness to pursue code adoption and instituting of recommendations and principles can help foster fairness, transparency and accountability – hallmarks of business excellence.

2. Develop and Institute Business Operating Processes

Extending from the previous point, we have observed that the operating capacity of SMEs is often anchored mainly in job functions and the people performing them and there is limited evidence of process creation or institutionalization. If one considers the core elements of business – Finance/Capital, Human Resource (People), Processes and Customers – Processes are the only aspect that a company truly owns and controls entirely.

Many business owners however, incorrectly substitute people for processes and this often places the company at severe risk in the event that key employees leave or there are rifts amongst founders/owners. When an individual is recruited to fulfil a business requirement or function, he/she is expected to ‘do the job’ based on their prior skills or experience and some degree of training. However, in the absence of properly documented processes, it would take the new hire some time before proficiency is developed and integrated with the uniqueness of the company. This skill usually resides with the founders or legacy employees who are usually too consumed with the ongoing demands of the business to provide extensive training and coaching to incoming hires or worse yet, may hoard the details in order to exert control.

Business owners are therefore encouraged to invest the time and resources required to map the key stages of business operating processes, services or activities and document same. It is also critical that there is recognition of the need to align the processes with the end goals of customers and stakeholders. Not only does this allow for an effective capture of the operating framework, but also permits continual review and streamlining with a focus on quality assurance, innovation and process improvement. Often times, ‘best practices’ emerge when companies with well-documented internal processes continue to refine and innovate these until market leadership is attained (without necessarily being the largest player). Another added benefit is cost efficiencies as duplicative or unnecessary process steps can be more readily identified and addressed, thereby reducing costs.

Regardless of the size or service/product offerings, there will be tremendous and immediate benefits to instituting and documenting processes within a company.

3. Embrace Succession Planning

One of the startling discoveries we made in our work with SMEs was the consistent absence of an outlined succession plan coupled with accompanying negative sentiments ranging from apathy to outright dismissal of its relevance. In family-owned businesses, elderly founders would be adamant that they had a few more years ‘in the tank’ or default to the hope that one of their children would ‘step-up to the plate’ at some point. Unfortunately, when there were market crises or even opportunities to access subsidized financing arrangements, a large percentage of these companies were unable to survive or capitalize, mainly due to their individual fears and reservations.

‘Pride of ownership’ develops in most entrepreneurs as their businesses progress over time, particularly when they have survived the first five (5) crucial years and achieved a degree of stability and viability. This sense of accomplishment is indeed a very important source of motivation that can spur continued effort even in the face of daunting challenges. However, it can equally create a false sense of invincibility and security with a general dismissal of business continuity risks. After all: ‘…nobody knows the business like I do…’ and ‘…I built this from the ground up with blood sweat and tears…’

Put simply, succession planning is the process of planning for the day a business owner decides to step down from their leadership role and allow continuity of the business into the future. This exercise is important for a number of reasons.

Health and physical capacity is often a life factor that we have limited control over. Whilst we may subscribe to healthy living and eating habits, hereditary factors or accidental injuries are also a part of life that we must also anticipate. To an entrepreneur, there are fewer safety nets in these circumstances, particularly when they are the ‘key-man’ in the business. Once there is owner incapacitation, the company suffers greatly.

Additionally, some owners become more risk averse in the later stages of their lives and subscribe to the mantra ‘If it ain’t broke, don’t fix it’. In our interventions, we’ve encountered elderly hoteliers who had not upgraded their properties in over a decade and the furnishings and equipment were not in keeping with current traveller expectations. Even with relevant incentive programs available, there was strong hesitation to undertake upgrade and renovation works because guests were still booking rooms and incurring debt financing (albeit fully guaranteed) was a terrifying prospect at ‘their age’. But behind these excuses, was really the absence of support, guidance and comfort to guide these important decisions that would have translated into improved business performance and company value.

Though it may seem counter-intuitive at times, succession planning actually increases the sustainability of an organization. It takes a self-aware and mature entrepreneur to know when he or she has become a ‘risk’ to the company, its employees, shareholders and by extension, all who are dependent on the business remaining operationally sound and viable. The plan calls for mentoring key employees and placing them on a track of progressive responsibility in an authentic and transparent manner. In family-owned businesses, this is even more important as familial loyalty should never interrupt or curtail succession planning initiatives. Rather, vision, competence and dedication must be the key determinants.

Conclusion

The strategies outlined above are all interconnected and as mentioned earlier, well within the control of entrepreneurs and business owners. Moreover, they can be seen as a road-map from company inception (corporate governance) to ongoing operations (processes) and onward to sustainability/legacy-building (succession planning). It is important to bear in mind that these strategies need not be complex nor elaborate; rather, they must be clear and complete. Additionally, it’s never too late to institute these measures and one must never be afraid to ask for assistance or engage the expertise required to implement same.

Strengthen your business today!

Glenn Wisniewski
Co-Owner
Marksmen Enterprises, LLC

Water. It covers approximately 71 percent of the earth’s surface. It seems abundant beyond measure. But what about potable water? The term potable water means water that enters our homes and businesses for drinking, washing, sanitary waste disposal, watering our lawns, washing our cars, manufacturing products, farming and agriculture, and the many other needs of the human species.

So the definition of water must be broken down further for a true understanding of why we should all be concerned about the future of potable water; specifically, potable water that originates from groundwater.

Let’s look at some of the primary water components of the planet we inhabit. Saltwater makes up approximately 96.5 percent of all water. Freshwater trapped in the ice caps, make up another 1.74 percent of all water. Groundwater which contains salt or saline water makes up around 0.93 percent of all water. As you can see, while the planet we inhabit has an abundance of water, much of it cannot be used for potable water purposes. In actuality, our potable water supply makes up just 0.77 percent; not even 1 percent of the world’s water. When looked at from that perspective, potable water is one of the most under thought about natural resources we have; since without it, we do not exist as a species.

Our potable water supply comes from three different places; surface water in lakes and human made reservoirs, groundwater, and occasionally our rivers during drought. The planets hydrologic cycle, acting like the circulatory system of a human body, ensures a constant “flow” of water into these areas; starting at the oceans, moving upwards via evaporation, condensing into clouds, precipitating as rainfall overland, recharging the lakes, reservoirs, rivers and groundwater that we depend upon for survival, and eventually making its way back to the oceans to begin the process anew.

And here’s where the concern begins. As a species, we continue to grow while our potable water supply remains primarily fixed within the hydrologic cycle. Using New Jersey as an example, the population in 1950 was approximately 4.8 million people. In 2010, the population had expanded to around 8.8 million, almost double in just 60 years. At what point does our population expansion overtake the available potable water supply?

This is why our potable water supply must be protected from contamination. This is why the New Jersey Department of Environmental Protection sets both surface water quality and ground water quality standards for various contaminants. While there are many sources of potable water contamination, both naturally occurring and human made, there is only so much potable water. And while naturally occurring contamination cannot be helped, human made contamination can be prevented or at least identified and cleaned up.

Currently, more than fifty percent of New Jersey residents rely on groundwater for drinking water purposes. Think about it. Depending on where you are as you read this, the water underneath you is needed for cooking, showering, sanitary waste disposal, manufacturing, agriculture, production of the many products we utilize and or course, the all important purpose of drinking. This vital groundwater is delivered through either a drinking water well piped to the home or business located on the property, or a community supply well in which one well feeds multiple homes and businesses and in some instances, a “field” of wells that feed an entire town.

When contamination migrates into the groundwater table at levels above the New Jersey Ground Water Quality Standards, the State mandates the responsible party be found, the extent of the contamination determined through a groundwater investigation, and a cleanup commence. This may sound harsh, but let’s put this in perspective by answering the question; just what is groundwater contamination? As an example, the New Jersey ground water quality standard for Benzene, a compound which is found in petroleum products and a known carcinogen, is 1 part per billion, also known as a microgram per liter. That’s the equivalent of a single penny in ten million dollars! If you have two pennies (benzene that is), you’re over the standard, and it’s not recommended you drink it.

In areas of New Jersey that primarily rely on groundwater as the main source of potable water (many rural areas), this becomes an immediate concern. A new uncontaminated ground water supply must be found or treatment of the contaminated groundwater must be conducted and continually monitored to ensure safe usage. This is not an inexpensive process.

And what of the highly urbanized areas of New Jersey? It is true that the groundwater under cities such as Hoboken, Bayonne, Jersey City, Lodi and many others are not being utilized for potable water purposes. But the groundwater under them must still be protected for the future. Remember I posed the question earlier; at what point does our population expansion overtake the available potable water supply? There may come a day, sooner that we wish, where the water under our urbanized areas will become a vital, necessary source of potable water due to population expansion . What a serious consequence to our species it would be if we failed to properly protect such an under thought of resource, only to find it necessary for our very survival. How stupid we would all seem to those that come after us. Remember that the next time you consider just pouring out an unwanted container of chemicals onto the ground rather than taking it to a recycling facility.