Growing a Small Business—and Avoiding the Pitfalls

Director of Western Washington University’s Small Business Development Center

You often hear entrepreneurs talk about their business like it’s their baby. The challenges of becoming a new parent and a new business owner are profoundly similar. You’ll have sleepless nights. You’ll worry about doing everything right. You won’t, but that’s okay, because businesses, like babies, are resilient.

Things might not always go as planned and you probably will need to adapt to changing circumstances. There will be tears—tears of joy, as well as tears of stress and disappointment. But the good news is this: You can find plenty of support systems and mentors available to help you through the difficult times with “your baby.”

Entrepreneurs often underestimate the time and energy that operating business demands—especially newbies to business and startups. In constructing a Small-Business Survival Guide, ask yourselves some fundamental questions, beginning with:

What do small businesses need that they don’t know they need?

No. 1, know the market for your product or service. What problem will be solved, what pain will be relieved, and how will those change over time? Steve Jobs said, “A successful business knows what the consumer needs before the consumer knows.”

What elements are essential to survival?

A real understanding of the numbers and the financial drivers of your business’s success is mandatory. You must understand how to interpret the story that the profit-and-loss statement, the balance sheet, and cash-flow numbers are telling you. At the Small Business Development Center (SBDC), we love helping business owners grow their financial skills. Imagine how empowering it is to truly understand the financial implications of your decision-making.

Ever read or heard about Wimpy from the comic strip Popeye? He would say, “I’ll gladly pay you Tuesday for a hamburger today.” All too often, Tuesday comes, but the money doesn’t. Business owners fall for this and unwittingly become a bank.

It’s common to see a business that’s profitable, yet at the same time strapped for cash. When a company is making sales aggressively but has extended too much credit, net income is tied up in accounts receivable and can only be found on the balance sheet, not in the bank.

What’s the value of understanding your market?

Here’s a great example. One of our clients entered a market that was growing rapidly in the early 2000s. This company understood its market and, most importantly, saw big changes coming. The client kept its products the same as it began engaging smaller, creative new markets. When the predicted decline began in its original market, the company not only survived and avoided getting left behind, but grew exponentially.

What are best practices specifically for startups during the first 18 months in business?

Pursue the minimum viable form. Know your market and enter your market in full-on learning mode. Avoid taking on significant debt and making decisions that lock you into a specific course of action. Stay as agile and fungible as practical. Start small and learn as you go—like Apple did.

When it comes time to take on debt, make sure you’re well capitalized from the outset. Banks don’t like do-overs. Just as important as bootstrapping your way into the market, you must understand how much cash your growing business will consume in the form of fixed expenses and cost of goods sold. If sales are falling short of breakeven, you must have enough in cash reserves or the borrowing capacity to cover the shortfall.

The successful startup always will be hustling for business and looking to close sales. Too often, we see entrepreneurs who wait for everything to be perfect before they begin asking for the order. As author and ultra-successful dotcom business exec Seth Godin says, “Ship it!”

What are the pitfalls to avoid during the growing stage (18 months to 7 years)?

Something we routinely see overlooked is the need for well-defined systems and documentation of key processes. Often we find mission-critical information stored in silos. An example: when the owner or a key employee are the only ones who know how to perform a certain task or where to find critical information.

If something, heaven forbid, happens to that key person, the business can come to a grinding halt. This often occurs when a company grows from a one-person operation or adds an employee or two, and then many more, and knowledge gets transferred only through on-the-job training or simply making it up as they go along.

You don’t have to stop everything you’re doing and sit down and write a 40-page employee manual to solve this problem. You begin simply by writing up standard operating procedures for the most critical functions of running your business.

What works well for mature small businesses (7-8 years and older)?

In addition to becoming a master of market intelligence, let personal goals drive business decisions:

  • Do you want to see the business run more autonomously and require less of your time?
  • Do you want to pull more income out of the business?
  • Do you want your business to better reflect your values?
  • Do you want to groom the business for eventual sale?
  • Whatever the goals, success is more likely when you have a solid, specific plan. The planning is not exciting, but it’s where the magic happens.

The SBDC provides a resource for entrepreneurs. We can be your “success sherpa,” guiding you along steep and perilous trails to the pinnacle. And we like to have fun in the process.

CJ Seitz director of Western Washington University’s Small Business Development Center in downtown Bellingham. A seasoned and certified business development consultant, she joined SBDC in 2005.