Running a business is all about managing change: much as we might like it to be otherwise, it may feel like being on a journey where the means of transportation is improvised and there is no clear destination.
Managing the change associated with growth is difficult enough, but you may also be affected by unexpected events that can knock the business off track.
A major customer may get into financial difficulties, or decide it no longer wants to buy from you. A supplier might experience difficulties that leave you without essential materials or stock.
Your market could change, forcing you to alter your products, strategy or business model.
A key member of staff may leave unexpectedly, or fall sick.
Business continuity planning and insurance will help address some of the problems caused by such events, but cannot provide complete protection against them.
The best defence is for a business to become agile enough to respond to unexpected change.
Small businesses are often forced to perform what US entrepreneur and author Eric Ries calls a ‘pivot’: a fundamental change to a business model. This is particularly common among early-stage businesses, says Cambridge-based serial entrepreneur and angel investor Peter Cowley. Often this is because either the market won’t buy at the price the business wants to charge, or the price at which it can sell turns out to be unsustainably low.
Pivoting requires some humility on the part of the business owner. “Many people blindly follow what they thought was the right thing to do,” says Mr Cowley. “You need to be self-aware enough to realise that you’re not always right and something might need to change.”
Change can be forced on a small business for many different reasons. In August 2018, a bookkeeper was convicted of embezzling more than £150,000 over four years from the Real Food Café, near Tyndrum, in the Scottish Highlands – and taking £50,000 from another local business, Later Life Training. Real Food Café co-owners Sarah Heward and Alan McColm are still coming to terms with the damage it did to their business.
Ms Heward opened the café in 2005 with her husband Steve, who died suddenly and unexpectedly within the first year of operation. Some years later, having had to overcome this terrible shock and the challenge of running the business alone, she became friends with Mr McColm, a business consultant and former IBM executive.
At her request he started helping her to run the business, eventually becoming her business partner. They also became partners outside work, and married in 2017.
The café has been a success since it first opened, building a strong reputation for the quality of its award-winning food and becoming a local institution and valued employer – yet profits had remained stubbornly low. In 2015, the firm stopped using the services of the bookkeeper, as part of a general effort to improve the financial performance of the business.
Only then did they begin to discover the full extent of the criminal activity. In addition to the money that had been stolen, the bookkeeper’s modus operandi also involved underpayment of VAT, leaving the business with a five-figure debt to HMRC. “I can’t begin to tell you what that level of betrayal feels like,” says Mr McColm. “You feel like a complete idiot.”
The couple is trying to put the episode behind them, and business is on the up. Profits are rising and significant investment has been put into staff training and mentoring. New systems are in place to ensure finances are scrutinised and monitored more carefully than in the past. “I think we will find that, over the next 10 years, we will generate more profit than we would have had the embezzlement not taken place,” adds Mr McColm.
Ready for anything
Business continuity planning can also play a role in helping businesses to become more agile, allowing them to develop a deeper understanding of dependencies and the risks they face.
This can then inform decisions around strategic commitments to building or vehicle leases, for example, or a review of how the company uses technology. Members using FSB Insurance Service can access a free business continuity planning kit and additional discounted business continuity services through a partnership with business continuity service and technology provider Inoni.
Neil Sharpley, chairman of the FSB Home Affairs Committee and owner of Marker Law, which provides legal advice and assistance to small firms, points out that some elements of continuity planning will help businesses respond to other unusual events, too.
“For example, if your bookkeeper has been embezzling, then some of the things you would need to do would be the same if you were a victim of cyber-enabled fraud,” he explains. “Depending on the facts and whether anyone else was a victim, you would need to consider who should be informed, what information should be revealed and how the revelations should be managed.”
Thinking about how a business can deal with unexpected change should also help owners and managers to consider the extent to which the business depends upon its founders. A founder deciding to leave, for whatever reason, can cause major disruption.
It is possible to manage this situation in a way that leads to a successful outcome for the business and all of its current or previous shareholders, but this is much more likely to happen if the business has planned for this eventuality, creating a legal framework to manage the process, says Mr Cowley.
“Plan early and seek external help if you’re getting to the point where it looks like a separation seems likely,” he advises.
That’s a lesson that consultant Bob Hayward learned early in his career, when a previous business venture ended in a serious disagreement between its founders; everyone ended up losing a lot of money. When he subsequently went into business with his friend Neil Baldock, as a provider of sales and communications training and consultancy, the practical arrangements for a split were put in place at the outset, just in case.
Unfortunately, the reason their partnership ended was that Neil died suddenly, of a heart attack, in 2014. It was a terrible shock. “It completely floored me,” says Mr Hayward.
“When there’s just two of you in a business and the other one goes, it’s like you’ve lost the other side of your brain.”
While the practical arrangements were in place for the business to continue, Mr Hayward had to go through the process of telling clients what had happened and rearranging work that Neil was scheduled to do. Delivering some of that work himself was exceptionally difficult. “Rightly or wrongly, I decided I had to open up,” he says.
“I was able to make that part of what we were doing: we all get disappointments and setbacks, and we have to find a way to move forward.” Neil’s death led to Mr Hayward changing the way the business worked and thinking more carefully about the most important priorities in his personal and professional life.
“My life is not better without Neil, but it is better because of him,” he says.
Mr Cowley makes a similar point. “We can’t plan for everything,” he says. “It’s about being adaptable and being able to cope with the emotional upheaval of some of these changes.”
The journey may be very difficult at times, but planning ahead and building the ability to react to change will help you to work out where you want to go – and give you a better chance of getting there.
Case study: Adapting to change
Children’s shoe manufacturer Start-Rite has been owned by members of the same family since 1792, but its current CEO Ian Watson is its first chief executive who is not also a family member.
Hired in 2016 after the company posted a £673,000 net loss, Mr Watson has led the development of a new brand strategy and product portfolio, alongside investments in people, skills, processes, machinery and technology.
Some 80 per cent of the company’s sales are through retailers, in around 400 high street outlets and via retailers’ websites. But £200,000 has been invested in a new automated distribution centre, which now operates 18 hours per day, to help drive growth in online sales – either direct or through retailers’ websites.
Embracing ecommerce is particularly difficult for a children’s shoe manufacturer, because parents are always told that their child’s feet should be measured properly before they buy new shoes.
Start-Rite has tackled this problem in various ways, including through the development of a sizing app for use by online customers. Thanks to the new distribution centre, if customers place an order by 4pm, the shoes can be delivered the following day – previously, online orders took four days to process.
As the high street continues to struggle, further innovative changes may be needed in the future. “I think the biggest mistake you can make as a CEO is to focus on ‘now’,” says Mr Watson. “What seems important today may not be important tomorrow.”