Episode Summary – Knowledge, skills and gaps
Today’s show is called Knowledge, Skills and Gaps. We help you assess how prepared you are to run a business successfully. We give a technique to follow so you can clearly see any gaps that could cause problems.
Many new business owners dramatically underestimate what they have to do and often focus on the wrong things.
Remember, Listen Before You Leap.
Links and resources
Blog-Thinking of owning a business-would you be successful?
Self Assess Your Readiness with our Business Readiness Test
Blog- 5 risks new business owners can avoid
Blog -Managing a business-tips for new owners
Knowledge, skills and gaps
Today’s show is called Knowledge, Skills and Gaps. We help you assess how prepared you are for dealing with the day to day running of a business. Find out how much you need to know and do yourself.
This is valuable stuff, as many people dramatically underestimate what they have to do.
In Episode 6 Critical Business Functions, we identified functions in your business must happen for your business to work -hence we call them critical. If they don’t happen, your business will not function, or it will perform poorly.
This episode is expanding on the theme of our equation that we introduced in Episode 5 of Gaining Momentum by doing more Preparation. We said that Excitement plus Preparation equals Momentum.
The Preparation we are covering today is about looking at what knowledge and skills are needed and where your gaps might be.
Knowledge, Skills and Gaps of Critical Business Functions
There were 11 critical business functions mentioned, and they were:
- Business Strategy & Model
- Products & Services
- System & Processes
- Human Resources
- Risk Management
For someone thinking of getting into business, this can be a daunting list. In our experience, this is an area where many new business owners get into trouble.
Without the right knowledge you may spend too much time on the wrong things.
A common error for new business owners is spending too much time on the wrong things and paying too little attention to some vital areas. This can happen because no one guides them and they so they do what seems natural to them.
The first thing we need to point out is that nobody is an expert in everything, so don’t panic. We expect you to have skills gaps.
These things must all be considered and its therefore important to work out what you have to know and do.
Each of us comes from different backgrounds with varying knowledge, skills and gaps, so there is no simple formula.
A good place to start is to go down the list and consider which of these you have knowledge or skills in and where you have gaps in knowledge or skills.
So, we suggest considering each function on the list from 5 different aspects.
Assess your knowledge, skills and gaps.
#1 Your Skills and competence
The first aspect to consider the list of critical business functions is your skills and competence.
We all have different competencies and skills but let’s Start with Legality and High-Risk Items and the “She’ll Be Right” approach.
In Australia, there’s a saying “She’ll be right!” meaning good luck will prevail, and everything will work out. Now, when it comes to owning a business, the authorities don’t share the “she’ll be right” approach. They don’t say “comply when you can afford to”, or “don’t worry about all this red tape until you have ten people or more working for you”.
When it comes to legalities, and high-risk items get the” she’ll be right or “wing it” approach” out of your mindset. It is fine to build your business up slowly and prove you have a market commercially. That’s a great way to do it, BUT you are required to meet your legal obligations from the very start.
So, approach your business with the mindset of being organised and professional from the earliest point-before you start. You are listening to this Podcast because you are thinking of starting a business and you want to give your best shot.
Part of answering the “Should I Own a Business?” question is “are you capable and competent to own and run a business”.
You may meet some owners who relish getting around systems. Whether its avoiding paying tax, paying workers in cash, not complying with safety and environment regulations etc.
Cost of doing business
Banish this from your thinking. If a business can’t afford to pay employees and meet its legal obligations, then it shouldn’t be operating. Those requirements are “a cost of doing business”.
Your goal is to have a thriving business, not one that can only survive by scamming the system.
You as a business owner are responsible for your business, and therefore you have to understand and meet all your obligations fully. Ignorance is not a legal defence if something goes wrong.
You are responsible even if you are ignorant.
There is a difference between understanding what’s required and being an expert yourself.
You don’t need to be an expert
You do not need to be an expert, BUT you need to have enough knowledge and understanding to ensure that you operate legally. You can get help from professionals such as lawyers, accountants or other professional services who can advise you on your specific needs.
While you can attempt to do this yourself and save money, don’t.
Getting good professional advice is very cost-effective and is also “a cost of doing business”.
Professional advice means not only that you get the right advice but also that you will get it when you need it – good timeliness.
While you can try and learn everything yourself, it is practically impossible to know every aspect that applies. You also have limited time to run your business.
The longer you spend on business administration, the less time you spend on getting your business operating and generating cash flow. Creating cash flow is very important and the sooner, the better.
High-risk items when you start a business
When it comes to high-risk things such as:
- Legal structures
- Shareholder agreements
- Franchise agreements
- Intellectual Property
- HR Law
- WHS Law
- Compliance requirements
- Insurance Policies
- Taxation Advice
Get good advice. Getting these things wrong can cost you dearly, and you will regret not having had good advice.
#2 Business Knowledge
The next aspect is to consider the list from the aspect of your overall Business Knowledge.
An area where new entrepreneurs often need help is Business Knowledge. We mention this in Episode 5 (How To Use Your Excitement) as a critical area for your Preparation.
Note we are talking about knowledge, not skills. These often get confused with one another, so we’ll explain.
Business Knowledge is not about how good you are at using the tools that you use in your business, like software. It is the higher-level thinking that helps you work out a strategy and a business model.
For example, if you are thinking of buying a franchise, then the franchisor should have this worked out. You, however, need enough knowledge to assess if what they tell you makes sense. Just because the franchisor has a slick marketing and sales presentation for you does not mean their business opportunity is a good one for you. Remember their slick marketing is designed to get people like you to buy franchises.
Your business knowledge needs to be advanced enough to work out whether their proposition is good or not.
Why is acquiring business knowledge is essential?
Unless you have good knowledge and insight when you buy or start a business, it may never give you what you expect.
Some businesses are capable of generating wealth, and some are not. Your knowledge must be enough to know whether your business can become the one in your vision.
Building your knowledge can take time and experience. It is an investment as you will be a business owner for the long term. Therefore having a great knowledge base will stand you in good stead for years.
Finding a good mentor is a way to help you.
Expanding your knowledge through educating and developing your self is an ongoing necessity.
Become able to work out your business strategy and a business model and how to make it a reality.
You should also be able to look at the business overall and work out where the main risks to your success will come from. This helps you focus on what’s essential and decide if you still think it’s a good idea.
This means you will have to understand your value proposition and target audience. You then will be able to come up with a marketing strategy-perhaps with some help.
Your business knowledge should also enable you to understand how every function in your business works and interacts with others. This means you will anticipate the result of decisions that you will make and avoid scoring unintended “own goals.”
As we explained in episode 6, all these functions need to work in harmony and work well. This won’t happen unless you “conduct” them like the conductor of an orchestra.
You need to know the workings of your business inside and out instinctively along with defining the culture that you want in your business, which is your responsibility as the leader.
Understanding the underlying business administration flow of costing, quotation, purchase order receipt, order acknowledgement, invoicing, and credit notes is very important.
What are your true costs?
One area of weakness that many businesses have is a lack of knowledge about their true costs. You should focus on understanding your costs and don’t look through rose-tinted glasses. I have seen many businesses that do not really understand their costs as they ignore or underestimate their overheads. We will have an episode on this subject later in the series.
As the Owner, your business knowledge should enable you to write your business plan that will outline your business and how it will work.
This includes a financial budget of such things as:
- Sales Income
- Cost of Sales
- Gross Profit
- Net Profit
- Your Balance Sheet
- Cash Flow Forecast
- Start-Up Capital requirements.
#3 Business Operation
The next aspect to consider your list from is your Business Operation.
Irrespective of the size of your business or whether it’s a service or product you provide, you will have business operations. Your operations are how you execute your plan and physically operate the business.
Think of the operations as “The doing of the work” once you have an order from customer.
Many new entrepreneurs get into business ownership because they have a skill or expertise that they want to build their business around. In their case, this is the main operation.
This could be anything, for example, lawyers, dentists, builders, trades, consultants, architects, engineers, mechanics, software developers, mortgage brokers etc.
This usually means you have a natural inclination to be strong in the operations part of your business.
Remember that your strength can become your weakness.
Gravitating to being the best technician constantly might be enjoyable, but it may also limit your business.
Your goal is to build a business that can function without you.
You may always be the top technician (Chief Technical Officer or Chief Operating Officer if you like), but you must oversee everything as the Chief Executive Officer.
Business operations must deliver consistent quality and efficiency.
If you have not been exposed to Continuous Improvement, then you may not value the importance of efficiency to your success.
For example, imagine your new business has four separate, sequential, internal processes to produce your end product or service. Process A>B>C>D. If you achieve 90% efficiency in each of the four, you might be forgiven for thinking that your overall efficiency is 90% and pat yourself on the back.
Because each process is dependent upon the one before it, the efficiency is not a sum (an addition), it’s a product (a multiplication). So your efficiency is 0.9 x 0.9 x 0.9 x 0.9=66%
That doesn’t sound too hot now.
This is an illustration that all the processes in your business need to work really efficiently and in harmony to have a great business.
Businesses can, therefore, have significant inefficiencies which they don’t recognise and this damages their customer service and profitability.
This is why the culture in a business has to be about excellence. If you aim low, you will shoot low.
How longs a piece of string
The is a vast range in complexity in operations so today we are talking in general terms.
If you are thinking of owning a service business with a few employees and sub-contractors, then your operations might be relatively simple.
A franchise will probably have their operations set up that may be extremely comprehensive-a turn-key type arrangement where everything is provided.
A manufacturer will have more complicated operations for receiving materials, working on them, storing and delivering finished goods.
At this stage, you may be able to map out an overview of how your business might look and how you would organise it. Who will “do the work?” – If you are doing the work, who is running the business?
Don’t forget that things like quality assurance, storage, distribution, design, planning, training, WHS etc. all have to be considered within your operations.
#4 Comfort Zones
The 4th aspect to consider the list from is your Comfort Zones.
Critical Business Functions must happen, and if you are responsible for them, then you must do them and do them well. You may recall in Episode 5 us saying that feeling comfortable about being uncomfortable is a new normal.
4 Typical hot spots for getting uncomfortable can be:
Extroverts are comfortable in the sales and marketing areas. They can confidently talk to strangers at networking events or engage with people through cold calls accepting rejection like water off a duck’s back.
More introverted types find this very uncomfortable and often avoid these situations. Rejection and being in these situations can be very stressful for some people.
If your business will rely on you, as the primary person to get sales- how do you feel about rejection?
Another common area is confrontation and conflict, which are inevitable. Dealing with employees who take too much time off or regularly make mistakes is not uncommon. Customers who complain-sometimes, quite unfairly and refuse to pay need handling.
How well do you handle conflict?
Procrastination can very damaging, as right decisions made in a timely way, are essential to running a business. A percentage of people are chronic procrastinators, and if you are one, then you must address this. Making decisions can make you feel uncomfortable, and you must get used to the fact that some of them will be wrong.
Owners can become overwhelmed as it seems like a never-ending to-do list awaits.
It’s essential to prioritise what has to been done and keep working on the most important thing.
Having an overall breakdown of how you will spend your week is also essential and allocate time in your calendar for those things.
If you don’t manage your time, then everything seems essential, and you will be working 24×7 and still not coping.
Remember the importance of Wellbeing and looking after yourself which also needs putting in the calendar!
#5 Systems and Processes
The 5th aspect to consider the list from is SYSTEMS AND PROCESSES.
Systems and processes are often avoided by small to medium businesses who regard them as unnecessary bureaucracy and too stifling. They are, however, only as bureaucratic and stifling as you make them, and they represent a massive opportunity to save time and produce consistency.
Identify your key business processes, systematise and automate them to make them fast, repeatable and very efficient.
Good systems are efficient and provide consistent output irrespective of the operators. This is vital for quality and cost management and efficient staff training.
As an organisation grows, staff training becomes more and more important but also increasingly time-consuming. Often, different staff will do things differently or forget to do the important things that customers want.
The way to get consistency and reduce training time is to have good systems and processes.
Providing a service is also a “production” process where information is gathered, worked upon, output, checked and delivered. Systems and processes that are understood and documented enable this to be done efficiently and consistently. Staff training then becomes about following the systems and process procedures.
Good systems and processes also provide for good management information. Good information makes for well-informed decisions rather one made upon guesswork and opinion.
As costs always inflate over time, investing inefficient systems and processes will give long term benefits through efficiency. Focus on lowering your structural costs that can be achieved in the long term to give long term competitive advantage.
Save time, money and frustration-build simple, effective systems from the start.
You should consider what systems and processes you need and how they will fit together.
There’s are lots of subscription software solutions to choose from.
Evaluating then takes time and some expertise. Getting them to talk to one another is a frustration for many owners as they API don’t always work as claimed.
Common ones are the CRMs (customer relationship managers) which can also automate marketing activities and sales funnels.
Other software packages might be for accounting and payroll.
It takes time and patience to organise.
Start with reviewing each of the 11 Critical Business Functions against the 5 Aspects we have given you.
#1 Your Competence to deal with the high-risk items that apply
#2 Your Business Knowledge
#3 Business Operation
#4 Your Comfort Zones
#5 Systems and Processes
In our next episode called How To Choosing Your Support Team, we explain how to use Your Knowledge Skills and Gap analysis to work who you need on your support team and why. Let’s keep your Momentum going! We hope you enjoyed the show and will join us next week for more. Bye for now.
The information contained in this podcast is general and does not take into account your situation. The content does not constitute legal or financial advice and should not be used as such. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser or lawyer in your jurisdiction. To find out more, please go to www.ShouldIOwnA Business.com.