Small Business Issues – Part III

This is a third part of the series, first part is HERE and second part is HERE.

Issue 3: Executive Management
You may have already derived this issue from the previous two (Issue 1: Human Resourced, Issue 2: Sales and Marketing). This, however, covers more than just inability to trust own employees. The issue with executive management is that they both are unable – and unwilling – to admit that they don’t really know how to run this specific business. Once they get over their own oversized egos, they will start seeing the light at the end of the tunnel the issues they themselves create and, hopefully, will do something about it. They have big plans of opening same kind of salon (with the same business model) in more expensive neighborhoods. Of course, it won’t work: more affluent people are used to certain level of service and once they won’t see it – they will never come back. Again, it’s not that the owners are making the mistake of having only low prices their competitive advantage and their value proposition, it’s the inability to have a basic understanding of how markets work.

Another issue with management is that they are cheap – in a bad sense of that word. There’s nothing wrong with being conscious about your spending. However, there’s a pretty thick line. Unwillingness to afford paper towels for clients being covered in creme at every procedure, or provide bare minimum to cover sanitary needs, or cheaping out on cover for hundred thousand dollar worth of equipment is not smart spending. Any requests by employees fall on owners’ deaf years, however.

To add injury to the insult, management tend to blame employees for low income. The rationale goes as there are money being spent on advertising, but the outcome is very low, not many appointment are booked and not much of income is generated. Obviously, employees that are motivated in such manner do little – if anything – to help the business grow in a right direction.

They say at least 50% of start up businesses are failing within the first year and 90% – within two years. Here’s another one bites the dust.


Small Business Problems – Part II

This is a second part in series. First part can be found here: Small Business Problems – Part I

Issue 2: Sales and Marketing
The partner who runs the business believes he knows the market. Not only he is further from the truth as he is from making his first million off this business, he also misses any feedback his own employees providing from their workings with clients. Which, to recall his trust issues, isn’t really surprising. Business’s web site is a single image with outdated address (he moved two times already after that), obsolete prices and graphics circa year 1999. However, this doesn’t prevent him from spending some significant amount on pay-per-click advertising to lead prospective customers to that awful site. Additionally he runs some commercials on TV and Citysearch. Obviously, he has no idea which channel brings him people who call company’s number, so he’s throwing all he can to everything he can cover.

Once the call is through to the cell phone and given it won’t drop, the employee who handles the phone this week is scheduling a free consultation. This is essentially is a sales session, but since the procedure concerns various places of (mostly) women body it has to be done in private. However, the managing owner had entered the room on numerous occasions when consultation was in progress under various false pretenses. One of the examples – he wanted to post his employees’ certificates on the wall, so he came in with hammer and nails and started hammering away while sale was in progress.

Seeing low prices as his only competitive advantage, he sets them extremely low. The way the commissions are distributed leaves his employees with pay rate per hour only slightly better than minimum wage. Given that average hourly rate for these procedures is somewhere in the vicinity of $25/hour or more, it’s not hard to imagine how happy his employees are to sell their services at those prices. It’s not uncommon that they just cancel people’s appointments because it’s not worth for them to travel to place of work and waste a few hours of their time to earn $20 for the whole day.


Small Business Mistake Study – Part I

Recently I was introduced to yet another small business with whole bunch of small business issues and the owner team who just don’t know any better. They, however, don’t believe it, so before this business perishes into nothing, I have a chance to study all the mistakes that were made and are being made. Here’s your chance to learn, too.

The scoop is as follows. It’s a service oriented business – think very niche cosmetic service with extra expensive equipment. It’s a startup – business isn’t even year old yet. Two non-working partners, one provides the equipment, another one is actually trying to manage the business (he never worked in this business before). Two workers, both part-time, who are only paid commissions for cosmetic procedures they perform on clients. Cell phone to take client’s calls. Company is renting a room at another salon to perform procedures.

Issue 1: Human Resources
This one is first, because it’s the most major issue in the business. Since this is a startup, everything rests upon the shoulders of people who work for business. Now, the partner who runs the business spends enormous amounts of time to watch the two people who work for him. Being technologically challenged, he calls whoever has the company’s cell phone for 20 times a day to check how things are going and if there are any appointments made. He also made a deal with salon owner to check how many clients come in every day when one of his people is working. He clearly has an issue with trusting his own employees (those who work on commissions only because business hasn’t got up on its feet yet) and doesn’t bother to hide it. This, however, didn’t prevent him from demanding that they would take phone calls on their personal phones (they declined it), that they come up with better ways for him to track their performance (they ignored it) and that they take incoming calls throughout the whole week on their personal time outside of work (they agreed because that’s the only way they can book enough appointments to make it worth working in this business). All appointments are written into the journal, so every time the shift changes (each part time employee works a few days every other week) both workers have to find ways to transfer the journal and cell phone to each other.

Of course such treatment from the managing partner doesn’t win employees’ hearts. Aside from openly despising their manager, employees don’t particularly pay much attention neither to quality of the services performed nor to a higher level of customer service. In a market where customer services is by far the most significant competitive advantage, it’s completely lost on this company. Additionally, given that employees are only paid commissions for performed procedures, they have zero incentive to work an extra minute, so they always stuff as many appointments as possible into as little time frame as they possibly can. Given that clients oftentimes don’t show up it proved to be a worthy tactics, but on the days when everyone shows up on time – it gets a bit messy.

(To be continued)