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The Business Advisor Going Beyond Being a Mom and Pop Business by Mary Hanson

A frequent question I hear is "How do I grow my business beyond the 'Mom and Pop' stage?" The answer is that the "Mom and Pop" business is not really an early stage of a larger business. In truth, the large business is a completely different business plan and a completely different commitment from that of the "Mom and Pop" business.

To establish a business of a substantial size, you need an entirely different business plan, level of resources, and level of commitment. The substantial business must, by definition, be regional, if not national. The business plan of such a business must be a robust plan that co-ordinates the need for a high volume of business with the need for marketing at the commensurate level and the sales personnel and/or service personnel to promote and support the projected volume of business.

The business plan for the regional or national business is far more than just a plan to "go to the next level." It sets out major commitments of personnel, marketing, advertising, facilities, communication, and transportation. Every commitment of resources is determined to be appropriate for the level of business proposed.

In contrast, the "Mom and Pop" business plan is based upon an expectation of limited resources. The realistic business plan of a Mom and Pop business turns on how much business Mom and Pop can bring in, and how to keep expenses low enough to make the business profitable.

The business plan of the regional or national business defines a plan and then identifies resources to make the plan possible. While a small business might plan to add a person in the sales department and hope that revenues will cover the expense, the business plan for a significant business defines the total personnel, facilities, and infrastructure that are needed to support the proposed or estimated level of business.

The importance of commitment - and risk - must be understood. You can't have a large sales staff if you are not committed to the level of business to keep them rewarded. There is no need for service personnel if you don't have the marketing and sales staff, as well as an advertising budget adequate to bring in the business to keep the service personnel profitably employed.

The commitment to personnel means that not only will they be adequately compensated and incentivized, but also the business management is prepared to implement the marketing plans of that personnel. The advertising campaigns, trade shows, and sales promotions expected by that personnel are included in the business plan.

If growth is a serious business objective, compensation plans must adequately reward and incentivize sales personnel and also administrative personnel. Sales projections must be such that compensation incentives are realistic and effective. Marketing and advertising budgets must make the projections or objectives feasible.

If compensation incentives are part of the employment plan, the cost of these incentives must be considered in all other aspects of the business plan, including financial projections, cost of sales, and pricing.

The resources required to support the business plan of a substantial business are obviously much greater than the resources available to the typical Mom and Pop business.

There must be capital committed in order to implement all the interdependent parts of the business plan and to see a new business plan through to the point where the business reaches profitability.

The business must have a commitment to the plan to justify the people and a commitment to the personnel to support the plan.

The business plan must include hiring personnel appropriate and qualified to grow the business or maintain the business at the proposed level. Hiring for the regional or national business is likely a nationwide pursuit. To compete at that level, the business expects to hire qualified personnel experienced in the industry, wherever they are. In addition, the appropriate personnel must be as committed as the business owners are.

All key personnel must be willing to make sacrifices in personal time and family time similar to those of the business owners.

Family vs. Business

For many owner-operated businesses, family comes first. Most business owners treasure the flexibility they have to take time for family matters when they deem it important enough.

The business owner who is developing a regional business, must be prepared to put business first. The inclination to hire family members, give family members management positions, or allow family members various benefits through the business is not consistent with an objective of running a high level professional business.

The capable management personnel that a high level business must attract and keep are typically not impressed with preferential treatment of family members in benefits, flexible work hours, or compensation. Desirable industry-experienced personnel are not likely to stay long in an environment where family drama takes the center ring or personality disorders are on display.

If a business is operated more like a dysfunctional family than a serious business, becoming a large regional or national business is likely not in the cards.

Management Ability

The top level of management must have the people skills to manage, motivate, lead and inspire. If the business owners don't have this, the top level of management should be someone else who does.

Many Mom and Pop businesses are lead by an individual who treasures his or her control of every facet of the business, or who enjoys power over his business fiefdom. This is not the type of management that facilitates growth. The key managers of a substantial business, if it is to be successful, must have personality traits that facilitate and enhance efficient operation of a large organization.

The role of key management is to make business decisions, but also to motivate, inspire, train, and lead. In order to maintain a large successful organization, you must attract and maintain the best people in the industry. These qualified capable people must be lead by management that earns their respect and manages a broad range of people well.

Micro-managers, control freaks and those with personality disorders are not a good choice for management of a large or growing business - even if they are the owners!

Business Infrastructure

A substantial business is built upon a strong foundation that includes not only a strong business plan, but internal controls, policies and procedures.

Proper internal controls - checks and balances in the accounting and financial functions of the business - make it possible for a business to reach a size at which a large number of people have access to financial information and responsibility for financial matters. Unlike the Mom and Pop business in which either Mom or Pop MUST review and maintain control over financial matters, a larger business must have a number of people authorized to handle financial transactions. Proper check and balance systems minimize the risks of improper use or embezzlement of business assets.

The infrastructure of the substantial business must include LAYERS of management. Whether or not the business is family owned, the issue of succession planning must be addressed. If the current management is no longer available, who is the next level of management? What capable players are available on the bench? If there are no other qualified or capable people other than Mom and Pop, growing to a substantial business size and value is not likely.

Another facet of infrastructure is employee training. A business of substantial size has a large and dynamic view of business. Things are constantly changing, and a constant training of personnel is necessary.

Employment policies, employee handbooks, and confidentiality agreements providing protection of proprietary business information are part of the substantial business. A business that is seeking to grow by hiring the most capable people from the industry must have employment benefits and policies to match or exceed those of competitors.

A substantial business competing in regional or national markets will have professionally prepared contracts for all its business activities. All contracts for purchasing, subcontracting, distributing, licensing, or other commitments are clear, look professional, and are adequate for enforcement action. They are as good as any in the industry. A contracts department, in-house legal department, or strong relationship with an outside law firm is part of the infrastructure of the substantial business. Steps are taken to make sure contract terms are appropriate. The business has a system in place to track the contracts, the parties, expiration dates, and renewal terms, and to take action on contract violations.

Remaining a "Mom and Pop" Business

Many business owners who seriously consider the differences between the Mom and Pop business and the "big" business recognize that they have no interest in being a national or regional business. They don't want the level of commitment. They don't want to put so much in personal assets and personal time at risk. Other conflicting commitments of personal goals and objectives are already in place.

What about NOT becoming a regional business, but nevertheless striving to "go to a higher level"? Why not? Why not improve internal controls and hire better qualified employees? Why not get rid of family members who do not fit the business plan? Why tolerate behavior or practices that are not good for business?

Why not develop layers of management that can step in and keep the business going? Why not develop an employee handbook and have contracts reviewed?

While most owner-operators don't really want to build a national or regional business, many DO wish they could run a more professional business. Why not?