1,000 Miles Away
“Working for yourself sometimes ain't all that it's cracked up to be. It can be as lonely at the top as at the bottom of that corporate tree”
The Hoodoo Guru’s sang the above lyric in their 1991 song, 1,000 Miles Away. For me, this line has always struck a chord (no pun intended).
Over many years, I’ve conducted a ‘personal research project’ to understand where business owners get their advice. None of this ‘research’ is conducted to academic standards, I have never written any of the results down and I have certainly not written any articles or research papers. I have however been able to draw some conclusions.
To put this in some sort of context, Small to Medium Enterprises (‘SME’s’) are major part of the Australian economy. Tim Mazzarol, Winthrop Professor, Entrepreneurship, Innovation, Marketing and Strategy at University of Western Australia makes the following statement about the SME contribution to the Australian economy. [i]
“Small to medium sized enterprises (SMEs) – which are those employing fewer than 200 people – comprise around 99% of all businesses in Australia. They also employ around 65% of the workforce or about 2.8 million people………..Australia’s small businesses generate about 20% of GDP”.
By way of comparison, from a WA perspective, we are accustomed to talking about the size of the mining sector. Mining contributes approximately 6% to GDP, therefore it is clear that small to medium business makes a massive contribution to the economy. These stats bring me back to the core of this discussion, where do business owners go to receive their advice?
Many go to their external accountant which is a logical choice, but is it always the correct choice? Some accountants take the time to understand their clients businesses, they meet with their clients regularly and have an understanding of the specific business and the industry. Others simply do not have the time or resources to get this detailed level of understanding, therefore their advice will be general at best.
Other businesses owners use a Business or Personal coach. Once again, this can work really well. Coaches tend to be good at enforcing accountability because they ask the business owners to set goals and then put systems in place to monitor the progress towards the goals. The question that needs to be asked is whether the coach has the business and industry knowledge to help the owner determine whether the goals are relevant.
Lawyers and other financial advisers are also commonly used however, their guidance is often only sought once a major decision has been made. Their role is to document a transaction that has already been agreed. This is a crucial role because they can protect the business however, the question is whether they are brought into the picture early enough?
Other sources of advice are business peer groups such as Young Presidents, The Executive Connection etc. All of these can be really good sources of advice because the peer groups are usually small groups of non-competing businesses. This means that it is a safe environment to share business issues with like-minded people and get the benefit of support and guidance from experienced business owners, who may have a different perspective on the issue at hand.
Finally, there is the pillow conversation with the partner/ spouse or the barbecue conversation with mates. These conversations can be of value however in many instances the partner/ spouse/ mate does not have any business experience and their guidance is heavily reliant on the level of detailed information that is provided to them.
Contrast the SME position with public companies. Public companies have a professional management team that reports to a formal board. The board is generally made-up of professional specialists, each of whom has a close understanding of the business. Large strategic decisions are endorsed by the board which means that they face scrutiny from a variety of people, with differing skills. Clearly there is a significant amount of support for management teams of public companies.
Some may argue that the decisions faced by SME owners are smaller, hence there is not so much at stake. I would argue otherwise. In most cases the owners’ personal assets are linked to the business finances, hence the family home is at stake however, the flow-on effect is greater than the owner’s personal assets. SME’s also employ a significant number of people who in turn support their families and spend money in the economy. They have suppliers that are dependent on their ongoing trade and they pay taxes.
So how can business owners get a better level of advice? One solution may be to form an advisory board.
An advisory board is usually a small group of independent people that provide support and guidance to the owner. The advisory board is not regulated in the same way that a formal board is, largely because their decisions are not binding. Some of the functions of an advisory board could include:
Develop an understanding of the business, market and industry trends
Provide “wise counsel” on issues raised by the owners/directors or management
Provide the directors and management with insights and ideas which can only come with distance from the day-to-day operations
Encourage and support the exploration of new business ideas
Act as a resource for executives
Encourage the development of a governance framework that enables continued growth and encourages the entrepreneurial spirit of the owners
Monitor business performance and challenge owners and management to consider options for improving the business[ii]
In summary, the advisory board fulfils most of the functions that a formal board would undertake. So when should a business think about appointing an advisory board? There’s no hard and fast answer to this question however, triggers could be:
A need to raise funds
A desire to build strategic partnerships
Before making major decisions such as a change in direction, entering new markets, products or expanding the business
At the time that you start to employ professional (external) managers
If you are dealing with succession issues
Shareholder challenges or disagreements
When you want to become more strategic
If you have a specific technical or functional issue
I’ll talk more about the composition and role of advisory boards in the next article. In the meantime, if you have experienced, or seen good advice, please comment.
[i] “Small business policy for 2013: what should be on the list?” The Conversation 4 February 2013.
[ii] SME Business Owners/Directors. The benefits of an advisory board – mentoring for growth. Australian Institute of Company Directors