To see why the majority of small businesses underperform, it may be helpful first to look at the factors at play when large companies underperform. In the 1980's the Board of AWA, a large diversified electronics and trading company, found that their executive staff (the people they paid to run the company on a day-to-day basis) had gone close to bankrupting their company through injudicious (the executive said "unlucky") foreign currency trades. The Board sued the Company's Auditors for not alerting them to their exposure in a timely fashion - and the Auditors countersued the Board for negligence in the performance of their duties in acquitting their directorial responsibilities.

Justice Rogers, Chief Justice of the Commercial Division of the Supreme Court of NSW in hearing the case found himself faced with an unexpected challenge; he found there were very few guidelines available to the Court - or to Boards - as to just what their duties were, and that those guidelines that did exist were often contradictory or unclear!

J Rogers' observations on the AWA case lead to Professor Fred Hilmer chairing an Independent Working Party into Corporate Governance to clarify the relative roles and responsibilities of those who direct Companies, and those who run them.

I found the working party's report (outlined in a small, rather dry little book, cutely titled "Strictly Boardroom") made a lot of sense to me when looking at the challenges faced by our corporate clients but I think what started me seeing the parallels between the big and the small end of town was Hilmer's focus on the generally poor performance of many large public companies in generating profits for their shareholders.

Putting together the fact that ATO figures show the average SMB owner makes around 4-5% net profit and the fact that a significant percentage of our Business Analyses show similar or worse figures prior to our starting work with clients, the penny dropped for me that some of Prof Hilmer's observations are as relevant for our small and medium business (SMB) clients as they are for public companies, and so I'm taking the opportunity to share them with you here, along with a few observations of my own.

To begin with, many of our SMB Clients wear both hats of being the Director and the Manager of their business. So the person under the Director's hat, who is responsible for setting the goals for the enterprise and enforcing performance relative to attaining those goals, is the same person who, when wearing the Manager's hat, is mired in the day-to-day running of the business. As Manager he understands all the reasons and excuses for his own underperformance, distraction and loss of direction that are responsible for failing to achieve the Director's goals.

How do you "fix" this apparently irresolvable challenge? Fairly simply, in fact: Separate your roles as Director of your Company (or business) and as Manager of its day-to-day running, and allocate specific times - and quarantined "head space" - to fulfilling these complementary yet antagonistic roles.

To read the rest of this article click here.