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
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!
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
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.
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