Halloween has always been one of my favorite times of the year. I can remember as a kid dressing up in a costume and trying my hardest to scare people as we walked our neighborhood gathering treats. It was fun to frighten others and also to feel frightened from time-to-time as we encountered scary-looking creatures along the way.
As a small business owner, I’ve had more than my share of scary moments. Our first day in business was always a frightening 24 hours. Facing Hurricane Andrew was one of the most scary experiences I can remember. Closing a business sale was always nerve-wracking.
What about you? Have you ever been scared in your role as CEO of your business?
Here are five of the scariest moments for a small business owner that I can think of and one strategy for each one to alleviate the fear.
Fear #1. Losing a Key Employee.
The labor market is as tight today as it’s ever been in modern history. The national economy is at full employment and small businesses are finding it increasingly difficult to find and retain top talent. The fear of losing a star employee keeps many small business CEOs up at night. As a result, many companies are employing a variety of strategies aimed at retaining key talent including financial incentives, enhanced employee benefits, and opportunities for professional development.
Strategy: Stay Interviews.
This idea began to gain traction several years ago and it’s very simple. After the first 30 days of a new hire’s employment, schedule a meeting and ask them a very simple question. “What would it take for you to stay?” If a new employee is thinking of leaving, it’s typically about one month into their employment. Perfect time for the business owner or manager to make sure everything is okay.
Fear #2. Losing an Important Customer.
We work very hard to acquire new business and we dread the thought of losing a customer. And yet it happens. I find that sometimes small businesses devote much more energy and resources to finding new business than retaining our existing clients. “Churn” is one of my least favorite words.
Strategy: Net Promoter Score (NPS).
Described in great detail in the best-selling book The Ultimate Question 2.0 by Fred Reichheld, Net Promoter Score is a great method for measuring customer service. It has been utilized by the majority of Fortune 1000 companies for years and is now slowly trickling into use by small businesses. NPS is an excellent early indicator of customer churn. It is calculated by just asking your customers a simple question, “On a scale of 1-10, what is the likelihood that you would refer a friend or colleague to do business with us?”
Fear #3. Cyber Attack
“Cybersecurity is a silent killer. It can shut you down like nothing else.” – Joe Galvin, Chief Research Officer, Vistage International.
Cyberattack is a relatively new fear for small business operators. In a recent Vistage survey, 62% of CEOs do not currently have an active cybersecurity strategy in place. Every day small businesses hit by cyberattacks are losing data, cash, customer records, employee information, and employee/customer trust.
Strategy: A Layered Defense
Implement a three-layered defense against cyberattacks as follows:
1) Strong cybersecurity (test yours using a reputable tool such as the Cybersecurity Framework)
2) Proper employee policies and procedures that will lessen and possibly prevent an attack
3) Cyber Insurance
Fear #4. Running Out of Cash
Every small business owner should fear running out of cash. Why? Because it’s game over when it happens. A wide variety of recoverable negative events can strike a business such as losing a key customer or a high performing employee, but it is very hard to recover from running out of cash. Similar to running out of oil in a car engine. Very few engines survive that circumstance.
Strategy: Calculate Your Working Capital Requirements
One way to prevent your business from running out of cash is to calculate the amount of cash you need access to in order to prevent this from happening. In financial terms, this is referred to as your Working Capital Requirements (WCR). It is calculated as follows:
WCR = Cash Conversion Cycle (CCC) = (Days Receivable + Days Inventory – Days Payable) x Average Daily Sales (12 months revenue/360)
Example: DR = 40 days… DI = 60 days… DP= 45 days… ADS = $3000
WCR = (40+60-45) x $3000 = $165,000
In this example, your business needs to have ready access to approximately $165,000. This would include cash in the bank, a line of credit, credit cards, etc.
Fear #5. No Exit Strategy
Some small business owners long for the day they can exit their business. Many others are the opposite. They lie awake at night in fear of how they might exit their business. Death? Employee rebellion? Business failure? I find that there is much preparation in starting a new business and very little planning involved in exiting that same business. As a result of such an unplanned exit, business owners end up with much less on the way out than they deserve.
Strategy: Read “Dancing in the End Zone”
There are very few good books on the exit strategy. A number of years ago, author and Vistage speaker Patrick Ungashick wrote a very good book on this topic titled Dance in the End Zone. In the book, Ungashick outlines seven (7) questions that must be answered in exit planning. The first question is “when?”. The second question is “how?”. Completion of the book will get you started on your exit plan.
Have a Happy Halloween!