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The Australian economy is built on small business, driven by the expertise of the owner/director: According to ABS statistics — 60 percent of Australian businesses don’t employ anyone. Consider also that 90 percent of Australian businesses are micro-enterprises — they have fewer than five employees. This means the solo entrepreneur and their skillset ‘is’ essentially the entire value of most businesses in Australia.
And there is a good reason that that expertise is so valued — it is hard-won, difficult to replicate and many years, if not decades, in the making. Whether the business is building, transport, food preparation or something else, the entrepreneur’s skillset was honed through an ‘expertise journey’ — from apprentice, to journeyman, to master. In ‘Expert: Expert: Understanding the Path to Mastery (Penguin, 2021)]’ surgical educator and science communicator, Roger Kneebone, observes that all forms of expertise (whether, say, a surgeon or a tailor) share the same core attributes, and we therefore owe them the same respect.
The key is finding a way to grow a sustainable business which is so tied to individual expertise. It is this challenge that we are focusing on in the light of the fact that the vast majority of businesses do not survive more than five years.
The pain points for expertise-led business
Running a business based on your own expertise brings some challenges:
- Entrepreneur well-being — when a business is built on individual expertise, it can be hard to take breaks and maintain a healthy work-life balance. The business inevitably becomes over-reliant on a key person/people, who may have difficulty delegating
- Lack of business systems — when one or a few individuals are in control, it can be easy to operate without systems (e.g., accounting and project management) which can lead to significant problems over time
- No standardisation of services — with the business so dependent on one person there is little in the way of business goodwill that can be transferred to others/sold at some point
- You can’t be an expert in everything – in our experience, accounting and cash flow analysis is a weak point for many entrepreneurs and businesses based on skilled trades or market knowledge. By the time we are called into help, often emergency accounting is required to avoid business insolvency.
What do expertise-led businesses need?
To alleviate these pain points, the following are crucial:
- A large enough profit to allow a reasonable work/life balance. It’s not possible to look after yourself properly when you are desperately trying to pay this month’s bills
- A business model which optimises the return on skillset. Is the best approach to simply sell your skillset on an hourly basis or simple mark-up? It may be possible to ‘productise’ your services: Package them in such a way that you don’t need to work as much in the actual operations of the business
- Constantly revisiting business strategy. It is easy to become a boiled frog in your own business – not noticing how your competitive position has deteriorated over time. Strategy needs to be regularly revisited to check you are heading in the right direction
- Finding the right size for your business. This is both about the numbers (e.g., staff and branches), but also the capacity of the owners to manage staff and systems. Keep in mind that business growth costs money, and as businesses grow they need more working capital — not every business is destined to be a big business.
Who can best help expertise-led businesses?
If you think you need some help optimizing your expertise-led business where should you look? Consider:
- Business coaches and/or mentors in the field. There is a lot to be gained from talking to those who have been there and done that
- Solid financial and business planning advice. It is crucial for you to be able to step away and work “on” the business not just “in” it. For some practical tips about stepping away to examine your financials check out our guide to three-factor budgets
- Restructuring support. If financial distress is serious, and insolvency is on the horizon– emergency accounting and operational changes may be required. Sewell and Kettle offers viability reviews and emergency accounting solutions for businesses in difficult. We can also facilitate a formal small business restructuring as a registered restructuring practitioner.
There may be a tendency to seek out business advice from those who are first to offer it: But beware of low-quality or inappropriate advisers:
- The advisor may have only general commercial skills but no specific turnaround knowledge and experience
- They may offer only limited services. For example, some may only offer compliance such as tax returns and financial statement compilation, this is not enough for a growing business. Using this type of accountant during an emergency means you are up to a year behind on calculating your financial position
- They may encourage unscrupulous or counter-productive paths of action for short-term gains. For example, several years ago the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry showed that many advisors were acting under conflicts of interest — steering clients to inappropriate products for their own financial gain.
Expertise-led businesses: What should be your journey?
As an expertise-led business, what is your client journey? The following is a sketch:
- Recognise your own value. Just as a neurosurgeon does, every expert should recognise that they bring a specific offering to the table that no one else can replicate
- Get strategic. Starting a new business is ‘sink or swim’ – most don’t last the first few years. But after the first five years business problems aren’t solve by raw effort (putting in the hours). The next step is to be more strategic
- Get the right advice and support. This will usually be accounting and cashflow advice, but may also relate to strategy such as mispricing, positioning and staffing mistakes (do you have the wrong people in the wrong seats?)
- Put a plan in place with regular milestones. The business should be of the right size to sustain itself, but also adjust to any bumps in the road (‘predictable risk events’). You should also focus on the people you employ and you should have the ’right people in the right seats’.