Weekly Thoughts: Eating Broccoli and The Small Business Revolution
Here are two things that caught our eye this week:
We have been thinking a lot recently about silver bullets. Entrepreneurial culture tends to concentrate, for good reason, on examples of massive efficiency-creating technology or truly exceptional leadership. Uber represents a one-stop solution for local transportation just as Steve Jobs is credited with being a singular driving force behind the success of Apple. The trouble with these narratives is that they encourage a belief in simple solutions to difficult problems.
At our portfolio companies, we find ourselves prone to thinking of this type. We catch ourselves assuming that the right ERP system will magically create excellent data sets overnight, or that the right middle manager will revolutionize the company culture. At the Chenmark level, we sometimes wonder if there is an optimal “system” that will lead to identifying and closing deals. Of course, experience has proven this is never the case, just as it likely wasn’t for Jobs or Uber. The reason is that beneath the celebrity culture that praises seeming overnight success is the long, sometimes painful, often unrecognized hard work that goes into producing the incredible final result and is the true differentiating factor. From a recent article on Ed Latimore’s blog:
“The ability to [work hard] is valuable because it is rare at all levels. Everyone from your factory worker to your CEO would rather avoid the unpleasantness of a hard problem. If you can attack difficult things with gusto and a high pain tolerance, there will always be a well-compensated place for you in the world. The most under rated talent is the ability to work your ass off. Therefore, it is immensely valuable.”
Of course, the search for efficient solutions isn’t without merit. We can work really hard to streamline the process for collecting relevant company data. We can also focus intently on our recruiting to ensure we are attracting and retaining excellent people. And we can refine filtering techniques to ensure we follow up on the most promising leads. However, the point is that eventually, we’ll have to roll up our sleeves and do the hard work of building the companies and the portfolio that we want one interview, coffee chat, and data point at a time. A recent blog post from Farnam Street summed up this sentiment best:
“At some point, to be healthy, you do need to suck it up and eat some broccoli! And for many days in a row. Or, more to the point: The ‘failure point’ with any new system; any method of improvement; any proposed solution to a life problem or an organization problem, is when the homeostatic regulation kicks in, when we realize some part of it will be hard, new, or unnatural.
Even a really well-designed system can only cut up the broccoli into little pieces and sneak it into your mac-and-cheese…eventually, if you’re going to hang on to that habit…You can’t just go back to plain mac-and-cheese, no broccoli. When the newness of the ‘one day at a time’ system wears off, you’ll be left with a heaping portion of broccoli. Will you continue eating it?”
The Small Business Revolution
This week, we learned about the Small Business Revolution, an initiative backed by Deluxe — a marketing firm that provides services to more than 4.5 million small businesses — and Robert Herjavec — CEO of The Herjavec Group and a regular guest on ABC’s Shark Tank. Initially, the Small Business Revolution showcased the stories behind 100 small businesses throughout the country, and in 2016, it expanded to include a program that awards $500,000 to small businesses in select rural towns (Season one documented businesses in Wabush, Indiana). The end result is a multi-episode online documentary that follows Herjavec and Deluxe executives as they collaborate with small businesses on their biggest challenges.
The initiative not only provides entertaining content but also highlights an important, yet often overlooked, aspect of the economy. Despite a lack of media coverage and splashy headlines, the reality is that small businesses (defined as businesses employing less than 100 people) comprise the backbone of the American economy. In total, they employ more than 50% of the American workforce and have generated more than 65% of net new jobs over the past two decades.
Given their importance to the American economy, we were interested to find out that one of Herjavec’s main takeaways from his interactions with small business owners in Wabush is how few of them knew their numbers. From an INC.com interview:
“‘To a lot of small businesses, including me when I started, the numbers were like a jigsaw puzzle,’ Herjavec said. ‘I kind of knew what revenue was, expenses, cost of goods, but I couldn’t put those pieces together into a picture that made sense.’ Similarly, many of the businesses on the show were closely monitoring their revenues but didn’t know how to keep track of profits. Without a firm grasp of where your company stands financially, it is difficult to make changes when necessary, Herjavec said. Plus, if you don’t know the language of accounting and finance, ‘someone is going to take advantage of you, or you’re going to be left behind.'”
We have often commented internally on the canny ability of business owners we meet to innately sense — and capitalize on — a good opportunity despite a lack of “formal” financial analysis. That said, feeling one’s way around the P&L is not a scalable strategy, as growth requires ceding some financial responsibility to others within the organization. While the transition from feeling the business to institutionalizing financial accountability can be extraordinarily difficult, it is an imperative step in the journey from owning a small business to creating an enduring organization. At Chenmark, we see this as a tremendous opportunity and look to facilitate such transitions where necessary to further propel our small businesses forward.
Have a great week,
Your Chenmark Capital Team