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Episode Host: Henry Lopez is a serial entrepreneur, small business coach, and the host of this episode of The How of Business podcast show – dedicated to helping you start, run and grow your small business.

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Resources:

Books mentioned in this episode:
[We receive commissions for purchases made through these links (more info)].

• The Dip: A Little Book That Teaches You When to Quit (and When to Stick) by Seth Godin

Related Podcast Episodes:

Episode 504: Annual Strategic Plan

Episode 439: Cash Flow Management

Episode 242: Small Business Systems

You can find other episodes of The How of Business podcast, the best small business podcast, on our Archives page.

Sponsor:

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Transcript:

The following is a full transcript of this episode. This transcript was produced by an automated system and may contain some typos.

Henry Lopez(00:12):

Welcome to the How of Business podcast. This is Henry Lopez. Are you struggling to grow or skill your small business? Well, in this episode I cover five of what I think are the biggest challenges that often can keep a business from growing and how to overcome them from a lack of strategic planning and cashflow constraints to operational bottlenecks, owner dependency, and ineffective marketing and sales execution. I’ll explore practical strategies to help you break through these barriers, whether you want to scale your current business or avoid these challenges once you start your business. This episode will give you the insights and tools you need to grow. You can find all of the how business resources, including the show notes page for this episode. And to learn more about my coaching programs, please visit the how business.com. I also invite you to please consider supporting this podcast on Patreon, and please subscribe wherever you might be listening so you don’t miss any you episodes.

Henry Lopez(01:05):

And thanks to a few of my business coaching clients, including my new clients, Melissa, and also Ashley. And congratulations to Shannon who recently launched her consulting business. I look forward to continue serving all of you as your business coach. So here are five reasons small businesses struggle to grow or scale, and these are not in any particular order, but I’ll start with a lack of a clear strategy. Many small businesses struggle to grow because they lack a comprehensive strategic plan that outlines their visions, goals, and a roadmap for scaling. Because without a clear plan, without a clear value proposition, without defined strategies for marketing, for operations, for financial growth, businesses can get stuck reacting to challenges rather than proactively focusing and driving growth Without a strategic plan, business owners are also more susceptible to chasing new opportunities that may not align with their core goals or even their core competencies.

Henry Lopez(02:04):

I refer to this often as a shiny object syndrome, and so this leads to wasted time, diluted efforts and a lack of focus on what truly drives growth. So one of the solutions for this is to develop a strategic plan, and I like to use a structured approach for this. I lay this out in episode 5 0 4 of the How a Business podcast on the show notes page for that episode at the how a business.com. You can also download an outline for a strategic plan. And essentially what I think are some of the core high level components of this planning is stating and defining, if you don’t have it already, a clear vision and mission, defining your target market and your ideal customer within that market or segment. What’s your differentiation? What is your competitive advantage? What are your goals for revenue and expansion? What are the scalable marketing and sales strategies that you’re going to develop and deploy to grow your business?

Henry Lopez(02:56):

What are the KPIs? How are you going to measure progress? And then what is your decision framework? What is your strategy overall that’ll help you avoid distractions? So a strategic plan should provide you with clarity, alignment, and a structured approach to sustainable growth while minimizing the distractions from opportunities that don’t make sense and don’t align with your core focus of growing your business. The next big reason that keeps small business owners from growing is financial constraints, because scaling requires investments, investments in people, systems, marketing infrastructure, but many small businesses. But many small businesses operate with very tight cashflow and likely because they even started underfunded, and of course that limits the business’s ability to grow. Even businesses with strong revenue can struggle if cashflow isn’t managed effectively. Common issues here include underpricing your products or services, which leads to low margins and profitability issues, high operational costs or inefficiencies.

Henry Lopez(04:01):

So high overhead, poor financial tracking and forecasting is a common one. You don’t have visibility or confidence or understanding of how to interpret your financial statements, primarily your p and l. And of course as it relates to cashflow, your cashflow forecasting and a lack of access to capital and financing. I mean, that’s really what it’s all about. And it could be that the business was started, as I said, with limited funds and now the business has limited access to additional funds. You don’t have that capability. You may not have a line of credit. Most of us don’t when we’re first starting a business and don’t have that credit. So that’s the key and that’ll be a killer and that’ll be a constraint to being able to grow your business. Just to point further on the importance of pricing correctly, because so critical, so many small business owners underpriced their products or services in an effort to attract customers by trying to be the low cost leader, but pricing too low can be just as damaging as pricing yourself too high or out of a market.

Henry Lopez(05:03):

When prices don’t reflect your true cost of doing business, your cost of good sold, and also then of course your overhead, then the business is going to struggle to generate sustainable profits, which means of course you’re not going to grow. So what are some of the ways to address this issue of financial constraints? Well, improving pricing, as I just said, is a big one. Ensuring that your pricing reflects your true cost of goods and services and is driving the right gross margins at least is critical. And ideally, you’ve done that analysis early on even before you launch the business or as you’re adjusting how you go to market. Of course, if you cannot get, if the market will not bear the price that you need to charge to cover your expenses, then you’ve got a broken business model at least for that product or service line.

Henry Lopez(05:52):

The other area that we can address always is to reduce inefficiencies and cut expenses so that you can improve those margins, reduce that overhead, whatever those things might be. You have to be ruthless about managing those expenses. You’ve got to forecast your cash. So cash forecasting is critical. I recommend episode 4 39 of the how a business on this topic of managing cashflow, and it includes, if you go to the show notes page for episode 4 39, a spreadsheet tool to help you learn how to forecast your cash needs, especially if you have a business where you have large inventory purchases and or collections where you deliver a service or a product but get paid later. Those two things, one or the other, or both, can exacerbate cashflow problems. So businesses that proactively manage their cashflow and price their products and services correctly are able to scale more sustainably and avoid the financial pitfalls that can stunt your growth.

Henry Lopez(06:55):

Of course, even before that, it’s critical to have a properly funded business. And if that means adjusting the type of business, what you launch with taking the MVP approach, then that’s what you should do. If it means that you can have enough cash reserves or enough additional cash to put into the business to cover you and to allow you to make the investments that you need to make so that you can scale your business. The third reason I want to highlight that keeps a small business from being able to grow is a lack of systems without scalable systems. Businesses hit a ceiling, inefficiencies in workflow inventory management, perhaps customer service or production, of course, whether it’s a product or service that can slow down with the lack of systems and cause all types of issues, including customer dissatisfaction and an overwhelm for your team. Common bottlenecks that we see here are a manual process that just takes way too long or is inefficient or inaccurate, certainly inconsistent, a lack of documented standard operating procedures.

Henry Lopez(08:02):

So no one really knows exactly how to do it again and again, or a new person joining a team is not clear on how to do it. And so the quality, the standard continues to drop over time, and that results in consistent customer experiences due to unstructured workflows. There’s no process that we repeat on a regular basis to execute what it is that you do. And so the solution in part here for the lack of systems, of course, it’s the developed systems, right? But you got to be smart about how you do that so that it doesn’t bog down so that it doesn’t become overwhelming. I like to start with an overall process map, let’s say the customer journey. And I find that mapping out these key processes within your organization, both customer facing as well as internal, will allow you to then identify where the constraints are, where the issues are, where there’s a need for additional systems.

Henry Lopez(08:57):

And again, a system can be something as simple as a checklist or a procedure or a technical solution, a software solution, perhaps a tool that gets applied to implement a system. So we automate those repetitive tasks. So for example, using A CRM for customer management or an accounting software for the finances, you develop SOPs so that a process can be repeated efficiently, not just by the people currently on the team, but people who come into the team. You want to optimize your operational workflows, starting with that process map, identifying inefficiencies or bottlenecks or constraints, and working on those over time to improve efficiency, to improve the throughput in your workflows, and investing in the right technology, especially with the evolving AI technologies that are available to us as small business owners. It’s about being smart about applying those technologies to drive efficiencies in our workflows. For a deeper dive into building scalable business systems, I recommend episode 2 42 of the How a Business podcast, where I cover specifically how to create systems that will allow a business to run efficiently without depending solely on the owner or some other key person that has all of that knowledge in their head. And by eliminating the bottlenecks and improving systems, a business can increase efficiency and scale or grow without sacrificing quality.

Henry Lopez(12:17):

The fourth reason I have on my list of reasons why small businesses can’t grow might be the biggest one, and that’s owner dependency. Many small businesses struggle to grow because they are too dependent on the owner or owners, if everything like sales and operations, and of course, critical decision making and problem solving. If all of that relies on the owner, if we can’t get anything critical done without the owner’s decision, then the business is simply not going to scale beyond that individual’s personal capacity. Michael Gober covers this brilliantly in the seminal book, the E-Myth, which explains this common trap to quote him on this point from the book, if your business depends on you, you don’t own a business, you have a job, and it’s the worst job in the world because you’re working for a lunatic end, not to mention that it’s going to end up being a very low paying job with a lot of stress.

Henry Lopez(13:16):

So it’s key. A major growth roadblock is that business owners spend too much time working in the business, handling the day-to-day tasks instead of on the business stepping back from the day to day, and instead focusing on strategic planning, on scaling, on leadership development. Without stepping back to design systems to delegate responsibilities and create scalable structure, the business will not scale beyond that individual. And if that individual isn’t there, then it can become paralyzed. So the solution here is fairly simple, but one of the hardest things for us to do sometimes as small business owners, you want to develop your people, your team, if you’re at that size. Now, if you’ve got a team, now you want to develop a leadership team and train those employees to take ownership of key roles within your organization. Comes back to systems as well, systemize and document the processes throughout your business so they can run without somebody who’s constantly there to make it happen, especially those repeatable things, the things that you do on a regular basis.

Henry Lopez(14:23):

If you want to shift focus for the owner, shift focus to strategy and growth by scheduling dedicated time to work on the business. Maybe that means taking a day where you work from home or some other location where you’re going to have a better opportunity to control interruptions and you want to implement automation and delegation, of course to free up time for, as I said, leadership and scaling efforts. When small business owners make this shift, the business can then begin to operate independently of the owner and scale more effectively. And the fifth reason on my list of reasons why small businesses can’t grow is marketing and sales challenges. And that can be everything from inefficient efforts here to what a lot of business owners suffer from, which is a fear of sales, but a business can’t grow if it doesn’t consistently attract enough opportunities and then effectively convert them into paying clients or customers.

Henry Lopez(15:22):

Many small businesses struggle with inconsistent marketing efforts, relying too much on referrals or word of mouth and not diversifying their lead sources, not having a clear message. This goes back to the strategic plan. What is our clear message that resonates with our target or ideal customer failing to invest in digital marketing, which nowadays we just simply cannot do without, except for perhaps in very rare cases. And then the other challenge is not knowing that target audience at all, not knowing them well enough anyway, and trying to be all things to all people. We have to pick our niche, especially as we are starting our businesses and as we’re growing, we might expand to other niches and other segments, but we have to stay focused is what usually works best for a small business with limited resources and in a week sales process. If we don’t learn how to effectively close opportunities to convert those leads.

Henry Lopez(16:18):

And if we don’t track that, then we’re going to consistently underperform and our business is not going to grow. Seth Goden captures this idea perfectly with this quote. The key to getting the message to spread is to realize that it’s not for everyone, it’s for the people who care. And if you’re lucky, they’ll tell their friends. The mistake marketers make is that they think everyone is their customer. The challenge is to create something that a specific group of people will care deeply about, not something that you try to make everyone like a little bit so much packed into that, that I encourage you to listen to it again or think about that, break that down, because I think it captures it very well. Now, marketing alone, of course, isn’t enough. As I said, a strong sales process is critical to business growth. Even with effective marketing.

Henry Lopez(17:08):

Businesses can struggle to grow if you don’t have a clear, repeatable sales process or system that nurtures leads, that learns how to handle objections, and that closes opportunities. So the solution here is to clearly define your ideal customer. Who are they? What do they need and where do they spend their time so that we can get in front of them and attract them and then offer them what we have to offer of value. You want to develop along with that, a strong brand and messaging that speaks directly to that specific audience. Or as Seth Godin also says, to your tribe, the group of people that you’re trying to reach, narrow that focus and become the best at serving a specific market. Instead of trying to reach everyone for a deeper dive into effective small business marketing and sales strategies, I have a whole series of episodes.

Henry Lopez(18:01):

You simply go to the archives page at the how a business.com, and then click on the marketing episodes and you’ll find all types of episodes there on everything from branding to lead generation and digital marketing. And all of these are tactics that will help you with sustained growth. So those are five key reasons that small businesses are not able to grow. They’re not all of the reasons, but I have found that these five are critical, and again, they are a lack of a clear strategy, financial constraints, a lack of systems owner dependency and marketing and sales challenges. By addressing these challenges with intentional planning, financial discipline, process optimization, delegation and targeted marketing and sales efforts, small businesses can break through these barriers and achieve sustainable growth.