Have you experienced a situation where you were facing an issue, but were reluctant to have the “tough” conversation? I sure have. How you handle small problems defines your future success.
Entrepreneurs establish relationships with customers, employees, investors, partners, and others as businesses grow. Invariably, issues arise that impact those relationships.
Missed deadlines, unmet expectations, mistakes, withheld data, a poor choice of words, inferior quality deliverables. You name it; stuff gets in the way of a smooth running business.
How you handle challenges when they first appear sets you up for success or frustration. Successful entrepreneurs are proactive, identifying small issues and taking appropriate action before the minor concerns become major irritations, then intractable problems.
Our initial temptation is to “let it slide”, or to avoid the problem, hoping it resolves itself or goes away over time. I know from experience this does not work. Leaving a small problem to hope and chance is an invitation for disaster.
A Cautionary Tale of Avoidance
One entrepreneur team I coached opened a line of credit with their bank to cover inventory costs as the company grew. They planned to use the line of credit to acquire stock and then repay the loan as sales occurred.
Soon, against advice from multiple advisors, they were using the line of credit for operating expenses when customers failed to materialize. At this point, they had a minor, but a entirely fixable challenge.
They continued to miss-use the credit line. In addition, they began avoiding conversations with their advisers and more importantly, discussions with their banker. Their minor challenge was becoming a significant issue.
use it wisely”
Within nine months, they had over six figures of debt. Sales were below forecasts. Their banker requested they meet to review the account and their business activity. The meeting, understandably, did not go well for the entrepreneurs or their banker.
The bank called the loan that afternoon.
The team was forced to convert the line of credit to a higher rate loan with an aggressive payoff schedule. A potential investor immediately lost interest. The combination of lower-than-hoped-for sales and debt payments that consumed almost all revenue was sinking the business. The fixable challenge had become a crippling crisis.
How Should A Small Issue Be Handled?
We'll just skip over “they shouldn't have used the line of credit this way” and focus on the banking relationships.
They should have gone to their banker early – at the point sales first missed projections, explained their financial position, revised projections, presented a plan of action and sought the banker's expert assistance. They should have nurtured the banking relationship rather than allowing it to become adversarial.
Instead, the founders avoided the early, awkward conversation. In retrospect, that discussion was the easy one.
They hoped sales would materialize. They chased big deals with a small probability of success that were not part of the business plan. They lost sleep and fought with each other over trivial matters. They took their eyes off the long terms goals of the business and grasped for a saving event. They were forced to take jobs elsewhere and again work their dream as a side hustle to avoid default.
Seven Actions to Take To Avoid Disaster:
- Be Vigilant. Always look ahead and around corners if possible. Evaluate scenarios with “if this happens, we will do this.” Planning is entirely different from worry, as fretting produces no solutions. Anticipate events and know in advance how you will handle them.
- Start the Conversation. Do this as soon as possible. Take the initiative and schedule the discussion you want to avoid. Do not circumvent the conflict. “If someone is looking for you, go and find them” – Andy Stanley. When you initiate, you take pressure off yourself and take pressure off the person with whom you need to communicate.
- Seek Common Ground. You likely have shared goals and expectations, focus on those. The entrepreneurs and the banker above both wanted the business to succeed, both did not want default, and both wanted the relationship to be profitable for years to come.
- Cultivate a Game Plan. Go into the conversation with a plan of action and be flexible as you reach consensus on the best steps.
- Provide Abundant Information. Be up front with all information. In fact, supply more information than asked for and provide broad interpretation of what it means to the business today, six months from now and next year.
- Follow Through. Once you reach agreement on a course of action, follow that plan. Revisit your plan and progress frequently.
- Over Communicate. Think “early & often.” Provide updates, ask for advice, be creative with additional ideas and opportunities, and engage. By doing these things, you build trust.
The early conversation may be uncomfortable, however waiting and hoping the issue either resolves itself or goes unnoticed, will result in considerable pain. When avoiding, we communicate late, we miss opportunities, and small issues grow exponentially into messy problems. When we are vigilant and proactive, our ability to influence outcomes is substantial.
Trust is the Currency of Business
Every time you act with integrity and proactively tackle issues, you are making small deposits into your “trust account” with your partners, employees and investors. As new challenges arise, those around you will have an experienced-based reason to trust you, and they will act accordingly.
When you've built trust, Use it wisely. There will come a time when you need to make a substantial withdrawal from your “trust account.” You'll be glad you made those deposits. Instead of crisis, you'll have a foundation for success.
Do you have a small problem hanging over your head today? Go now and take care of it.
Photo sources: Business man designing a database plan on a screen via tec_estromberg; Andy Stanley Podcast via iTunes; 3D Shackled Credit via StockMonkeys; Young Business Man Holding a Tablet via PicBasement;