When talking about governance and boards, typically what comes to mind for most small to medium-sized business owners is a bunch of professionals in suits, sitting around a big board table, talking business and making decisions. It’s not surprising then that a lot of SME business owners take the view that having a board is not for them. They may think their business is not sizeable enough to warrant a board or that a formal board structure is inappropriate given their industry and current performance. In many cases, owners believe their businesses are doing “well enough”, and they are making a “good enough” living, so it’s not surprising to find the majority of SME businesses are self-governed by their founders.
There are various reasons why the SME sector shy away from setting up proper governance structures. Some may be hesitant to be held accountable, while others perceive the cost of paying independent board members as being too expensive. However, the main reason, I think, is they just do not realise the value that proper governance and a board structure can add to their business. They don’t know what they don’t know, and because of this they don’t realise the benefits that proper governance structure and a board can bring.
There are a lot of self-governed SMEs out there, which are doing well, but is “doing well” the same as “doing great”? And are they really performing well, or have they just been lucky? Running your own business is challenging. Most operators are wearing multiple hats within their business, forever trying to be everything to everyone, unfortunately, at some point, something has to give and the cracks start to show.
There are signs where it is apparent that having a board would have made a difference to the success of a business. These failings will often directly relate to the set of skills that are not the strong suit of the founding owners. Some examples of these are strained working relationships or resentment between founding owners, an inability to grow turnover or profit past a certain level, retention of inefficient processes or unprofitable products, failure to spot changes in the market, staffing issues, or sudden cashflow issues.
The benefits of having proper board and governance structures in place mean that many problems could either have been identified and addressed before they became serious, or may never have occurred at all. Being accountable to the board ensures that all areas critical to the success of the business are addressed and get the right amount of focus. Risks are mitigated and opportunities are identified across all areas of the business, not just those comfortable or familiar to the founding directors.
Another advantage is that the journey for founding owners is less lonely, as there is the support and guidance of the board members, who all share same mandate: to do what’s right for the business. The emotional element is taken out of the equation, decisions are made in the best interests of the business and are able to be substantiated.
Having a board also ensures that time is spent working “on” the business, instead of “in” the business, which is an area that often gets muddy for working owners. There is a clear definition between what is strategic and what is operational. A strategy is decided, a plan is created, resources are allocated and progress against the set strategy is monitored on a regular basis. Those tasked with implementing the strategy at an operational level are accountable to the board. Matters are dealt with, rather than put off or overlooked.
The SME sector encompasses many different businesses, all at different stages of growth, from the sole trader new business to the more established company employing staff. Given this diversity, what does an appropriate board structure look like for a small SME with limited resources?
This is a difficult question to answer, but a good place to start would be to ensure that at the board governance level there is access to the right skill sets required to manage the business. A balanced board typically includes people with experience in different sectors of the business community, such as Legal & Finance, Compliance, Sales & Marketing, as well as people with experience and success in the same industry.
If, when reading this article, you identify with some of the difficulties that you are facing in your business, and you have been navigating them alone, perhaps its time to consider setting up a proper governance and board structure. This may seem daunting, but it doesn’t need to be. To begin, ask yourself some questions, using these points as a guide:
Start by taking some time to review honestly your businesses current position. Identify the areas that you have concerns about or do not feel confident in. What areas need attention now? What has held the business back? Balance this with also reviewing the areas of the business that are doing well. Why are they doing well? What are its core strengths? Be honest.
Once you have completed this, look forward, and consider where you want the business to go. Do you have formal strategy for the future already in place, or do you need to create one? What challenges need to be overcome? What opportunities are available?
After listing these out, identify what skills sets are missing from the business. Then consider what type of person would have these skills. What industries are they from? How much experience would they have? Do you already know people who may have these skills who would be open to being a board member?
Once you have completed this process, you should have a better understanding of the types of skill areas and people that need to be obtained that your business needs. From here, the right governance structure and potential board people can be identified.
The key point to take away from this is that if you are the founder of a SME and you are currently managing it alone – it may be time to consider there might be a better way, with improved governance and a board structure. What do you have to lose?