Governance and startups: the ‘but it’s my business’ problem

In my last column, I discussed the key differences between a craft and an enterprise and explained why an SMME can only become truly sustainable once it becomes an enterprise. The successful transition from craft to enterprise requires the implementation of an effective governance process in your business.

While many SMME owners claim to understand this concept, they are often reluctant to make this transition in their own business. But why are SMME owners so hesitant to implement the changes that will ultimately make their business more profitable and sustainable?

During my work with SMME owners in South Africa and around the world, the answer to this question is inevitably the same; the problem often lies with you. As a business owner, you may intellectually grasp the importance of governance in business success, and understand that the roles of shareholder, director and manager should not all be played by you and your significant other or business partner. Nevertheless, it remains emotionally challenging to make the necessary changes in your business.

Perhaps you rationalise this emotional perspective by telling yourself that your business and your circumstances are different. In reality, this is highly unlikely. Emotions are powerful, and it is easy to allow them to get in the way of your own success. In the SMME environment, this is often the largest stumbling block to your own advancement.

As you’re reading this, are you already thinking that this does not apply to you? If so, can you think of a good reason why a formal board of directors would not contribute towards the success of your business? Before you answer this question, consider the multitude of companies (both listed and non-listed) who have achieved success largely because of their willingness to invest in a formal board of directors.

SMME owners tend to have a variety of excuses to explain why the principles of effective governance do not apply to them. At the same time, they want to increase the profitability and value of their business. The truth is that SMMEs often resist the principles of governance because they are afraid of losing control, because they are unsure of how to select or afford appropriate directors, or because they are reluctant to have anybody scrutinise their managerial decision-making and performance in their own business.

All of these reasons are driven by the emotions of business owners. While it may be difficult to admit this, once you accept that your emotions could be your biggest obstacle to success you can begin to overcome them.

Keeping well-known local and international examples of successful enterprises in mind, consider what your business could gain from the implementation of governance. Instead of losing control, you will actually gain more control over your enterprise because you will have a higher quality of oversight and review. Rather than seeing the selection of your directors as an obstacle, consider that there are experts who understand this process and can assist you to appoint an appropriate board of directors. Instead of being concerned about the additional scrutiny you will come under as a director and/or manager, consider how this will increase your performance.

In today’s business and legislative environment, the impact of decisions and actions on stakeholders and employees are increasingly considered to be the responsibility of directors and managers. As an SMME owner, you need all the support that you can get to ensure the effective operation and growth of your enterprise.

If you truly want to succeed as an SMME and create a company that is a leader in your industry, you cannot ignore the importance of transforming a craft into an enterprise. Implementing effective corporate governance is a crucial part of this process, and your willingness to understand and overcome your emotional resistance to this principle will determine the success or failure of your business.

In the next edition, I will discuss practical methods for implementing governance in your own SMME.