Three pitfalls reframed

by Adina Luca, November 2, 2016


When you meet a lot of people from the same professional group, you end up hearing some similar stories. In the area of professional services, we have met enough small business owners to be able to identify a number of shared experiences. Their success stories differ wildly – there is no single blueprint for growing quickly, scaling up profitably, or conquering a new market. However, when it comes to pitfalls, their stories have a lot in common.

There are certain mindsets that can lead small business owners down the road of misery. Three of the most significant of those mindsets can be described as: (1) tax obsessions, (2) former employee paranoia, and (3) acting on no feedback. A lot of unhappy entrepreneurs are excessively concerned about minimising tax; too anxious to avoid repetitions of past mistakes involving staff; and too inclined to implement changes on a whim, without bothering to get any direct feedback from clients. We call these states of mind pitfalls because, although in each case the entrepreneur might think they are addressing a problem, in fact the problem is not really there. All they are doing is wasting their own time and energy.


What happens when you concentrate on minimising taxes
There are three kinds of tax that you might regard as “expenses”: those on payroll, profits and – in some countries – dividends. If you concentrate too hard on minimising tax, then apart from causing yourself headaches and frustration, you are becoming cheap in a way you should avoid. You may find yourself with unhappy employees, who are not paid enough because you fear the tax bill. Or you hire unskilled employees, because doing so gives you the feeling you are making a saving. If you are in a country where your dividends are taxed, you are probably susceptible to the dangerous temptation to become “creative” with your bookkeeping. Finally, you yourself end up perpetually unhappy even though your business is growing, because your tax bill increases proportionally.

What happens when you suffer from FEP (former employee paranoia)
This is the most frequent story we hear from business owners. You hired someone you thought would be brilliant for your business, but they turned out to be a disaster. The experience was bad enough for you to remember vividly. Perhaps you were completely taken by surprise by what that employee ended up doing, or not doing. You swore you would never trust anybody like that again. And so paranoia set in: whenever you employ someone in a similar position, who seems to be displaying similar warning signs, you overreact. You no longer stop to ask yourself whether the new situation might be different from the old situation. You think you just know how it is going to end.

What happens when you take existing clients for granted
This one is another classic situation. You worked so hard in the past to get your clients, but somehow now you seem to have forgotten to pay attention to them or ask for their feedback. You are so busy figuring out where to get your new clients from that you have pushed the existing ones out of your mind.
We have had countless situations where entrepreneurs have asked us whether they should do something about a service, a price, or a strategy. And when we asked what their clients thought about it, they dismissed the clients’ potential opinion as unimportant. Or, worse, the brush-off contained a lazy assumption: “Oh, I already know what they’ll say…”

Here is some advice about how to reframe your attitudes so as to avoid the above pitfalls.

Factor your taxes into your profitability and strive to be efficient
As Benjamin Franklin said, nothing in this world is certain, apart from death and taxes. Franklin was not absolutely correct, in the sense that there is at least one country – North Korea – which tried to abolish taxes. But that country, just like the few others that have tried similar ‘innovations’ before 1989, is marked by poverty and inequality. There is a strong link between taxation and social/economic development. Look at the tax you pay as a very good thing for you and for society – tax is what makes the economy work for you and your clients.
You should still be able to make a profit after paying your taxes. If you can’t, your business model needs improvement. Look into increasing your productivity and getting smart(er) with your resources. Look into the type of market you are now on: maybe that segment is not for you, and you would be better off in a different segment that pays better or differently.
Minimising tax is only one solution, and it does not make you more efficient. It merely deflects the problem externally, into an area you cannot really control, and allows you to avoid looking into the gains you could make through monitoring your efficiency.

No two people are the same, no two situations are the same
Forget what happened in the past. You cannot have exactly the same employer-employee experience twice, nor can you precisely recreate any past situation and guarantee that the outcome will be exactly the same. If you were able to do that, you could replicate all your past successes every day. And if you cannot replicate your successes, what makes you think you can replicate your misfortunes?

Your former employee paranoia does not serve you well. Trust your current employees and move on.

Make a habit of regularly consulting your clients
Start right now. Go back to your clients and start asking questions. Ask for feedback. Or better still, get a third party to do it professionally and regularly. The fact that you seem to have a good relationship with your clients is no guarantee that they have not become in any way dissatisfied. Perhaps they cannot tell you how they feel because they don’t see you very often anymore. And in any case it is not their responsibility to come to you with feedback: it is for you to ask them the right questions. You should do so as frequently as possible.