The opinions expressed by the shareholders of the entrepreneurs are their own.
Recent tech layoffs have made waves throughout the industry, but according to research, 63% of tech workers who have experienced layoffs go on to start their own companies. This shift in tide is most evident in America. According to US Census Bureau data, new business formations rose about 54% from March 2020 to March 2023. For every three startups formed before the pandemic, nearly five have been started.
Business growth comes with complexity – and risks follow closely. With any new project, there will come a time when you, as the founder, will find yourself overwhelmed and need to delegate responsibilities to your team. They will likely make mistakes as they develop in their roles, and you may be left wondering why you shrugged off responsibility in the first place.
You have three options: forgo any semblance of work-life balance and claim all responsibilities on your own, wash your hands of all decision-making and hope for the best or move forward with the situation and put in place strong actions. These procedures are often referred to as internal business controls, which are simply about establishing a hierarchy of decision-making authority and any consequences for making a bad decision.
Related: Giving up on your big tech business? This may be the perfect time to pursue entrepreneurship.
Prevention is better than cure
Formulating effective procedures requires striking a delicate balance between efficiency and flexibility. To illustrate this, consider traffic lights. On the surface, they may appear to be obstructing the flow of traffic. However, in fact, they create a reliable transport system that creates conditions for efficiency.
The overarching goal is to create appropriate structures while anticipating areas of potential deviation, and empowering employees who have the authority to make independent decisions within defined parameters. Thus, if any aspect of the business deviates from the desired path, your team can rely on internal controls to quickly implement the next logical steps. Conversely, ineffective controls can significantly stunt or even halt growth.
Although leadership is the most likely cause of a lack of effective action, poor management and structural constraints can also be significant obstacles. For example, an inherently flawed company structure may render it almost incapable of adjusting or even implementing internal controls. In addition, a lack of company culture and direction can create confusion about the desired path, further emphasizing the importance of a clear mission, vision, and purpose as the cornerstones of sound control.
Put the correct levers in place
Even the simplest internal controls or procedures for a small business inevitably come down to the overall corporate strategy. The logical step is to proactively identify potential bottlenecks and anomalies and develop business safeguards designed to counter it. With that said, here are three types of controls that are highly recommended for startups:
1. Licensing and approval controls
Given the variety of business operations, leaders can implement different business safeguards depending on the specific organization. However, delegation and approval mechanisms are being widely adopted in the startup landscape, allowing for a controlled delegation of responsibilities, informally or otherwise. While the exact form of authorization and approval processes may vary, these mechanisms are an enhanced framework for defining the terms under which individuals or teams have the authority to proceed without seeking further approval, as in monetary transactions.
For example, the measure might allow purchases of less than $500 per month without additional approval but require CEO approval for any purchase over that amount. This helps streamline the decision-making process and delegate responsibility while maintaining proper oversight.
Related: How to protect your business and keep control of it
2. Feedback controls
Feedback controls are another useful safeguard for small businesses. Similar to authorization and approval protocols, feedback controls are proactive and help prevent distractions by enabling the identification of potential issues before they escalate. Feedback controls entail collecting inputs that can measure virtually any aspect of a business.
The collapse of the Silicon Valley bank is a cautionary tale about the pivotal role that feedback controls play in business success. Despite being a preferred financial partner for investors, the bank’s failure to put in place safeguards and procedures around the notes eventually led to its undoing; It could have helped identify underlying issues and enable corrective actions before it was too late. By applying feedback controls that solicit input from various stakeholders, you can gain valuable insights into your business performance and identify areas for improvement.
3. Synchronized controls
Concurrent or directional controls are another powerful mechanism for implementing effective actions. These procedures act as safeguards that help customer-facing staff maintain quality and consistency. Usually, concurrent controls begin with predetermined criteria for evaluating performance. By adhering to these standards, your employees can deftly direct interactions even in the face of distractions.
A sales representative, for example, must have a thorough understanding of the products they’re promoting, allowing them to direct conversations. This aspect of the interaction is completely under the control of the salesperson. Standards can help assess whether a salesperson is achieving sales targets and, in turn, measure his or her performance.
Related: Strategic planning is essential to the success of your business. Here’s why (and how to do it right).
Take advantage of small business internal controls
Navigating the complex world of business requires the ability to manage evolving expectations and diverse personalities. Strong opinions may emerge, posing a threat to advancement. To overcome this, it is crucial to actively listen and engage in honest conversations to find common ground. Once a shared vision has been established, effective business processes and internal controls can begin to be implemented, ensuring that the team meets agreed standards.
However, even the most well thought out plan can fall victim to unexpected problems. This is why ensuring that any action is adaptable is also crucial to effective teams. By cultivating the ability to adapt, your business will be better equipped to respond to changing circumstances quickly and effectively. This sets the stage for continued success in your endeavors.
