Managing Change at a Small Business

The one constant in life — and business — is change, and every entrepreneur knows the economic climate is rarely consistent. From spikes in inflation to shortages in the labor market to AI disruption, the business landscape is ever shifting.

In 2012, Donald Rumsfeld, former U.S. Secretary of Defense, spoke a timeless truth:

"There are known knowns: there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don't know we don't know."

Although Rumsfeld's quote was in response to a request for evidence that Saddam Hussein tried to supply weapons of mass destruction to terrorists, his comments are also applicable to the business sector.

And there are plenty of unknown unknowns to consider. "The risks in running a business are everywhere — employee burnout, supply-chain disruptions, economic downturns, bankruptcy, accidents, even loss of life," explains K. Scott Griffith, founder and managing partner of  SG Collaborative Solutions, an enterprise risk-management firm in Westlake, Texas, and author of "The Leader's Guide to Managing Risk: A Proven Method to Build Resilience and Reliability."

But rather than labeling unexpected events "black swans," Griffith says there is a better way to see, understand and interact with the world around us.

I spoke with him and several other highly successful entrepreneurs to glean some wisdom on ways to deal with unknown knowns.

Griffith developed the Sequence of Reliability approach to risk management after years of scientific and operational research in high-consequence industries, including aerospace, transportation, health care, emergency medical services and energy. It consists of four steps, which should be taken in sequence, and requires commitment to and collaboration with your employees.

"Risk can originate externally, such as supply-chain disruptions, cyber attacks, economic downturns, or environmental conditions such as pandemics, wars and natural disasters," Griffith explains.

However, many business owners don't recognize when it originates internally. For example, he points to employee burnout or illness, turnover or other forms of human unreliability such as inadequate training or equipment, or human risk-taking behaviors.

Systems have two components: effectiveness (when things go right) and resilience (when things go wrong). "We manage systems by applying barriers, redundancies and recoveries where they are most needed and resources allow," Griffith says.

There are two categories of human reliability, Griffith explains. One consists of human performance-shaping factors, such as knowledge, skills, abilities and proficiencies. The other consists of system influences, personal influences and environmental factors such as culture and competing priorities.

Human behavior includes the choices and errors we make. Griffith says that by focusing on choices, small business leaders can influence the errors made. He stressed that human errors should not be punished.

"But," he says, "we should examine the choices leading up to our errors and manage them in such a way that inspires risk reporting to the organization, allowing us to manage the entire workforce, not just one individual at a time."

An organization is composed of both systems and people. Instead of waiting for something bad to happen, Griffith recommends being proactive in risk management by being on the lookout for what can go wrong "and then apply the sequence of reliability to improve the system, manage the workforce, and build sustainment inside the business or organization."

So, what does this entail? Putting programs, policies and processes in place that guarantee the organization will see, understand and manage risk according to these principles.

"The organization must document this approach in writing and be willing to have third-party, independent audit verification," Griffith says. When workers see leaders are committed, it encourages a "collaborative just culture"—that is, one in which leaders take responsibility for systems they design and workers take responsibility for their decisions within the systems. When this occurs, Griffith says organizations begin to sustain superior results.

There's a tendency for business leaders to believe that they can accurately see and understand everyday risk. Griffith explains that there's a predisposition to rely on past events, as well as financial audits, quarterly results and inspections to warn of impending danger.

"Like the Titanic before it sank," he says, "we celebrate our successes and develop a false sense of security based on past results."

But sometimes, the wrong lessons are learned when outcomes are successful. "We usually are driven by a desire to achieve a result," Griffith says, "and anything that stands in our way represents negative input, an obstacle to success."

Unfortunately, vulnerable systems and risky behaviors can sometimes provide the desired results as well. Griffith warns that rewarding outcomes, without considering how the results were achieved, can produce problems down the line.

You can guard against this by honestly looking at the limits of your optimism. "The best leaders in business are not averse to taking risk — a company's success often depends on it" he says, "but they do so by making informed decisions, collecting the best data and information available, and recognizing the limits of their sources."

Changing environments can often paralyze small business owners with fear. However, Terence Mauri, founder of future-trends think tank Hack Future Lab, and author of "The Upside of Disruption: The Path to Leading and Thriving in the Unknown," tells me that risk and reward travel in the same elevator.

"We always overestimate the risk of trying something new and underestimate the risk of standing still," he says. "Hack Future Lab's research confirms that business owners who choose resilience over fear and courage over comfort in their growth strategy are 1.8 times more likely to outperform their peers, 3.4 times more likely to be innovative and 4.3 times more likely to adapt to change." Mauri also points out that some of the most iconic companies started in a recession: GM, Revlon and Proctor & Gamble. "In bold, we win," he proclaims.

Mark Fortier is the founder and CEO of Fortier Public Relations in New York City, which represents business and thought leaders (including Pulitzer Prize winners and the CEOs, presidents or founders of such companies as Facebook, Starbucks, Berkshire Hathaway, Deloitte, Whole Foods and Proctor & Gamble). His advice: No matter the economic environment, never lose momentum.

"If you're paralyzed by an industry change or challenge, move forward full-speed-ahead on another, whether that's your culture, customer relationships or balance sheet," he says. "That will ensure that as you adapt to uncertainties, you'll develop the confidence to emerge from them strong."

Abbi Whitaker is the founder of The Abbi Agency in Reno, Nevada, and has teams throughout the U.S., as well as in the U.K., Ukraine and Nigeria. In 2022, it was named Advertising Agency of the Year ($10 million to $50 million) in the American Advertising Federation's Western Region.

Whitaker tells me that cash flow is the biggest threat to cripple businesses' growth and stability. "If you do not have strong cash reserves or capital, then you cannot take chances and push for growth," she says, "because you are more focused on reacting to the day-to-day operations and trying to chase money to pay bills."

She recommends having at least six months of operating capital in the bank as well as a line of credit to help ease the stress of an economic downturn and avoid being reactive instead of thinking long-term.

"All successful businesses have a long-term growth strategy," she adds, "but if you are so busy trying to chase cash, it's almost impossible to focus on being proactive, innovative and boundary breaking."

Robert Brill is CEO at Brill Media, a media-buying agency in Los Angeles that was ranked in the Financial Times 500 in 2021, 2022 and 2023. He advises clients to achieve product-market fit as soon as possible — and then focus on marketing.

Brill says that every entrepreneur needs business growth that is predictable, repeatable and scalable. "Look for that, and don't stop until it's found — and to create this framework, work with a trusted marketing partner."

However, marketing needs to demonstrate how it is growing the business in dollars — and he warns against substituting other metrics, such as likes, comments, shares or engagements on social media. "Marketing should make the business smarter about the messages that create consumer action, resulting in money spent with the business," Brill says, "and it should be profitably scaling up the business."

He also advises meeting consumers where they are. For example, if you have an offline business, Brill recommends finding a way to bring it online. "In-person math tutoring can be online math tutoring — in other words, create opportunities for the business to adapt to macro changes in consumer behavior," he says.

According to Lee Adam, product marketing manager at Cardata, strategic hiring decisions can prove invaluable. "Rapid expansion and overhiring can lead to high turnover and extensive layoffs," she warns. However, if you hire methodically and strategically, Adam says your business can remain operational and resilient during major economic shifts.

Terri Williams has over 10 years of experience writing about student loans, mortgages, real estate, budgeting, home improvement and business in general. Her work has appeared in The Economist, TIME, Forbes, Architectural Digest and Realtor.com. Read More