(Part 3 of a 3 part series) Many First Nations lose way too much money trying to run ‘mom and pop’ businesses. Band-controlled entities shouldn’t run ‘mom and pop’ businesses.
“Mom and Pop” businesses are those which are typically owned and operated by an individual or couple (ie your “mom and pop”). Their main features are:
- Relatively small revenue base, usually less than $350,000/year,
- Small staff, usually less than 3 employees.
Small convenience stores, retail outlets and small motels are classic ‘mom and pop’ businesses.
‘Mom and pop’ businesses require a lot of long hours to develop and sustain. Bands shouldn’t run ‘mom and pop’ businesses.
For starters, why are you wasting your time with nickels and dimes when there are dollars upon dollars available in your area? As well, whoever you hire to manage your mom and pop business will not put the 14-18 hours per day in to establish and grow your business. And if they are prepared to commit the time, they probably want a wage for every hour that they work.
Moreover, ‘mom and pop’ managers will not treat the business like their own – because it isn’t.
For instance, purchasing decisions and human resource decisions can be very costly. And if the business is not yours, what motivates you to make the best decision?
Thus, Bands owning ‘mom and pops’ contradict the small business model of working long unpaid hours and acting in one’s best interest.
Often, Bands pay lots of wages in the ‘mom and pop’ businesses that they own. Look at the financial statements of your ‘mom and pop’ businesses. Where are all the expenses going? Are they controllable?
I have seen too many Bands lose big bucks sinking money into fledging ‘moms and pops.’ They sometimes end up using some of their operating dollars to fund the operations. It’s not long afterwards that remedial management kicks in.
Another interesting phenomenon is that some Bands seem to be emotionally attached to their ‘mom and pop’ businesses. Even when it becomes clear that the business is running them into the ground, many leaders are reluctant to let go.
I hear things like “it provides us with employment.” “We are counting on things to turn around.” Stuff like that. To me, that’s just denial. The writing is on the wall and we often do not want to read it.
There has to be a better way.
For starters, Bands should develop a sound business strategy that matches its strengths and weaknesses with the regional economy’s strengths and weaknesses.
As well, Bands should go after only those businesses which can justify hiring a full-time manager – and still have enough left over for some profit to the Band.
As a rule, if your Band business has small sales and a small workforce, it will not be effective to run as a Band-controlled entity. You should probably turn these smaller businesses over to Band members. Let them run these businesses for themselves. Like the way they should be – as ‘moms and pops.’
Instead, focus your energies on bigger, profitable projects.
I have worked with many bands that have done well in the resource sectors, construction, land and real estate development. Some Band-based tourist projects can be profitable, as well. But be careful with the tourist projects. A lot of them should be run as ‘moms and pops.’
Andrew Leach, MBA, is a successful First Nation management consultant, who specializes in turning messy situations into prosperous ones. Visit his website at www.andrewleach.com, drop him an email at [email protected] or call him directly at 604-868-4004.