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Recent technical layoffs have caused a stir throughout the industry, but according to research 63% of technical workers faced with layoffs start their own businesses. This tidal wave is most apparent in America. There are new corporate formations, according to data from the US Census Bureau up about 54% from March 2020 to March 2023. For every three startups created before the pandemic, about five ventures have started.
Business growth comes with complexity – and risk follows closely behind. With any new venture, there comes a time when you, as a founder, will become overwhelmed and have to delegate responsibilities to your team. They are likely to make mistakes as they develop in their role, and you may wonder why you gave up responsibility in the first place.
You have three options: give up all semblance of work-life balance and claim all responsibilities as your own, wash your hands of all decision-making and hope for the best, or get ahead of the situation and put strong procedures in place. These procedures are often referred to as internal company controls, which are simply about establishing a hierarchy of decision-making authority and any consequences of making a bad decision.
Related: Fired from your big tech job? It could be the ideal time to pursue entrepreneurship.
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Prevention is better than cure
Establishing effective procedures requires a delicate balance between efficiency and flexibility. Take traffic lights as an illustration. At first glance, they seem to impede the flow of traffic. But in reality, they set up a reliable transportation system that creates the conditions for efficiency.
The overarching goal is to put in place the right structures while anticipating potential anomalies, empowering employees to make independent decisions within defined parameters. So if any aspect of the business deviates from the desired trajectory, your team can rely on internal controls to quickly implement the next logical steps. Conversely, ineffective controls can significantly hinder or even stop business operations grow.
While leadership is the most likely culprit for a lack of effective procedures, mismanagement and structural constraints can also be significant obstacles. For example, an inherently flawed corporate structure can make it nearly impossible to modify or even implement internal controls. In addition, a lack of company culture and direction can create confusion about the desired trajectory, further underscoring the criticality of having an unambiguous mission, vision and purpose as the basis for sound controls.
Put the right levers in place
Even the most basic small business internal controls or procedures inevitably hark back to the company’s overarching strategy. The logical step is to proactively identify potential bottlenecks and anomalies and develop business security and processes adapted to address them. That said, here are three types of controls that are highly recommended for startups:
1. Authorization and approval checks
Given the diversity of business activities, leaders may implement different business safeguards and processes depending on the specific business. Nevertheless, authorization and approval mechanisms are widely adopted in the startup landscape, allowing controlled delegation of responsibilities, whether informal or not. While the precise form of authorization and approval processes may vary, these mechanisms provide a reinforced framework for delineating the terms under which individuals or teams have the authority to proceed without seeking further approval, such as with money transactions.
For example, a procedure may allow purchases less than $500 per month without additional approval, but require CEO approval for any purchase above that amount. This helps streamline decision making and delegation of responsibilities while maintaining proper oversight.
Related: How to protect and maintain control of your business
2. Feedback Checks
Feedback checks are another beneficial protection for small businesses. Like authorization and approval protocols, feedback checks are proactive and help prevent deviations by identifying potential issues before they escalate. Feedback checks involve collecting inputs that can measure virtually every aspect of the business.
The collapse of the Silicon Valley Bank serves as a cautionary tale about the critical role feedback controls play in business success. Despite being a preferred financial partner for investors, the bank’s failure to establish safeguards and procedures around feedback eventually led to its being reversed; these could have helped identify the underlying issues and enabled corrective action before it was too late. By implementing feedback controls that solicit input from various stakeholders, you can gain valuable insights into your company’s performance and identify areas for improvement.
3. Simultaneous checks
Concurrent or steering controls represent another powerful mechanism for implementing effective procedures. These act as preventative measures that help customer-facing employees maintain quality and consistency. Usually concurrent checks start with predefined standards to evaluate performance. By adhering to these standards, your employees can properly manage interactions, even in the event of deviations.
For example, a sales rep needs to have a full understanding of the products they’re promoting so they can direct conversations. This aspect of the interaction is entirely under the control of the sales representative. Standards can help evaluate whether the sales rep is meeting sales targets and measure their performance.
Related: Strategic planning is essential for your business to succeed. Here’s why (and how to do it right).
Using internal controls for small businesses
Navigating the complex business world requires the ability to manage changing expectations and diverse personalities. Strong opinions can arise, which threaten progress. To overcome this, it is crucial to listen actively and engage in honest conversations to find common ground. Once a shared vision is established, effective business processes and internal controls can begin to be implemented so that the team meets agreed standards.
But even the most thoughtful plans can fall victim to unforeseen problems. Therefore, it is also crucial for effective teams to ensure that every procedure is adaptable. By cultivating adaptability, your business will be better able to respond quickly and effectively to changing circumstances. This paves the way to the continued success of your endeavors.