Four Ways To Prevent Yourself From "Enroning" Your Small Business
by Tim Fulton

As a business owner or manager, you’ve watched the news on Enron the past few months and sat in amazement at how such a company could have made such a mess of itself. Enron has gone from being the Prince of Wall Street to the Court Jester. Free-falling stock price. Thousands of employees laid off. Retirement accounts insolvent. Chapter 11 bankruptcy. Senate hearings. It's the only news story that could have possibly taken our collective minds off of the 9/11 tragedy and the war in Afghanistan.

As you watched this story unfold, you have considered what a terrible misfortune this has been for the stakeholders in Enron. You have probably also concluded that this type of disaster could never happen to your business. It’s not possible that your small business could get "Enroned." Or is it?

The reality is that small businesses meet this same fate far more frequently than we can imagine. The failure rate for small businesses is staggering. Just take a drive down Main Street and look at the empty storefronts. Take a "surf" on the Internet and search for those websites you designated as favorites a year ago. How many are still there?

How can you protect your small business from being Enroned? Here are four ways:

1. Be honest with your company's stakeholders.

According to news reports, top officials at Enron misled their investors, their creditors, and their employees. Employees were even encouraged to continue to invest more of their hard-earned savings into Enron stock after news of the company’s demise had begun to appear.

Your employees understand more about your business than you imagine or you give them credit for. Attempts to mislead them may provide you with short-term gains, but will cripple your company in the long run. Trust your employees with the truth. If the company is in trouble, share those challenges with your employees and enlist their support in facing those challenges.

2. Keep your business simple.

Enron took great strides to immensely complicate their business. Offshore deals. Limited partnerships. Creative financing. Their CEO, Kenneth Lay, testified that he was not quite sure what exactly was going on within his own company. Others in senior management positions within the company have offered similar testimony. That's a bad sign.

The most successful small businesses I have witnessed are kept as simple as possible. Simple business proposition. Simple financing strategies. Simple exit strategy. Consider a McDonalds franchise. That business has been simplified to the point that a business owner can put a part-time high school student with little or no business experience at the point of contact with customers with minimal training and rest assured that his multi-million dollar business investment is in good hands.

3. Carefully select and manage your external professionals.

This includes your accountant, your attorney, your banker, and others. Arthur Anderson is an excellent global accounting firm. They also have an outstanding reputation as management consultants. Enron made the mistake of hiring the firm for both auditing and consulting purposes. These roles are inherently conflicting and will result in Anderson either going thru a name change or being bought by another firm. Management should have seen this conflict and used Anderson for one job or the other; but not both.

Small business owners make the same mistake. They ask their attorneys for answers to accounting questions and their accountants for marketing advice. They allow their bankers to make key strategic management decisions for them. These are often times colossal mistakes. You need these professionals to provide advice and consultation in their areas of expertise. That's important to the stability and growth of your business.

4. Cultivate the right corporate culture.

Enron had a culture of rule breaking. Individuals went to great lengths to work around United States tax laws and the Internal Revenue Service. When it became evident last fall that their practices were going to be scrutinized, they ordered massive shredding of important corporate documents. What message did these questionable and possibly illegal actions send to the rest of the Enron employees who witnessed these activities? What sense of ethics were expressed in their actions?

Every company, large and small, has a corporate culture or personality. It can either be crafted and cultivated by senior management or it will take a life of its own based on their actions or lack of actions. It is incumbent upon the business owner or general manager to take responsibility for setting the right example for the employees. Their actions will mirror those of their leaders. If the business owner is cheating and lying to customers, it will only be a matter of time before the employees will assume that is right and proper behavior and will do the same.

Enron is not the first and won't be the last global conglomerate to stumble and fall. The key lesson for small businesses is to take notice of the pitfalls that tripped the energy giant and caused it to fall. Those pitfalls can just as easily strike and knock down a small business with far less paparazzi and no multi-million dollar bonus for the owner to fall back on.

Tim Fulton is a nationally recognized small business consultant and advocate. He has been involved in the field of Entrepreneurship for the past twenty years as a successful business owner, a small business counselor, and a university professor. He can be contacted at timfulton@hotmail.com.