Many of my business advice clients come to me saying that they’ve never learnt how to do business, and they’re not sure if they’re doing the right thing. Mostly, they don’t have an MBA or other business qualification.

I do have an MBA, but I’m pretty sure that’s not why they’re coming to me. In fact, I’m not sure that most of my clients would even know that I have an MBA. They come to me because they think that I do know what I’m doing, or rather, what they should be doing with their businesses.

So, is an MBA a help or a hindrance?

An MBA will not teach you how to run a successful small business. Most of the concepts and case studies are about corporate businesses, and cannot be directly applied to small businesses. I do have some goodies from the MBA which I regularly apply to my thinking about my clients’ businesses, but you don’t have to do the whole course to get these – most of them are on my website.

An MBA will make you think. It will make your brain bigger and stronger. Most of the stuff in there is way more difficult than any other Master’s degree, and it teaches you to think in a very rigorous way. It teaches you some great ways of making decisions – I drew up a decision matrix this morning to decide which format of business cards to buy for my new business, Tender Winner, and it’s only now I’m thinking about it that I even recognised that this was a decision matrix based on payback period versus discounted cashflow.

It helps you to understand the business jargon, and not to be intimidated by someone going on about discounted cashflow.

And it gives you some great recipes to follow – the BCG matrix tells you about how to plan a range of products, and I have a version of this for small business which I probably draw for every client I see. Remind me to write about this one and draw it here. But you do have to remember that these recipes and rules have to be adapted and quite often contorted to be useful for the smaller business.

Has it been useful for me?

The main things I’ve got from doing an MBA are:

• Confidence – I know I can hold my own and that I’m clever enough to think through the difficult problems.
• Enjoyment – the MBA taught me to enjoy the intellectual challenge of the difficult problems.
• Recognising bullshit – when someone tries to pull the wool over my eyes with jargon or complex spreadsheets, I can see what’s going on, and be confident enough to say, “What exactly is this on row 12?”

Actually, the main thing I learnt was not to watch TV. When I started my MBA I realised that I would have to do 10 hours a week of studying on top of a 50-60 hour a week job. I cut out TV rather than cutting out going to the pub, and I still don’t have a TV habit.

Was it worth 12k and 5 years’ of extremely hard work on top of a demanding job? Probably not. With hindsight, I could probably have read the FT to understand the jargon and the case studies. And a bunch of business books aimed at small businesses which I had to read anyway to be able to work with the small businesses I really love.

What would you recommend instead?

If you really want to know how to run a small business – go and work in one, or set one up, and commit yourself to learning something new every day. Read everything you can about small business, take notes, get yourself a business advisor who has done it before, and be prepared to make huge mistakes and then learn from them.

Absorb knowledge and skills like a great big sponge. Be prepared to look dumb when you ask questions, and just be really, really interested in learning how to do this stuff.

I wrote recently about the business jargon I use regularly, and explained a few of my favourite terms. You guys seemed to like it, and I’ve been noticing a few more terms I use regularly, so here are some more.

Sensitivity Analysis

This sounds great in a meeting:

“We’ll need to subject this to a rigorous sensitivity analysis before we can come to decision”.

However, what it really means is playing around with the spreadsheet. Say you’ve done a profit and loss forecast, based on how many goats you think you’ll sell in the next year. You’ve projected 5 white goats per month, 10 black ones and 2 of the high end premium beardy goats. All is looking good.

But then you think, What’s the minimum number of goats I need to sell in order to break even? Just to reassure yourself that you’ll be okay, even if you don’t sell as many as you hoped. So you go back to your spreadsheet and reduce the sales numbers until net profit is zero, so you can see the minimum number of goats you need to sell just to get by.

That’s a sensitivity analysis.

KPIs

Everyone thinks you should have them, but what are they?

KPI stands for Key Performance Indicators, which means the things you want to measure in your business to see if you’re doing well or not. KPIs are nearly the same as targets, but you probably want to look at all round business success indicators as well.

Most businesses will look at turnover all the time. How much did we bill this month?

Turnover is easy to measure, but it’s not necessarily the most important indicator to measure. Profit and cash flow are far more important indicators.

You might also include:

• Gross profit margin – how much profit did we make on what we sold?
• New clients
• New contacts from networking, Twitter, website sign ups, RSS followers
• PR – mentions in the media
• How many days were we overdrawn in the month?

And don’t forget about net profit – the one you get to keep. Well, mostly, apart from the bit you have to give away to the government.

I have a sheet of paper next to my desk to show all my KPIs and how I measure them on a 3 month basis.

Julia's Wall Chart

Your favourites

What are the words you use all the time in business that might need explaining?