Managing and leading in a small business

Most small businesses will need leaders and managers. Not everyone is a natural leader or manager, but there's a lot you can do to create a positive and productive culture in your business.

The difference between management and leadership roles

Management and leadership complement each other, but they have different functions:

  • Leaders encourage and inspire employees to achieve the goals of a business.
  • Managers manage employees and activities to achieve these goals.

Both roles are necessary. A leader can only inspire a team to success if there's a management structure that ensures the necessary tasks are being done. Likewise, a leader who wants to be effective should not spend too much time managing and not enough time leading.

In most small businesses, managers also tend to fill the leadership role. Unfortunately, not all managers have the right leadership qualities. Employees often only listen to, and follow, a manager's direction or requests because of the manager's title or level in the business.

Consequences of poor leadership and management

Poor leadership and management can impact your business in many ways. It can, for example:

  • cause a lack of direction and prevent you from meeting business goals
  • decrease productivity and profitability
  • lower customer satisfaction
  • waste business resources
  • cause poor communication and teamwork
  • lead to unmotivated and unhappy employees and increase employee turnover
  • create a toxic work culture
  • damage your business's reputation.

Be a good leader

Good leaders play a critical role in setting business vision and values and inspiring employees to adopt and support these. They also motivate and guide employees to achieve business goals. Good leadership skills can help a business:

  • make more effective decisions
  • focus on their vision
  • reach their goals.

People often link leadership to a specific position in a business, but there's no single position, characteristic or quality that defines a good leader. As a business owner, you'll need strong leadership qualities, but leadership can also come from your team leaders, managers and employees.

Characteristics of a good leader

Motivating people towards a common business goal involves a mix of styles and strategies.

Different leadership styles can be used at different times in a business, but some character traits are important for all leaders. These include:

  • self-awareness—understanding your own strengths and weaknesses
  • decisiveness—the ability to make decisions quickly when required
  • fairness—treating others reasonably and without favouritism or discrimination
  • enthusiasm—displaying a positive, motivating attitude
  • integrity—earning the respect of your team through honesty and reliability
  • knowledge—keeping up with the relevant facts, figures and trends in your industry
  • creativity and imagination—coming up with new and innovative ideas or promoting a workplace culture that does
  • endurance—persevering when things go wrong.

Behaviours to avoid

There are also characteristics that any successful leader will avoid, for example:

  • poor communication—can lead to misunderstandings, errors and poor cooperation
  • reluctance to delegate—leads to resentment and inefficiencies
  • favouritism among staff—leads to resentment.

Be a good manager

Management is about supervising, supporting and overseeing employees to ensure the job gets done. The focus is on achieving business goals by planning, organising and controlling business tasks, functions and resources.

Good managers make things happen. They:

  • manage schedules and budgets
  • oversee productivity
  • manage performance
  • work with their employees to resolve conflict.

Management skills

Some of the most important skills you need to be a good manager include:

  • strong communication and interpersonal skills, including listening skills
  • relevant technical, professional and industry knowledge
  • teamwork and team-building skills
  • critical-thinking, problem-solving, and decision-making skills
  • the ability to organise and delegate
  • negotiation and conflict-management skills
  • consistency and reliability.

Improve your leadership and management skills

Use the following activities to develop your, and your team's, leadership and management skills.

  • Coaching is a structured form of learning and development over a set period to train someone in a specific task or skill.
  • It often has clear, measurable goals.
  • It's useful for improving business leadership and management skills as it can often be difficult to develop these skills in isolated, one-off training sessions.

Read more about coaching.

  • Mentoring is a one-on-one relationship with a more experienced person to share knowledge, skills and thoughts.
  • It can often motivate both the mentor and the person being mentored (the mentee) and improve both their skills.
  • It's often ongoing and a longer process than coaching.

Read more about mentoring.

Group training sessions and workshops can be an effective way to train several employees in leadership and management skills at once.

There are many management, leadership and professional development training programs available. These cater for a range of skill levels, from experienced managers to employees who want to move into management roles.

Vocational and tertiary education and training

View more TAFE and university short courses, including business and management training.

Institutes and associations

  • Networking is observing and speaking with other leaders and managers.
  • You can use the opportunity to find out how they developed their leadership and management skills.

Learn more about networking in business.

Create a positive business culture

Good leadership and management will help you build a great company culture and a successful business. Employees who feel comfortable and engaged and believe that your business is a safe and positive work environment, will perform better and be less likely to move on.

Here are some key strategies to help you build a successful business environment.

  • Talk to your team. Ask questions and listen well.
  • Encourage them to participate and ask questions.
  • Think about their feedback and points of view.
  • Lead by example.
  • Work together as a team.
  • Be honest with your team.
  • Admit when you're wrong.
  • Don't blame others when things go wrong.
  • Try to resolve problems together.
  • Do what you say you will.
  • Communicate effectively.

Understand your preferences and work style.

Know:

  • when, how and where you work best
  • how you like to communicate with your team
  • how you like to be recognised for a job well done.

Encourage your employees to get to know this about themselves too.

Consult with your team when you're making decisions:

  • ask them for their thoughts, input, and feedback
  • when you've made the decision, discuss it with your team – share how and why you made the decision and what feedback and elements you considered.

Employees are more likely to accept a decision if they understand how and why you made it.

  • Make your business a space where your employees feel comfortable to ask questions and give feedback.
  • Implement feedback into business decisions and practices where suitable.

By setting up a good team, you and your employees can:

  • share the workload and get work done faster
  • fill skill and knowledge gaps
  • build strong working relationships
  • discover different perspectives, ideas, and ways of doing things
  • focus on the roles where you can best contribute to building your business
  • oversee and support each other
  • create a learning environment.

When hiring people, consider the following to create a strong team:

  • Hire people who are interested in, and passionate about, your idea, product or service.
  • Don't base your hiring decisions on someone's similarity to yourself. Hiring people who are different from you can bring balance and new perspectives to your team.
  • Choose people who show strong communication, listening, and problem-solving skills.

Find tips and resources to help you find and hire the right staff.

More ways to create a positive workplace

Read about high-performing and positive workplaces to help you create a working environment that:

  • creates satisfied and engaged employees
  • increases productivity and profitability
  • lowers staff turnover and related costs.

Watch our Managing between generations webinar to learn how to understand and manage employees of mixed generations effectively, including how to attract, keep, motivate and communicate with them.

Management styles

As a manager, how you handle different situations in your business will depend on the management style you're using.

It's important to be aware of different management styles, their impact, and their advantages and disadvantages. Also be aware of which management style you tend to use. Consider adopting different styles depending on the situation, the task being completed, and the employees involved.

The following management styles are frequently used in small businesses. Democratic management is often the most successful style, but there will be times when other styles can be useful.

Democratic managers:

  • consult their team before making final decisions
  • allow team leaders to decide how tasks will be addressed and who will perform them
  • encourage team members to participate in the decision-making process
  • still bear ultimate responsibility for decisions.

Advantages

  • Consulting your team can help to identify problems early.
  • Good communication benefits employee morale.

Disadvantages

  • It can be time-consuming and reduce business productivity if you spend too much time consulting.

Bureaucratic managers:

  • like to make sure team members follow rules, processes and procedures
  • expect employees to display a formal, business-like attitude in the workplace
  • expect employees to respect a strict chain of command, with the manager having final say in all decisions.

Advantages:

  • This style can be effective in situations where safety is very important.

Disadvantages:

It can:

  • discourage independence and creativity among employees
  • sometimes lead to resentment, absenteeism, and high staff turnover
  • reduce longer-term productivity as employees can become bored with their work.

This is a dictatorial style, where the person in charge:

  • has total authority and control over all decision-making
  • controls the work of the team and monitors every task closely to ensure it's completed on schedule and exactly to plan.

Advantages:

  • This style can be effective in periods of stress or crisis.

Disadvantages:

  • Employees who prefer to have some control over their own work can become frustrated.
  • It can stifle creative and innovative ideas.
  • It often leads to increased absenteeism and employee turnover.

This is a 'hands off' approach, where the manager:

  • leaves their team to get on with the job themselves
  • delegates many decisions
  • isn't very involved with employee tasks or projects.

Advantages:

  • Employees can have a sense of empowerment and fulfilment.
  • It can foster creativity and innovation.

Disadvantages:

  • It requires employees to be responsible and committed to their work.
  • You might not notice problems until they become serious.

Delegating

At some stage as a business owner, you might find that you're not able to do everything yourself and that you need to start delegating.

Delegation involves passing the responsibility for a task or role to someone else in your business. Entrepreneurs and people who start their own businesses can often find this hard to do. However, delegation is a very valuable skill for all business owners, leaders and managers.

By delegating, you can:

  • free up your time to focus on high-level management, operational and strategic challenges
  • promote employee engagement and empowerment
  • improve overall business productivity.

When delegating, always consider:

  • the task
  • what you can delegate
  • what you need to do
  • your employees' strengths and work goals.

Action item: Do a delegation exercise

Draw 4 columns on a piece of paper and enter the answers to the following questions:

  • Column 1: What are you good at?
  • Column 2: What tasks are important to get done, but take up a lot of your time, or would you prefer not to do?
  • Column 3: Can someone else in your business do these things?
  • Column 4: What training or support does this person need to successfully complete these tasks?

Establish an organisational structure

To ensure the best performance for your business, you need an organisational structure that will help you reach your goals.

To match your business structure with your business goals and operations, you have to understand the different types of organisational structures, as well as their benefits and limitations.

If your organisational structure is right for your business, it can:

  • clarify who does what, and who is responsible for what
  • create a good flow of information and communication
  • ensure your business is organised with a clear flow of work
  • help your business adapt to change by, for example, making it easy to move employees to the right place and roles at the right times
  • help to support employee engagement and retention
  • encourage customer loyalty through improved business performance.

Types of organisational structures

These are some of the main organisational structures in small businesses:

A functional organisational structure organises businesses based on the functions of the different departments, for example, sales, marketing, customer service and finance.

Each department has a manager, and the managers are supervised by an executive. Typically, executives will oversee multiple departments.

This is the most common structure for an early-stage, small-to-medium-sized business.

Advantages

  • There is a clear level of authority.
  • Employees can be loyal to their departments.
  • There are more opportunities for promotion and employee development.

Disadvantages

  • There is less opportunity for collaboration and innovation.
  • Employees have less opportunity to move across functions.
  • There are increased levels of bureaucracy.

A flatarchy organisational structure is a flexible structure that enables staff from different levels within the business to make decisions. Typically, there are little to no levels of management within this structure.

This is another common structure for small businesses when starting out.

Often as businesses grow and employ more staff, the business will adopt a more hierarchical structure type.

Advantages

  • Decisions can be made faster and with less red tape.
  • There are closer working relationships between employees and managers.
  • Savings can be made on the staffing budget as there are fewer management roles.

Disadvantages

  • Requires thorough planning.
  • There can be confusion about who makes certain decisions.
  • There is an increased potential for conflict between staff.

The matrix organisational structure arranges employees into teams, with each team having multiple functional managers. Each team might, for example, have its own marketing, sales, or finance managers (or representatives).

This structure is often useful for businesses with project teams, as it allows employees to work across teams and report to more than one team leader.

Advantages

  • Offers a flexible work environment.
  • Business resources, skills and knowledge can be shared.
  • Allows for open, supportive communication and management.
  • Promotes well-considered decision-making.

Disadvantages

  • Staff could be confused about who's in charge.
  • Budgeting for resources and staff is more complex.
  • Performance issues can be overlooked.

Choose an organisational structure

Consider these questions when deciding on an organisational structure for your business. Remember that some structures can be combined, for example, a functional structure could be either a flatarchy or hierarchy.

QuestionConsider
Does your business have distinct functions, e.g. marketing, customer service, manufacturing? If yes, consider a functional structure.
Will a collaborative decision-making process best suit my business? If yes, consider a flatarchy structure.
Does my business lend itself to project teams? If yes, consider a matrix structure.
Are there people within your business who have the skills and experience to manage a team? If yes, consider a matrix or functional structure.
Will I be able to effectively delegate to other staff members? If yes, consider a matrix or functional structure.

Also consider...

  • Last reviewed: 30 Nov 2022
  • Last updated: 5 Mar 2024