Small Business

A roadmap to successful leadership in business

Marcus Lemonis of CNBC's "The Profit" with employees at Unique Salon & Spa.

More than half the American public believes they have what it takes to own and lead a business. Yet of the small businesses that actually do open, half of them fail within four years, in part due to a lack of strong leadership.

"Whether it's a new business or an existing one, owners must clearly communicate a chain of command and a plan to employees to succeed," said Amanda Austin, a vice president at the National Federation of Independent Business.

Nearly 56 percent of adults perceived themselves to have "the required skills, knowledge and experience to start a new business," according to a Global Entrepreneurship Monitor report.

Yet 50 percent of small businesses don't last beyond four years, according to a compilation of three studies by

"Oftentimes companies fail because nobody knows who's in charge," said serial entrepreneur and investor Marcus Lemonis of CNBC's "The Profit."

Lemonis examines a chain of four hair salons on Long Island, N.Y., called Unique Salon and Spa to determine if he'll invest in it. He finds the owner, Carolyn DeVito, is a once-savvy businesswoman whose leadership is badly lacking.

She's in a financial mess because of an ugly legal battle with a decades-old partner. Despite the business generating $4.2 million in annual revenue, DeVito can't afford to update the tired-looking salons. She's in debt and her credit is ruined. She seeks Lemonis' investment on the show.

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Marcus Lemonis of CNBC's "The Profit" with Carolyn Devito, the owner of Unique Salon &Spa

Stay engaged: Is a management layer really needed?

DeVito hired a general manager after the lawsuit, and a separate manager runs each of the four salons. But the employees aren't sure who's in charge. DeVito doesn't even have necessary operational information such as inventory.

The problems are both indicators that she isn't leading properly, and that a business of her size likely doesn't need a layer between her and the employees, Lemonis said.

"A lot of small businesses make a lot of mistakes when they think of themselves as a big business and they start acting like a big business," he said.

Austin agrees that too many layers can lead to disgruntled communication and a breakdown in a chain of command.

"You can't let go of the leadership you have. You always have to be engaged and know every detail of the business," she said. "You must be accountable for your business."

Hot and bothered
Hot and bothered

Leave baggage outside the business

The personal nature of the disaster with her now ex-partner emotionally drains DeVito. To make matters worse, she must work within the same walls where the drama happened.

But it's been two years since the business relationship went bad. Lemonis thinks it time she gets over it. "When people fall down, they need to get up, dust off and move on," he said.

Bringing emotions and baggage into a business can cause a lack of morale for the owner and employees.

A legal settlement prevents DeVito from discussing details, but the case ended with DeVito being awarded all four salons. As for her ex-partner, Joe Secreti, he adamantly denies any wrongdoing.

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Always protect yourself legally

Small businesses are often founded with a feeling of camaraderie and verbal, loose agreements. But any owner must secure a contract before entering a partnership to make it legally clear what will happen if things go sour, Austin said.

"Otherwise, it's hard to come to a joint decision when things blow up," she said.

A contract should include specific clauses outlining mutual goals, financial liability, a plan to deal with disgruntled employees, and buyout options," she said.

Create a solid business plan but be nimble and ready to adjust it, and employee structure, if circumstances require it.

Create a good environment to keep good people

Balancing authority with employee concerns helps create a good work environment. Owners should treat employees with the same respect they expect. Offer them competitive compensation, vacation time and flexible workdays, especially in today's mobile world, Austin said.

"Good leaders will invest in their employees," she said. "Understand that they, too, are building a career for themselves."

The goal is to avoid employee turnover to keep good people around because the people are the brand of a small business, she said.

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Keep communication lines open and pro-active.

Employee-boss communication must be constant and honest. Share as much information pro-actively, especially in a crisis, with employees as long as it doesn't compromise the business, Austin said.

The move allows a leader to lead from an authoritative position, and to squash any rumor mills before they can start.

"If things get bad, tell them (employees) you might have to make changes to staffing but that you will keep them in the loop along the way," she said.

Also clearly communicate details of employees' roles to them, and create a review process to ensure that expectations are met. Seeking employee feedback to keep communication moving on a two-way street is another way to lead effectively.

At Unique Salon, no real communication between DeVito and the employees exists, according to Lemonis. "It's like the inmates are running the asylum," he said.

The Profit, a reality series with multimillionaire Marcus Lemonis turning around struggling companies, airs all-new episodes on Tuesdays at 10 p.m. ET/PT on CNBC.