Business Owners, Drivers and Lovers

Research by HBR¹ shows that many managers (and by extension, business owners) are unable to judge objectively how well or poorly their business is run. In fact, the research found zero correlation between self-perceived management quality and actual performance.

The same report finds that only 6% of businesses are well run, and that the difference between them and the worst-run businesses equates to 25% in growth rate and 75% in productivity.

Now it could be that, like Captain Mainwaring, you are a pretty shrewd judge of these matters. This delusion does not apply to you and you really are one of those 6% of businesses.

But what if you aren’t?

Just think about those figures. Let’s take a modest business (say £1m turnover, 10% net margin, 5% annual growth) and assume the owner is in the middle of the pack (12.5% potential improvement in growth, 37.5% potential improvement in productivity). Over 5 years, the gap is over £200k of net profit.

£40k per year. Just for getting the basics right. No fancy strategy or miraculous new product required.

Curiously, the same skewed perception occurs in self-assessments of driving ability and sex. I can’t help you with those, but I can help you run your business better; take a look at https://www.thescaleupformula.com or contact me direct to find out how it works.

¹Why Do We Undervalue Competent Management?, Raffaella Sadun, Nicholas Bloom, and John Van Reenen, October 2017

Formulating your beliefs

If asked what is critical to their business, most leaders and managers will include “employees” in their reply. They understand that business is about people.  With the right people, a clear and worthwhile aim and good leadership you can achieve anything.

If business is about people, how can it be reduced to formulas?  More to the point, why would you want to do such a thing?

Well of course business is measured using formulas; profit margin, growth, return on investment, customer retention and so on.  Used with intelligence and insight as key performance indicators these measurements can drive action and improve life for business owners.

But that’s not the kind of formula I’m talking about.  I’m thinking about meta-formulas, “belief formulas” that capture a belief about business.

A good example of this is the formula that links employee satisfaction to customer satisfaction to profitability explained by Heskett, Sasser and Schlesinger in “The Service Profit Chain”.  There are data supporting this linkage but in essence it describes a way of managing a business based on beliefs about people.

The Scaleup Formula© captures another belief; that owner-managed businesses all reach some revenue ceiling when the owner cannot find the hours to spin any more plates and for a business to grow beyond this point it must fundamentally change, and so must the owner.

Scalable businesses consist of repeatable processes operated by autonomous employees, with some kind of feedback and improvement loop using reviews.  The role of the business owner is to create and nurture this system, rather than being the person that makes all the decision and deals with all the problems.

The Scaleup Formula is:

Standardised processes * accountable employees * regular reviews = a scalable business

What are your belief formulas and how do they help you achieve your aims?

www.thescaleupformula.com

Generalising from the Specific

An old client contacted me recently. He was feeling stuck again and thinking about getting some more coaching.

Thanks to his drive and ability his business has grown by about 500% since we last worked together three years ago. He has overcome the barrier of just expecting employees to know what to do, and has sorted out his back office structure, processes and systems so he can delegate, let go and focus on growth.

So why more coaching? It seems as if his operational stuff is performing inconsistently and lacks visibility compared with his improved back-office. One of his long-time employees is leaving. He is slipping back into thinking that systems solve problems rather than leadership solving them. He lacks confidence in approaching this problem and can’t see a clear plan or way forward.

We talked for an hour or so about this. I felt slightly uninspiring as we went over the same ground: Clear accountability, unambiguous targets, simple written processes, routine review, measurement and improvement. I think perhaps some business owners struggle to generalise from the specific, to see that every business is a chain of essentially similar flows and balances, blockages and leaks, and that a solution in one area is portable to another.

Of course, it is easy to see this from outside and far more difficult when you are the one trying to keep all the cogs spinning. The point of using a coach is I suppose only partly in the answers (most of which are blindingly obvious anyway). The main benefit is in having someone to provide that view from outside the machine.

(If delegating, letting go and focusing on growth is something you’d like to do more of you might be interested in this course.)

Leadership Traits?

Traits as a leadership model is a bit passe but…

I was talking to a business owner recently. She wants to improve her leadership skills. She asked a bit of a googly: “What inspired you about people who led you?”

All the great managers I have been lucky enough to work for flashed in front of my eyes and I said, without thinking too much about it:

“They were all passionate about what we did. They were all good at what they did. They were all funny. They all let me know that my contribution was important and that I was doing a good job.”

So perhaps behaviours rather than traits. Nothing very complicated.

What do all the good bosses you’ve worked for have in common?

All That HR Stuff

I was talking recently to a client about delegation and helping staff take more responsibility. Like many owners, she has become something of a bottleneck in her business, with most decisions and some critical activities reliant upon her.

I explained how implementing things like organisation charts, job descriptions, processes and objectives helps to empower employees, by making their responsibilities and authority clear. Her immediate reaction was “I can get our HR consultant to do that.”

I commended this piece of delegation but had to point out that, while an HR consultant was exactly the right person to create the templates, advise on best practice and record and publish the results, the actual discussions with employees were far too important to be left to a third party and should be the responsibility of the manager of each employee (my client in this case).

As I anticipated, her immediate response was “I haven’t got time to do all that HR stuff!” I asked her to expand on this and, of course, the perfectly rational answer was that she wants to spend as much time as possible on selling and delivering service in order to grow her business. Discussing someone’s job description was not, in her view, as important as winning more business or raising more invoices.

Of course, on one level (or perhaps, on one timescale) she is right. The business will not survive for long without sales and cash. However, looking longer-term, failing to also invest time in developing employees and delegating responsibility to them means that the business will run out of steam. It will reach a revenue ceiling when the owner is working as many hours as they can and is simply unable to sell or control any more.

I explained that the job descriptions, orgchart and other HR artefacts were simply records of the underlying process, which was one of two-way communication about the organisation’s purpose and the employee’s part in achieving it. Only in this way will employees become accountable for their results, and only then will she have a scalable business.

I left her with a challenge. There are two types of business owner: One type focuses on doing and deciding things day by day. The other focuses on developing their employees and systems. Only one of these types build scalable businesses and every business owner has a choice about which type they want to be.

If you’d like to find out more about leadership and scalable business then these events may be of interest.

A Simpler Business Growth Model

Whilst preparing a client proposal recently I referenced an HBR paper on the stages of business growth (The Five Stages of Small Business Growth by Neil C. Churchill and Virginia L. Lewis link).

It’s rather old but remains, like all good management models, relevant today. It provides a useful tool for gaining insight into an individual business, its stage of development, strategy and challenges.

It also remains somewhat inaccessible to the owners of small businesses, who might see it as theoretical or even corporate. Their small businesses are not big enough to afford the shamens required to think about and apply these frameworks. From the practical, over-worked perspective of a business owner, the theories don’t look like their business. They must be talking about someone else.

That led me to wondering about what a model that they would find useful might look like. I came up with a three-stage model:

• Stage 1: The business owner does everything
• Stage 2: The business owner controls everything
• Stage 3: Employees control and do everything

In terms of employees, Stage 1 has of course only one; Stage 2 has anything up to, in my experience, fifty (although five to twenty is more typical) and Stage 3 is unlimited – it is a scalable business.

Research from the DBEIS in 2019 (link) suggests that 76% of businesses in the UK are in Stage 1; and fewer than 1% are in Stage 3.

To put it another way, fewer than 1% of businesses are scalable and almost all businesss that employ people have their growth limited, actually or potentially, to what the owner can directly control.

Now of course many business owners will be comfortable with their business as it is and distinctly uncomfortable with the idea of giving up control. But I know from my day job that many are not; instead they are frustrated at their apparent inability to grow their business past a certain point.

The model (let’s call it The Three-Stage Business Growth Model^©) won’t solve this problem but it does I hope make the solution pretty clear:

In scalable businesses , employees do and decide everything. To make a business scalable, achieving this must be the primary objective of the owner.

If you want to learn more about making your business scalable then register for one of these webinars

The Formula for Business

Quite a lot of my time is spent helping business owners develop their management team. In a small business, my client may have had limited management training and the potential managers even less – so they are coming from a long way back in terms of becoming capable and accountable managers.

The effort is worthwhile. Not only are the people concerned loyal and passionate about the product but it avoids the huge risk of hiring senior people from outside the company. Managers from larger businesses in particular can be fish out of water when they move to a more senior position in a smaller business, with disappointment on both sides the result.

This approach requires some simple and repeatable method to develop management skills that can be applied quickly to free up the business owner’s time (usually, the biggest constraint on growth). The approach I have developed uses business processes as “units of delegation”.

Each process to be delegated has a clear start point or trigger and a single output or result. It can be large (like Marketing) or small (like Invoicing). It will have a cost, an average lead or cycle time, a balance, stock or backlog, and defects. These concepts are easy to explain (or draw) and easy to measure. This makes them easy to delegate and monitor.

The point is, every process in every business can be described (and so managed) in exactly these terms. Using this approach doesn’t teach a manager how to manage one process – it teaches them how to manage any process.

In this way you gove them a formula for business.

Of course, the full set of management skills are far wider and deeper than this – but any useful concept, from motivation to return on investment, utilisation to margin, can be related to this simple model as and when required.

If you’d like to know more about applying this to your business then register for one of our events.