Bottleneck Breakthrough Audiobook - Chapter 10 - Systemize It | Ep 31

Speaker A

00:00:01.680 - 00:15:00.080

Lever4Systems 94% of problems in business are systems driven and only 6% are people driven. This was said by W. Edwards Deming. If marketing grows a company, then systems sustain it. They are the perfect 1:2 combo to continued growth.

Systems allow momentum to build, eliminating the waste of reinventing the wheel every day. They also allow you to upgrade staff as efficiently as possible, reducing the downtime while you take them through the onboarding process.

This bottleneck starts becoming chronic at the $1 million plateau and it becomes toxic if not dealt with by the 5 million dollar mark. Getting past every growth plateau requires continual attention to developing systems, just as marketing does.

For most owners, the idea of developing and documenting systems is as exciting as a colonoscopy. This is ignored by most systems focused training since much of it is created by people who love systems like the management section we just covered.

The next two chapters are focused on the simple hacks I've used with clients to get them to benefit from documented systems and the resulting ease of delegating tasks because of it. Chapter 10 Systemize IT systems permit ordinary people to achieve extraordinary results predictably.

And that came from the man who I learned systemization from, Michael Gerber.

As I've mentioned earlier in this book, nearly every one of my clients came to me with a marketing need typically focused on generating more leads to help grow their company.

In roughly half the cases they actually had a systems problem or better stated, they didn't have anything documented to keep from having to reinvent the wheel every day.

It also interfered with their ability to easily assess the performance of their activities since their systems documentation was locked up inside everyone's head and clear metrics for each staff member were non existent.

A pattern developed where I saw companies grow through marketing and then needed to consolidate that growth by documenting and optimizing the systems created from it. This process goes right along with the pattern of growing revenues first and then optimizing them to maximize profits from that growth.

It's incredibly difficult to try to accomplish both at the same time.

Like other disciplines in the business world, systemization has developed quite a cult following over the past 30 years, starting with Michael Gerber's the E Myth. In it, Gerber makes the case to develop such robust documentation and systems that your business could become a franchise prototype.

Gerber's promotion of the franchise prototype was perfectly aligned with the second wave of franchise expansion in the United States, which occurred after the FTC created regulations following the meteoric and bumpy launch of the franchise model in the 60s and 70s.

Gerber's training system is effective and many companies attribute their success to it, the most famous of which is the 1-800-got- Junk franchise benefits of systemization if you ever plan on franchising your business or growing it to multiple locations or just want to make it easier to run, there are a number of benefits to systemizing it.

In the next chapter we'll examine a great case study of a friend of mine who was able to remove himself completely from the day to day functions of his multi million dollar business.

His workload was reduced to half a day in the office every Monday, freeing him up to spend time with his family and start other profitable businesses. Here are the immediate benefits I always see when my clients start systemizing the activities in their business. First, they reduce fires.

Most owners I know are full time firefighters walking around every day with extinguishers in both hands putting out fires throughout their business. It's the epitome of being in reactive mode and being busy all day but not making any progress.

Since you're just fighting to keep the business from burning down by documenting processes and training your staff on how to complete them, the got a minute? Meetings stop and the decision making anxiety felt by most employees dissipates.

Once you document and delegate effectively, you might actually experience some anxiety when you don't have staff coming at you 24 7. The feeling of being needed is a strong source of significance for many business owners.

Second, you improve quality consistency Starbucks has a 4 inch thick training manual for their baristas. This is a $9.20 per hour job and involves as much training as a neurosurgeon in their first year of residency.

Now that's not really, but it sounded like a hilarious example when I wrote it.

But the result of this extensive training is that you can walk into any of the thousands of Starbucks around the world and experience the same taste from any drink you order.

Once you establish a baseline quality and then price your products or services on it, maintaining that quality is paramount to sustaining your position in the marketplace. Inconsistency in quality is a major bottleneck to growth, and documentation and training is the best way to fix it.

Third, speed onboarding Fast growth in most businesses requires the recruitment of talented staff on a regular basis. The first bottleneck is always finding the talent.

Since knowledge workers are in short supply in most industries, the next bottleneck is to get them on board and up to full production levels as fast as possible.

Any delay in this not only costs the company money, but it also increases the chance that that employee will look elsewhere for something more stable and fulfilling.

There's nothing worse for a new employee than being excited to start working for a company, only to be thrown into the fire to figure out the job on the fly. That sense of excitement quickly turns into feeling overwhelmed and anxious. Fourth, it aids optimization.

As you've seen repeatedly throughout this book, you can't fix what you can't inspect.

The first step in assessing anything is to document it, so having your processes documented and referenced regularly is the fastest path to optimizing them. It cuts the research time in half or more when you are ready to improve on anything.

Another advantage of having documentation is that when new staff review it, their fresh perspective generates questions that can lead to improvements and optimizations. You'll undoubtedly see areas to improve as you start documenting, too. Fifth, it increases autonomy.

I haven't covered what you truly want out of your business yet, as that's in the next section on vision. But getting your business systemized gives you more options to accomplish whatever it is you want with it.

For most business owners, the ultimate goal is having the business make money when they're out of the office or on vacation as easily as when they're in the office. Systems help you achieve this because your staff are equipped with the information they need to do their job without relying on you as their guide.

I know it may seem like a pipe dream to get your business to this point, but documenting the processes is the first step to making it a reality. Finally, it increases the company value.

Whether you plan to pass this business on to your kids or employees or sell it someday, documented systems are a proven way to increase the value of your company.

There are numerous organizations focused on increasing the value of your business by simply walking you through the systemization of it, removing you from the day to day operations in the process. And it makes perfect sense too.

The last thing a buyer of your business wants is to have to rely on you to transfer all of your knowledge over to them after they buy it. You're too great a risk for them whether you check out mentally or just die.

By removing yourself from the operations and reducing a potential buyer's risk, you'll increase the number of buyers who will be happy to pay you more for your business. System Zealots for all the benefits of creating systems in your business, there are a number of overblown claims made by some in the systems world.

The most pervasive claim is that growth is inevitable in a business that systemizes their operations. This is an appealing argument since documenting processes is a relatively simple activity.

Unfortunately, it's a false assumption since the real drivers of all growth in a business are marketing and innovation, per Peter Drucker.

As I referenced earlier, both of which require significant trial and error on a continuing basis, I've not found a reliable system solution that supports the kind of experimentation in marketing and innovation that justifies treating systems as a primary goal.

Certainly there are businesses that are so wasteful and inefficient that systemization can help optimize what they're doing, allowing them to increase capacity and profits. But that's a gain of efficiency, not sustained growth.

Another argument against systemization as the formula for success is that it doesn't solve the talent vacuum for a knowledge based business.

Of course, it works for fast food and chain hotels and residential services and other simple delivery of businesses because the goods or services they deliver require little more talent than following a checklist. When you get into professional services and custom manufacturing, you cannot systemize the brainpower needed to solve complex problems.

What can be systemized in knowledge businesses is the recruiting, training and ongoing management of top talent, since that's a major competitive advantage when the pool of available applicants is limited and competition is high. Where to Start so where should you start documenting systems within your business?

The number of choices can be overwhelming, especially if it has a lot of complexity.

As with so much of the advice throughout this book, the first place I recommend digging into is wherever you're spending the most energy, whether physical or emotional. That is usually the place that will benefit the most from improved documentation and delegation.

Additionally, cleaning up this sore spot frees up your mental and emotional energy so you're more effective and fulfilled as you devote your energy to more important matters. A smart practice is to document and delegate whatever bottleneck you're tackling at any given time.

The solution removes the bottleneck and the improvement is sustained by the documentation.

You can simply follow the path of frustration and firefighting to continue documenting the processes in your business until it is running like a well oiled machine. I recommend this path if you find the documentation and delegation process tedious since it keeps your energy output as efficient as possible.

If you find that one of your staff loves to document processes and has the time and energy to do so, then I suggest moving through this order of priority closing as we covered in chapter six on closing, there's always room for improvement in the process of converting prospects to paid clients.

Documenting the steps in that process will allow you to see the clear improvements you can make while setting standards for your sales team to follow.

You don't need to do a complete bottleneck breakthrough cycle to fully optimize it, as even the smallest of improvements will make a significant impact. Next Fulfillment if you have a complex deliverable, you should document the kickoff process since that's the key to smooth delivery.

Garbage in, garbage out is the mantra to remember when you need the motivation to document the kickoff process. Because every improvement Here results in 10 times Fewer mistakes and change orders later.

This is a major bottleneck for many mature firms that experience spikes of growth and or new project management staff that don't have the expertise the company normally relies on for this stage. Documenting and training at this stage is critical for supporting any type of scale.

Next Accounts Receivable since cash flow is the lifeblood of every business, collecting payments from clients in a timely fashion is vital.

When accounts receivable surpasses an average of 45 days, whoever is in charge of collecting it typically just needs some additional support to collect it more assertively.

Documenting the process will show you where you can make simple adjustments to improve the results and shorten the days outstanding for accounts receivable. Just because your industry may have a standard term for payments doesn't mean you have to follow it.

If most companies in your space allow for 60 day payment terms, setting yours at 30 days probably won't be met with much resistance and it will give you twice the cash flow advantage over competitors. This advantage allows you to better handle any market setbacks since you have more cash on hand to ride them out.

It also allows you to experiment more aggressively with your marketing expense because your cash cushion is larger. Next Onboarding if you want to experience any amount of revenue growth, you will have to consistently hire new staff to increase capacity.

Developing and documenting your onboarding and training process is the only way to prevent recruiting from consuming too much energy.

Zappos is a great company to model your business after as they not only hire a huge number of customer service staff but but they also train them expertly and filter out the ones who aren't fully committed to their culture and vision.

Their onboarding is a major factor that led Amazon to purchasing Zappos for $847 million just 10 years after they were founded, and their HR practices are so effective that they now train other companies on how to do it.

You can see more at BBG LI Zappos Next Reporting One of the most tedious parts of running a company is figuring out what reports to review on a regular basis and how to generate them without taking hours and hours of time.

The list of options is long and varied so the core reports that everyone should be reviewing include the number one income statement or also known as profit and loss statement. This shows how much money you made and how much you spent in a given time.

I always recommend doing it on a cash basis as opposed to an accrual basis since cash is what you live on. Accrual basis is what CPAs and the IRS look at for your taxes, but it doesn't matter.

For the day to day business, I recommend reviewing this every month, comparing it to the same month from the previous year as well as the previous three months. A year to date summary with a comparison to the prior year to date. Summary is also useful on this report to show the overall trend.

The second report is Marketing. A number of data points in your marketing and sales efforts can take up pages and pages of reporting.

I suggest finding one or two key metrics that drive everything. For most businesses, this is first, number of leads and second, cost per lead.

Instead of trying to attribute the specific cost per lead from every lead source, which is a great ideal to strive for but overwhelming to start with, I simply calculate it as total marketing expense divided by total number of leads captured that equals your cost per lead.

Don't worry about amortizing the investment this month in a trade show booth that will be used in six months since that will be factored in over the long term. Just go through your marketing expenses for the month and total it up. You'll start seeing patterns over time that you can optimize from.

If you don't generate many leads, then use a different metric. This could be number of proposals and contracts won like the civil engineering firm I referenced earlier. Action steps.

You should be fully convinced by now that documenting your processes and creating systems around the key activities in your business is required for sustained growth.

In the next chapter, I'll walk you through the step by step process to write the steps out and how to turn it all into useful operations manuals for your staff. Before you read ahead, write out the key parts of your business to build the documentation around. First, how do you generate leads?

Having a consistent process for this goes a long way to driving new revenue. Second, how are prospects engaged and converted? Does everyone on your team follow the same proven approach?

Third, once a prospect is ready to become a client, how do you get paid and get them started? Fourth, what do you do to deliver great results for each client? Fifth, how often do you hire new staff?

Have you held off replacing bad staff because it would be too much effort to recruit and train their replacement? And finally, sixth, how do you handle? Paying bills, collecting invoices, and reviewing the reconciliation of it all.

Now let's get to implementing all of this in the next chapter.