Bottleneck Breakthrough Audiobook - Chapter 3 - Optimization | Ep 24

Speaker A

00:00:02.400 - 00:15:25.100

Chapter 3 optimization Carl Pearson said. One of my favorite quotes when it comes to management and running a company, he said, that which is measured improves.

That which is measured and reported improves exponentially. There's a great story about a new bride making a hearty dinner for her husband, trying her best to be a star homemaker.

She knew her father had loved the glazed ham her mother made, and it was a big hit at the holidays with her extended family.

As she was preparing it, she was confused about one step in the recipe where it required her to cut off both ends of the ham, so she gave her mom a quick call for directions. She asked her how much to cut off at both ends, and in the middle of asking she wondered why cut them off at all.

Her mother said she didn't know, telling her that that's the way her mother always did it. So her mom called Grandma to ask mom asked Grandma why she cut the ends off the ham and Grandma just started chuckling.

Once she regained her composure, she replied, I only did that because the ham wouldn't fit in the pan I had Tradition can obviously be a great thing, passing what works from generation to generation, especially when it's associated with heartwarming family memories.

There are also traditions that no longer make sense, just like cutting the ends off the ham when the oven and pan are much larger than the ones your grandmother used 50 plus years ago. Your business may not have traditions, but it definitely has processes that were put in place for a different time and with different resources.

Some of them are benign, like cutting the ends off of a ham. There are others that may not be malignant, but they are clearly bottlenecks that need to be updated and improved.

This whole book is intended to help you find and fix those bottlenecks anytime you want. The first step in mastering this process is to make sure your mindset is properly focused.

Continuous Improvement Once a business hits the proverbial comfort level of the owner, it will shift away from growth and into a state of maintenance. During this transition, the culture will shift as new staff who are attracted to maintaining the company are brought in.

When the company was growing, the employees that thrived were the ones who could handle uncertainty and were comfortable with changing objectives and roles, sometimes on a week by week basis.

When structure and certainty develop in an organization as a byproduct of learning what works and repeating it efficiently to meet demand, the employees that helped grow the company start leaving. The routine is boring to them and everything feels like it takes 10 times longer to execute compared to the company's early growth oriented days.

This pattern happens to every company at some point, regardless of size. With this change, the skill of challenging assumptions and finding ways to improve things disappears across the company.

It's inevitable and is just part of the business life cycle. Publicly traded companies try to revive the growth culture by bringing in a new CEO.

However, most of the time they're just bringing in a manager of the status quo who uses different buzzwords than the last one did. Just look at what Yahoo experienced over the past four years when they tried this with the ex Google exec Marissa Mayer.

Every once in a while a Lee Iacocca or Jack Welch will show up and provide the energy and vision to reset the culture to stimulate new growth instead of trying to roll the dice on hiring a new CEO to replace you and your company.

I think that adopting the mindset of continuous improvement is the single best chance you have at growing or streamlining your business to its fullest potential. The Japanese call this kaizen and it became wildly famous in the 1980s.

It means good change and its core philosophy is that big results come from many small changes accumulated over time. The bottleneck breakthrough method definitely aligns with this philosophy.

The cornerstone of the method is to always be on the lookout for better and easier ways to do what you're already Challenging assumptions Dave Greeley, a great friend of mine, has imparted many valuable insights to me over the years, which is no surprise given the successful career he had as a creative director for the global ad agency BBDO Worldwide. The one he shared that serves you best right now is to always challenge assumptions.

For example, why did the new wife cut off the ends of the ham and did that action still serve her needs today? Identifying assumptions is difficult, as most actions are carried out on autopilot or in reactive mode.

Einstein saw this and said we cannot solve our problems with the same thinking we used when we created them. Thankfully, Dave shared the method to help find assumptions that I use consistently with my clients and in my own business.

It's called zero based Thinking.

Zero based thinking is best started by asking the following question with what I know today about past situations like this one and the way I dealt with them, would I want to do the same thing again? This time you can only answer yes or no, giving you great clarity on what your options are.

If the answer is yes, then you can keep doing what's already working. If the answer is no, then you can decide to stop it or restructure it to make it ideal for today.

And we'll dig into ways to confront restructuring relationships in Chapter 9 as well as how to better clarify what you really want from your business in chapter 12. Zero based thinking helps cut through all of the clutter and emotion that the situation carries with it today.

It acts like a blank slate to start over and rebuild something as well as possible given the current knowledge, skills and resources available to you. Here's a recent situation I encountered with Asela Spanish, a client with amazing Spanish immersion programs in South America.

Our goal was to develop the marketing and sales plan for one of their niche programs.

They work with many students who come to their program with financial aid needs and they present students with custom options such as flexible payment arrangements to make it as feasible as possible.

As I was looking at the effort they expended to collect payments by creating a nearly custom payment plan and follow up process for each student, I started with the zero based thinking questions above. The answer was no, they wouldn't start with the custom payment plan.

As I investigated their processes further, I found that student enrollment varied from six weeks to 10 months before they attended the program.

Because of this timeline variability, Asela had formed the assumption that they needed to customize the payment options for each student to make it as feasible as possible for them to attend. We concluded that a possible improvement was to offer more structured payment plans which could streamline cash flow and reduce collection efforts.

We tested out a simple plan giving students two options when they enrolled.

One option was a monthly payment plan over eight months and the other was a more traditional option of paying the tuition all at once, no later than six weeks before they were to start their course. The first round of testing showed that 40% of the new students chose the monthly payment Plan, while another 10% chose the single payment option.

The remaining 50% requested a custom plan, just as the company had offered in the past.

Having 40% of new students choose the payment plan will stabilize the stateless cash flow for this program, reducing the seasonal spikes that occurred every spring and summer when the courses are all running. The changes also resulted in 50% less staff effort to coordinate and collect payment.

Since this is just the first iteration of this new approach, I'm confident we can continue to improve these numbers, streamlining the process and cash flow significantly as we grow their Spanish immersion programs.

Once you start challenging assumptions, you'll need one more foundational component to build upon as you implement the bottleneck breakthrough method in your business measurement.

Pearson's Law is a quote by Carl Pearson, the 19th century mathematician who's said to have developed modern statistics and I use that to start this chapter. It's one of my all time favorite pieces of business wisdom. I'll repeat it again here.

That which is measured improves that which is measured and reported improves exponentially.

With the advances in technology that allow us to track so many activities in our business, effective measurement simply requires choosing to do it and then finding the key activities to measure its effectiveness. Ron Johnson built quite a resume helping expand Target's merchandising and then leading the Apple Store to great success for the computer giant.

In late 2011, he was hired as the new CEO of JC Penney to try revitalizing the 11 year old retailer.

Johnson started with massive changes, eliminating all discounts by moving to a fixed pricing matrix and then changed their marketing strategies to attract a higher end clientele. His biggest mistake was to roll them all out at once nationwide. The results were Disastrous.

Johnson spent $1 billion in capital over his 17 month tenure, reducing J.C. penney's reserves from 1.8 billion down to 930 million. Revenue dropped by 25% in 2012 resulting in a $1 billion loss and their market value dropped by 50%.

Johnson was famous for ignoring data from market research and he felt he only needed to follow his gut instinct to turn the company around.

He even ignored veteran staff that encouraged him to test his ideas out in a few stores to validate its effectiveness before taking on the risk of rolling them out further. Avinash Kaushik is a leader in the world of data and analytics who coined the label and Hippo back in 2006 when describing leaders like Johnson.

It stands for highest paid person's opinion and characterizes this type of individual as being so self assured that they don't need others ideas or data to validate their instincts. Needless to say, leading by gut feeling and ignoring data is as risky as it gets.

Plus it creates an environment where everyone stops sharing ideas because they're never heard or acknowledged. Yes, even you need to rely on data. Mr.

I the next Steve Jobs what to Measure Every business has two or three key activities that are crucial to its success. When these activities are measured as a number or percentage, they are called key performance indicators.

By monitoring them on a regular basis, you can see trends develop and can then make changes. Every business type and industry has a common set of KPIs that are useful for most of the companies in it.

For professional services companies, the KPIs could be utilization rate, contracted revenue or profit. KPIs for software as a service companies are churn monthly recurring revenue and customer acquisition cost.

The most fundamental KPI for any business is profit on a cash basis. Cash is the lifeblood of every business, so knowing how much more comes in than goes out every month is the ultimate indicator of health or failure.

As you dig into various KPIs for your business, you'll inevitably go down numerous rabbit holes finding activities you can track in every part of your business that are useful indicators. My suggestion is to start small and track one or two activities that are crucial to your business's success.

Once you have a tracking and reporting process in place that you can trust to be accurate, then you can expand and add other metrics to review. There's nothing worse than seeing a half implemented data capture and reporting system, so focus on making it useful before making it comprehensive.

How to Measure as with most technology available to businesses today, the options are nearly endless and you can become overwhelmed with those choices.

The resource section on the website is ever expanding and frequently updated, so utilize it as you evaluate your options for tracking and reporting on KPIs in your business.

Here's a short list of tools I recommend to every client, regardless of their business model or Google Analytics and Tag Manager the world of website analytics is as complex as any specialized discipline today.

Regardless of the hype behind anyone, there is no perfect tool that will be able to track every unique visitor across every device they have and every action they take on your website. With that said, Google Analytics is free and is reliable enough to make well educated decisions from.

It can do today what expensive analytics suites could do 10 years ago, but it doesn't require the $20,000 per year license fee, an additional $10,000 configuration investment.

You can deploy analytics in its basic version by just putting the script in the header of every page on your website and you'll get sufficient functionality out of it right from the start.

If you have a more complex website, whether a software app, e commerce or other function that involves more than just clicking between basic PHP or HTML pages, then I'd recommend using Google's new Tag Manager tool to set up analytics through. Initially it is challenging to configure for more websites, but there are enough agency and freelancer providers available now to handle it for you.

It's easy to overpay for initial software setups, but as a ballpark figure, KPIs configured in Google Tag Manager should be under $500. Hotjar While we are covering basic website tracking tools, I always recommend the visitee tracking tool hotjar.

You can find out more at BBG Li hotjar. It's a new player in the space and hasn't raised prices to enterprise levels yet, so it's a great option for any budget.

You can record mouse movement of visitors to see what they click and scroll to, as well as create heat maps of each page on your site to see what people click on and scroll to cumulatively. You can also deploy polls on any page on your site to collect feedback directly from visitors, often generating useful insights in the process.

Hotjar is a great tool built for testing and optimizing changes on your website. It is invaluable for companies that rely on their website for a large part of their sales funnel or customer fulfillment process.

Xero Spelled Xero Most businesses under 10 million in annual revenue typically rely on QuickBooks for their bookkeeping needs.

Xero at BBG Li Xero is an alternative that I recommend instead as it is less clunky online compared to QuickBooks and has more features that don't require additional fees such as payroll processing in many states in the United States. Regardless of what bookkeeping software you choose, keeping it up to date with everything financial is the key.

A monthly income statement or known as profit and loss statement based on cash not accruals is, in my opinion, the foundation of all KPIs spreadsheets. At the end of the day, any tracking tool can export raw data from its database into CSV files that are easy to put into a spreadsheet.

Pull data from a few different tools and you can compile it into a single spreadsheet that is as powerful as the most expensive dashboard tools available. It may feel like a throwback to use spreadsheets, but exporting data and organizing it doesn't take much time once you get the processes sorted out.

Plus, you can always tweak it to better fit your needs much more easily than you can edit many dashboards and fancy reporting software. And don't get me wrong, I'm a huge fan of data automation and display, but I also know that spreadsheets work every time.

In the end, my favorite tool is whichever one gets used and best influences decisions because of it.

Action steps, zero based thinking and the mindset of continuous improvement work together as the foundation to help you find and fix your bottlenecks. While you're developing those skills, make sure you have tracking in place to measure and report on your key performance indicators.

Here are a few Is bookkeeping updated and accurate so you can review your income statement monthly? If not, start there. Next, do you have Google Analytics installed on your website?

It takes minutes to set up and collects data forever, so get it configured now, even if you don't know how to interpret it. Next, do a Google search for KPIs in Insert yout Industry and see what two or three results keep showing up.

Figure out how to track them and get it configured. Once you have tracking in place, get your reporting set up to review your KPIs at least monthly.

The basics are first, reviewing your income statement every month to see how profitable you really are and to stay on top of your expenses. Here's a great guide on how to review your income statement at BBG liincome Report.

Second, review your website traffic every month to see how your marketing efforts are driving results or not. Here's another great guide on how to create and review your analytics report at BBG Li analytics report.

Finally, review your other industry specific KPIs monthly.