Startups Made Simple Step Six: Systemize It
Below is an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here.
“Whenever you see a successful business, someone once made a courageous decision.” ― Peter F. Drucker
The first step in systemizing a business is to have a systems mindset. So many founders and employees get this wrong that I would consider it an epidemic in small business. You want to think of your business as a complete system. Continue to integrate, automate, orchestrate, simplify and unify your systems, marketing and branding into one unified whole. Systemizing and documenting things over time compounds like interest and you continue to add value to your business.
It may take a while and some practice to get your management system working nicely. It’ll always be a work in progress so don’t demand perfection. Once you think you’ve mastered The Five Competencies we discussed in the previous chapter (and are of course making enough money) you can start thinking about taking this machine you’ve built to the next and final level – a beautiful and systemized business.
Orchestration
Orchestration is a fancy word for making sure all the disparate parts of your business are working well together. Think of an orchestra and how many different instruments (tools) work together to produce a beautiful piece of music. That’s what we want for our systemized business: many parts working beautifully together in a machine that is well-run, well-organized and could be operated by pretty much anyone with a reasonable amount of training and guidance.
The E-Myth by Michael Gerber describes this with a great story about a beautifully run small hotel in California. The entire experience from checking in (where they casually ask what type of coffee and newspaper you prefer), how clean the rooms are (which is then stocked with your favorite coffee and newspaper), the wonderfully maintained grounds where the lights come on perfectly at sunset and how every experience seems to have been not only well thought-out, but perfected for the peak guest experience.
Gerber then goes on to describe how he meets the manager of the hotel and how relaxed he seems to be; this is not a stressed out person scurrying from problem to problem putting out fires. When asked how he manages all of this perfection and is so relaxed, he simply pulls out the color-coded operations manual and basically says “It’s all in here.” Whether he’s the founder or a manager hired by the founder/owner is not really relevant; the key is that the business is systemized and organized so well that everything is in one place and can be easily managed from one manual.
This is the level of orchestration and organization that I visualize for a systemized business. The key is getting The Five Competencies from the previous chapter down first, but then developing what I call “The Manual” for your business.
The Manual
Imagine having one manual, either physical or virtual (or both) that you could easily reference to guide you through the various complexities of your business. It would centralize everything you know about running your business and even include the history of the business and its written procedures so others could be taught to run things. That’s the vision of The Manual. It includes the history and purpose of the business, training materials, written procedures, checklists for routines and is the key to a systemized business.
If you owned a business like this, you could run it yourself or hire others to run it for you – it’s up to you and what you like to do. Maybe you’ll decide that you want to run it yourself for a few years then hire someone else to grow and manage it. Perhaps you want to sell the business at some point. The point is any stress about the future of the company will be massively reduced allowing you to focus on the here and now. The Manual makes all of these things not only possible but much easier and adds considerable monetary value to your business.
Now imagine a business that does not have anything like The Manual. Maybe some things are written down but most are not, they mostly live in either the owner’s head or the heads of their employees. Employees are constantly asking the owner how to do things or solve problems because nothing is documented (meaning the owner can never step away or take a real vacation). If the employee who knows how to do some things quits or the owner gets sick (or worse) the business is screwed, at least temporarily. Their stress level, like that of most small business owners, is probably pretty high with various “what if” nightmare scenarios that they’re not prepared to handle.
When it comes time to move on and think about selling or retiring, or burnout sets in (which is common among business owners with poorly managed businesses), the business is not really worth much because it’s not a system that can be easily purchased and learned (like a franchise). It’s totally owner or employee dependent so it won’t be worth much to a potential buyer and if you want to hire someone to take it over they’ll need constant hand-holding for months because nothing is documented.
With that cautionary tale out of the way, let’s focus on how to get our manual started and what we should include in it.
- About the Company. Write the founding story and a clear narrative about your product/service. For training purposes, it’s extremely valuable to write a few pages on how and why your company was founded and also give a great overview of the products and services your company offers. This is great for new employees to get a grasp of the company history and what your company does for your customers. It will give them a good introduction to the rest of the manual.
- Organizational Chart. Have an organizational chart organized by function (not by person – for example “Operations Manager” not “Dave”) so everyone is clear on the structure of the company and how decisions are made. This also clarifies who reports to who and where people may want to work in the future.
- The Plan. As discussed in The Right Plan in Step 5, getting everyone on the same page and making sure they understand the purpose, vision and goals of the company is incredibly valuable.
- The Core Values or Principles. We’ll discuss these later in the chapter, but once your company is established you’ll want to set a handful of Core Values or Principles to further streamline decision-making and clarify behavior in your company.
- Job Descriptions. Step 5 went over job descriptions and how important they are. Keep these in your manual and keep them updated as jobs change over time. Now everyone can see not only what’s expected of them but of the other people in the company (or other jobs they may want to do).
- Routines. In the Right Routines we discussed about keeping regular meetings to keep your whole system optimized and on plan. Mention your meetings and any major recurring procedures (for example, monthly closing of books, etc.) you think are important to be documented.
- Written Procedures. As discussed in The Right Process in Step 5, get your big processes and procedures written down (especially the complex ones). Once you have most of your procedures written, life becomes much easier and your manual becomes much more valuable. Include instructions for writing new and updating existing procedures.
- Tools. List your major systems and tools (like we did in The Right Tools) and either provide direct instructions on how to use and maintain them or at least link or mention where the “help” materials and manuals can be located.
- Branding or Style Guide. A big part of systemizing is unifying the look, feel and even the personality of your company and making sure it’s consistent across everything you do. This can be as simple as picking your company colors, logo, font and tagline then making sure it’s documented and known by all. One way I can usually detect a well-systemized company is if their website, emails, colors, logo and even the style of communication and their advertisements are all remarkably consistent.
- Policies. Either list your policies or link or reference separate employee manuals and other policies (security policies, etc).
- Version and Last Updated. Give each version of The Manual a version number like 1.4, 1.5, etc. and put it right on the cover so everyone can know they have the most recent one. Also indicate the date it was last updated so you can make sure that version includes any recent changes.
The Manual will change your life for the better and is the key to your freedom. However, like everything in life, there are some issues to address if you want to thrive well into the future, even with a beautifully systemized business.
- System Complexity and Entropy
- Core Values or Principles
- Building a Leadership Team
- Planning for the Future
System Complexity and Entropy
“Fools ignore complexity. Geniuses remove it.” ― Alan Perils
After you’ve built The Manual and have The Five Competencies under control, it’s important to beware of things that will slowly erode your system: complexity and entropy. In simple terms, stuff will start to get more complex as you grow and The Manual may soon be outdated and systems may start to break down.
You’re probably thinking: Damn, I just got things in order and now he’s telling me it will all fall apart. No, as in other parts of the book, I’m just giving you some things to watch out for and prevent before they even happen. A lot of books go into the building of the system but not necessarily the scaling and maintenance of the system.
The main thing to keep in mind is the Systems Mindset, how all the various pieces of your business work together now and how even small changes can cause unforeseen problems. If you recall the Five Competencies – The Right Plan, The Right Process, The Right People, The Right Tools, The Right Routines – you can see that they’re all pretty interrelated and dependent on each other. It starts with The Plan, and changes to that may affect Process, People, Tools and Routines. A change to the Tools might interfere with Process. Process changes can affect everything and so on. The point is a change in one area likely requires a change in the others.
The vast majority of founders and employees don’t understand how “one little change” or tweak to a system can cause chaos or complexity in unforeseen ways. For example, say someone changes a minor procedure to require a certain approval (perhaps with good intentions, to prevent some kind of error or problem encountered previously) going forward. Great idea – or so we all think!
What may not be obvious are the second-order-effects (see the Good Decisions Superpower for more on that) of that tiny change. Let’s say that the supervisor “Dave” is in charge of these new approvals and soon he’s spending 25% of his day reviewing and approving what is actually a pretty minor procedure and not mission critical. Soon Dave is overwhelmed (and the way work gets done has a huge bottleneck, even worse when Dave is on vacation), falls behind on his other work, gets frustrated or has to hire additional help to manage it all.
So, not only have we added complexity to the procedure, we’ve added additional work and even employees to manage it. Perhaps it was important enough to warrant it but the point is that making little changes can have big effects so it’s important to think them through and not just implement them without much thought.
Perhaps we could have eliminated or automated the approval process. The same principle applies to the other systems. If you change your strategy, products, services, etc. these will all have ripple effects and cascade throughout the business. On a related note, if you allow one employee to do things differently or live by a different set of rules, you’re going to have problems.
So how do we prevent this? Here are a few ways:
- Explain System Complexity and Entropy in The Manual and as a part of training. Being aware of the problem is a big way to prevent it.
- As the accountable person, Dave should communicate the issue to those who can change it immediately. This is the power of building an accountable organization; people will notice issues and bring them to those that can solve them.
- For every new rule, process or procedure you add, try to eliminate or streamline another. As I mentioned in The Right Process, a quarterly review of a major process for ways to streamline and optimize is a great idea.
- Always be simplifying: product, procedures, training, etc. The key is to make the internal operations of your business so efficient and simple that nobody will be able to compete with your efficiencies, which gives you advantages in speed, service and cost.
- Keep a balance between innovation and compliance. You don’t want to get in any legal or tax trouble as described in the previous chapter but you also don’t want to become so compliance and rule obsessed that your company cannot innovate or is completely hogtied by HR or compliance issues that nothing ever gets done.
- Core Values or Principles can help guide intelligent decisions. For example, if your Core Value is “Simplicity” then it should be obvious that adding complexity to a procedure should be, at the least, closely scrutinized. More on that in the next section.
Keeping our Systems Mindset, we also need to be careful about what Verne Harnish describes in his book Scaling Up as “the valley of death.” To quickly summarize, companies tend to reach levels of growth and then stagnate or even fall off, typically at $1 million (only 4% make it), $10 million (only 1% make it), $50 million, etc. in annual revenue.
A company may reach $1 million quickly then will struggle to get to the next level because the systems and people that got them to $1 million are usually very different than what they need to get to the next level and this process continues as the company grows more complex.
A good way to prevent this is to make sure your various systems adapt and grow with the company. The Leadership Superpowers are also good to review. Next, we’ll go into some other ways to get your company to the next level: Core Values and building a Leadership Team.
Core Values or Principles
“Simple, clear purpose and principles give rise to complex and intelligent behavior. Complex rules and regulations give rise to simple and stupid behavior.” – Dee Hock
The purpose of Core Values or Principles is to simplify decision-making with a small handful of easily remembered, constantly reinforced reminders of your values or principles. Remember that in the Good Communication Superpower we discussed how complexity explodes by 400% when you add even one more person to a small team? Imagine that with 10, 50 or 100+ people. Things get so complex they fall apart or the organization gets hopelessly inefficient trying to manage it all.
A handful of Core Values or Principles can streamline decision-making and encourage good behavior throughout the business to the lowest levels so communication is not so complex. Well-discovered Core Values or Principles also make the future direction and strategy of the business more clear. They make delegating easier because they can guide the person whom you’ve trusted to do your work.
So how do we discover them? There are a lot of tools and exercises online that you can research but an easy way to take a first swipe is to simply list the traits you admire about the team you have (and good team members from the past), combine them into related concepts and “take them for a spin” for a few months to see if they feel right. I’ve listed some examples in the Chapter Resources. Some other best practices include:
- Avoid the obvious platitudes like “honesty”, “integrity”, “teamwork”. First of all, these are unoriginal so your team won’t feel they are genuine. Second, all employees should have these values by default. There’s no special reward for being “honest” for example; everyone should be honest or they shouldn’t be working at your company in the first place.
- Try to keep it to a memorable number of principles or values. Five is a good starting point. Amazon has 14 Principles and Zappos has 10 but the general consensus is that the shorter the list, the easier it is to remember.
- Consider Operating Principles as described by Sam Carpenter in his book Work the System. For a more process-oriented business, a list of Operating Principles can clarify the many procedural working parts of a business into a clear simple list.
Build a Leadership Team
Freedom for you may be as simple as hiring a good manager or managers to take over day-to-day management of your small business. If that’s your definition of your dream business then that’s a great place to be once you systemize things. If your ambitions are larger than that, then truly taking your company to the next level will require building a proper Leadership Team.
I would say the main difference between a Management Team and a Leadership Team is that managers will keep your business running well and maybe even growing but probably still need your guidance and expertise. A proper Leadership Team will strategize and lead the company to much higher levels of revenue and performance, even without your direction. You may not even be the smartest person in the room (and probably shouldn’t be) if you’ve hired the right Leadership Team. These people will be smart, clear-thinking, execution-obsessed and may even leave you in the dust provided you can find and recruit them (they can be hard to find.)
Needless to say, this is an advanced topic and probably the last “great hurdle” to going from a small business to one of the elite few businesses that get to $10 million sales and beyond. Here’s what I’ve learned on this topic so far (and continue to learn):
- The Leadership Superpowers. As thoroughly discussed, these can be helpful to you not only to help you become more effective, but to see exactly what and who you need to take the company to the next level. This is often not the founder who is usually the bottleneck, as discussed. Especially consider the Communication Superpower and how you design your incentives.
- Get out of the way. Speaking of bottlenecks, the company is never going to get anywhere if you don’t start delegating and start getting out of your own way. Yes, I know, only you can do certain things the “right way” and it’s easier if you just do them. (Note: I’m rolling my eyes at this.) That mindset will get you nowhere fast. Only do the things you enjoy and delegate the rest. In our Organizational Chart mentioned earlier, begin by replacing yourself on that chart one by one.
- Be a bit reckless. I know, this sounds counter to almost everything I’ve said in this book but bear with me. To get to the next level, you may have to take some bigger risks, make some expensive hires (great hires should easily pay for themselves many times over if done right) and even tolerate a bit of chaos as your systems and people deal with everything. As I mentioned before, a good “managed chaos” can be tolerable and even necessary for a while.
- Maintain The Five Competencies. Your strategy will become more and more important as you grow so make sure to keep your plan updated and refer to it endlessly. Make sure everyone is on the same page, especially as you keep adding more staff. Keep Processes, People, Tools and Routines updated as well as you can as things change.
- Focus on learning and training. Leadership teams and employees of companies become more important as you scale. You’ll actually begin to focus much more on developing your employees and spend more resources on training them as business gets more competitive.
- Get great at goal setting and execution. As you get more experience, you’ll get much better at setting goals that are the “sweet spot” of aggressive but attainable. Great goal setting, especially in pursuit of a BHAG (as discussed in Superpower #6: Clear Goals) teamed with the execution Superpowers is incredibly powerful and a key to getting to the next level.
- Do Real Work. As I mentioned in the Productivity Superpower, there’s a difference between Real Work and Process Work. Real Work is what moves your company forward and accomplishes goals. Process Work is what you need to get done every day to serve your customers but doesn’t really improve anything. Doing Process Work all day will never move your company forward. Know the difference and realize that your employees will likely confuse the two.
There can obviously be a lot more to this topic and I highly recommend some books and even personal coaching if you want to build out a Leadership Team. A good coach who has been there before and can guide you is easily worth the expense.
Preparing for The Future
As we near the end of this book, there are a few more things that can be discussed to help ensure the survival and success of this systemized dream business we’re building. It’s human nature to get comfortable, especially if you have a successful thriving business, so I want to briefly cover them so that you’re aware of and can prepare for them.
It’s so cliche to say, but business really is moving faster than ever and doesn’t seem likely it will slow down. While I think you should enjoy your systemized business and take plenty of long, relaxing vacations, if you intend to keep the business and want it to thrive then yes, I recommend you do some basic planning for the future and will give you my final list. This includes:
- Future strategy. Now that you have a nicely systemized business that’s running great, it’s time to step away and focus on the big picture items. This is a lot easier now that you have time to think so start thinking big about how you want this company to evolve and survive in the fast-paced business world. Spend time regularly thinking how to expand and improve your business. Use the skills from Step 1 to continue to imagine great things for your business. Think about how you would even destroy your business if you were a competitor so you can think of vulnerabilities you may want to address. A regular SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis is a good idea. Think of your profit as letting you have time to figure out big things and run experiments.
- Beware the Innovator’s Dilemma. This book by Clayton M. Christensen details how the things that your business has done to be successful over the years may actually be the seeds of your undoing and decline into lower sales and irrelevance. Don’t start panicking about this right away but pick up the book or research the concepts online and start to think strategically about your business and how to prevent this from happening in your business.
- Financial planning. If you’ve got a great business, it would be foolish not to speak to a financial advisor and attorney about protecting this valuable asset. Think of a full legal review for any vulnerabilities and consider setting up a trust or other financial instruments to protect this asset (especially from predatory lawyers and consumers) and consider a succession plan for the future owner of your company.
- Prepare for sale. If you eventually want to sell your business, besides already having a well-systemized business there are some best practices you can do as you get close to putting it up for sale that can dramatically increase the value. There’s a wealth of information online but it basically includes many of the things we’ve covered and why having a system you can sell is much more valuable than a regular business.
- Continue to add value. As your business becomes more streamlined and integrated, make sure you are building your brand, registering trademarks, copyrights, patents, business methods and more to further add value to your business.
- Do the math: Sell or hire a CEO? Here’s a secret: A lot of people who sell their small or medium size business only get a few years of living expenses from the sale (sometimes from businesses they’ve run for decades) and the process of selling is long and time-intensive. Systemizing is one great way of increasing the value of your business beyond that but have you considered just hiring a manager or CEO and keeping the company going indefinitely? Think about it: For a few hours per month you could probably maintain the company with even a moderately competent CEO and still earn profits for many years to come. Something to think about.
We’ve covered a lot of ground in this book. I’m appreciative of anyone who stuck with me throughout and am extremely proud of anyone who puts in the work to imagine, start, grow, manage and systemize their dream business. As I mentioned in the introduction you’re making the world a better place through your business. In the final part of this book I have two simple scorecards you can use to get a sense of your Superpowers and your business in general, followed by a brief conclusion.
Onward!
Visit http://www.startupsmadesimple.com for Chapter 10 Resources.
This was an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here or see our previous excerpts here.