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 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.
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.
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
“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:
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:
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):
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:
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.
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.
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