As I coach business owners, I find that many have difficulty moving through the four phases of business ownership: 1) Technician; 2) Manager; 3) Entrepreneur; and 4) Investor. A key obstacle in making any of these transitions is automating their business. I’m not talking about adding computers or different machines to take over the jobs of humans. I’m talking about creating systems and processes designed to orient, train and hold human employees accountable for the tasks that make your company successful.
I’d like to highlight different areas of struggle for my business owner clients to help the reader of this post better understand how they can automate their own business. If you can automate, you can franchise, grow branches or expand in a way that creates amazing profitability and reliability for your business. If you can’t automate, you’ll be destined to be a slave to your business and every attempt to grow will increase the amount of time you spend running your business… which means that you will fail to grow at some point.
Phases of Business Owner Growth
I want to first give you a quick introduction to each phase of business ownership.
A technician is basically doing all of the tasks needed to run their business. They either don’t have enough business to hire more employees to delegate tasks; or they lack the managerial ability to lead others to do tasks as a team of people. It’s normal to be a technician, when you’re a sole professional who does a high-skilled task and will usually employ people around you to allow yourself to work more efficiently.
A manager stops doing most of the core functions of their business and hires others to do various components of what they used to do themselves. A manager has developed the skills to get more out of his/her team of employees than he/she could have ever done on his/her own. A dysfunctional manager will tend to either micro-manage or do tasks for his/her employees that he/she feels they cannot perform on their own; instead of training those employees.
An entrepreneur has delegated management responsibilities to someone else and is leading the expansion or duplication process of their company. This may take the form of franchising or creating branch locations of the main company in different locations. Dysfunction usually shows up in this phase of growth when the business owner has failed to properly document processes and systems and finds several gaps as new employees try to duplicate the success of the core group.
An investor has given the leadership of the company over to someone else and is focused on a completely different aspect of their life. They have the business as an investment vehicle to fund their retirement or other pursuits. In some cases, an investor will sell their company and then use the proceeds of the sale to fund other interests. A dysfunctional investor will tend to drop by the office and try to continue to lead their company, thereby diminishing the responsibility of the person they hired to lead the company.
During each phase of business, a business owner will be moving forward, if they can automate. They will be stagnant or moving backwards each time they fail to automate. One way to think of automation is to take little parts of yourself and subcontract those parts out to others as you grow. It is normal for you to wear many different hats as a startup business owner. At some point, you need to give those hats to others and then create an organizational structure and systems that contract out all of those hats. In some cases, you will create parts of your company that never used to be parts of you. In these cases, you have learned to leverage the skills and abilities that others bring to your company without you having those skills yourself.
Before I describe the automation tasks that go with each transition, I think it’s important to talk about, WHY YOU SHOULD AUTOMATE in the first place. Here’s a brief list of such benefits:
- Automating allows you to grow without adding more work to your own plate.
- Automating helps those around you grow in their skills and abilities; and they love growing.
- Automating allows you to quickly fill new positions in your business without re-designing them from scratch every time.
- Automating creates efficiencies that allow profits to grow as you scale up.
- Automating reduces your headaches and helps your employees feel empowered.
- Automating allows you to eventually create substantial passive income.
- Automating allows you to sell your company without requiring you to be employed by the buying company.
I could probably go on, but I’m guessing you get the point. In general, automating your company helps you disconnect from the day to day operation of your company and give your employees the responsibility they crave.
The Mindset that Keeps you from Automating
While it’s easy to see the benefits of automating, many business owners will dwell on what they see as the negative aspects of automating. I will list a few mindsets I’ve run into as a business coach:
- My employees will NEVER do these tasks as well as I can.
- I love what I do, why would I have others do it?
- I don’t have enough time to train and document, we have too much work to do.
- Creating systems is a waste of time and will never help.
There are tons of excuses. Most business owners either like the way things are; or they tend to hold on to their current or past phase; and don’t see the benefit of moving forward. I rarely force my clients to move forward, but always make them fully aware of how their desire to stay where they are may cost them financially and personally.
How to Automate
Just like the phases of business ownership, there are phases to automating your business. Depending on where you start a business, automation may or may not make sense right away. I will summarize various automation tasks based on your phase of business ownership.
A technician will usually start their business doing work for his/her customers and then outsource various administrative tasks to allow him/her to take on more and more customers. At some point, the technician will become over-burdened with customers and consider hiring an assistant. This is usually the first mistake and it is born out of a desire by the technician to remain in control of their work output and their customers. The best way to transition to the next phase of growth is in this order:
- Decide whether you feel most skilled at DOING your task or SELLING your service. If you are more skilled at sales, then hire an experienced technician to do your work and you focus almost 100% on marketing and sales. If you are more skilled at your work, then hire a sales person to sell your services and hold them responsible for a specific sales quota.
- Hire an administrator who is capable of light book keeping and can also handle non-skilled tasks in your business. Be very willing to delegate anything that doesn’t directly relate to sales or operations.
- Take formal leadership training on delegation, motivating your staff and communication.
- Document position descriptions for sales, marketing, administration and operations staff. Have staff check to make sure your descriptions are accurate.
- Find a replacement for your position in either sales or operations (based on decision in #1). At this point, you will be 100% manager and move into the management phase of your business ownership experience.
A manager has figured out how to delegate almost all tasks to employees. It is normal for a manager to try to fill the gaps when employees either leave their company or the work load rises in certain parts of their company. If they do this, they will be forever oscillating between manager and technician. In order to move from Manager to Entrepreneur, the manager must groom someone to replace himself/herself and start their move to entrepreneur. Here are the steps to make a successful move to entrepreneur.
- Create a position description that completely defines what you need to do as a manager and the qualifications you are looking for in the manager position.
- Pick the person(s) who will replace you as manager and give them formal leadership training. It may be wise to select more than one individual for this grooming. Give your selected manager trainee(s) more and more leadership responsibility and see how they treat people. Can’t be too mean or too nice. They need to be clear about expectations, but compassionate about real human need.
- Have manager trainee interview and hire replacement for themselves in their current role so they can move to the manager’s role.
- Move manager to official management role with appropriate authority and responsibilities to manage employees so that you can move to role as entrepreneur.
An entrepreneur’s role is quite different from a manager’s role. You may even move twice through the manager role, first as a field manager and then an executive manager depending on the type of business you’re creating. You’ll typically move to the entrepreneur role once you have created a business that you can either duplicate or expand in some way. Such growth may be through: 1) franchising; 2) branch location growth; or 3) product growth. I don’t recommend trying more than one of these growth tactics at one time.
- Franchising: If you choose to franchise your business, you are essentially going to package your business up in documentation, training programs and anything else a franchisee will need to succeed in your business. Many business owners fail to understand all of the support a new franchisee will need and come up short on documentation or other types of support the franchisee is looking for. This results in dissatisfied franchisees and possibly law-suits. In order to franchise successfully, you should try out your franchise idea on an experimental franchisee so that you can work out any bugs before you offer your franchise to the general public. Document your operations, sales, marketing or anything relevant to your business. Then fine tune your franchising arrangement after you get feedback from a complete rookie who tries to run your franchise.
- Branch location growth: If you made something work in one location, there is really no reason you can’t get it to work in a new location. The challenge is that you will have completely new people running your new location. You do have an opportunity to transfer a few current employees to the new location, but many employees don’t want to relocation for your new branch dream. Just like franchising, this move will fully test how well you have documented your processes. New employees will act different than your current employees. Your current employees are usually used to the way you like things whether you have them documented or not. In order to get new employees to act in a similar fashion as your current employees, you need to document and then reenforce training to get your way of doing things to stick with your new group of employees. Make sure you listen closely to your new branch staff to fill in any gaps in training or documentation that you omitted in your expansion.
- Product growth. A great way to expand your revenue as a company is to expand your product offering within your current customer network; and your current customer distribution system. For instance, if your customers currently buy cleaning services from you; and you want to offer them new cleaning services that extend beyond your current capability, you will grow revenue without having to market to a completely new audience. This can reduce overall sales costs and increase revenue at the same time. As the entrepreneur, it is important to make sure your product expansion is consistent with your core business and will not require you to create a completely new business. Otherwise, you are not expanding a product line, you are trying to start up a new business. Most entrepreneurs will listen to their customers and product growth will be a natural addition to their core business that is demanded by customers. In order to automate your product expansion, you need to document everything you are doing in this new product expansion as diligently as you did in your core business offering.
When you feel that you have expanded your company as much as you feel capable, it maybe time to transition to the Investor phase of business ownership.
It is common for business owners to want out in some way after they have grown their business to some level of success. By ‘out’, it could be selling the business; or simply having the business run on its own without the need for your involvement. The key to making the transition to investor is to make a fully clean break so that the business has no need for your involvement at all. The two most common ways to transition from entrepreneur to investor are:
- Sell Your Company. If you sell your company, you need to make sure that you have created a cash machine. Very few buyers want to buy a work in progress. They will pay for a cash generating machine; or they will pay for a strategic acquisition.
a. Strategic sale: A strategic sale is usually the best kind of sale where the buyer wants to buy your business because it fits a strategic element in their business. Let’s say that your business makes a widget, called Widget-X. They make a widget called Widget-Y. If they add Widget-X to their current market, they feel like they may be able to double their business. If they have a $100 Million business, this means that your business may be worth the same as buying a $100 Million business, even if your small business is only doing $5 Million per year.
b. Financial sale: A financial sale is completely based on your company’s ability to pay for itself. In a financial sale, the buyer is willing to pay a certain multiple of your current earnings. If your company is creating $100,000 per year in profits, the buyer may be willing to pay $300,000 for your company. This would be a multiple of 3. In some cases a financial buyer may pay more or less depending on the risk of your company meeting certain financial goals.
2. Retire from Management. If you simply decided you want to stop working in your company, you will replace yourself to the extent you played a direct role in your company; and then hold your current staff responsible to deliver specific financial results to pay for your retirement. The key to automating this phase of your ownership is to create systems to check your current management team to ensure they are doing all they can to maximize profits and run the company according to certain principles you have laid out. To do this, you create very simple metrics to measure and then pay your executive management team accordingly. This tends to create an automatic reward system for your management team. You must also be prepared to replace your top manager if you don’t like the way your company is operating. That continued involvement makes #2 somewhat less attractive than option #1. However, if you have a great management team, the right metrics and the right systems in place, you should have nothing to worry about.
I have written down some things that seem quite logical, but in reality are quite counter intuitive to most business owners. I listed some mindset challenges above to automating and growing. However, the largest objection I get to following the steps that I have outlined is MONEY. When it comes time to hire more workers, or promote a manager or to expand the executive management team to make way for growth, I hear, “I can’t afford that!”
That is why I ask business managers to create a business plan that allows them to price in the ability to hire additional resources as they need them. It is common to feel a little financial stress at transition points. A savvy business owner will either finance these choke points; or they will endure some low profit or loss period to make it through. If you create a deliberate plan whatever way you choose to transition through these transition periods, it won’t be a surprise; and it certainly won’t be an excuse to prevent you from growing.
The fact is that most large companies make it through all of these transition points. In their case, they have often either decided to “go public” to get a ton of financial strength to create the right management team; or they have found private investors to help them weather the storm. In any case, with great management and leadership, large companies tend to earn close to $200,000 per employee, while small business are stuck at an average earnings of $47,000 per employee. The difference in financial productivity is the ability to automate with the techniques I have described in this post.
As a business coach, I help my business owner clients change their mindset in a way that allows them the freedom and profitability they have always hoped for, but never thought possible. I write weekly blog posts just like this one; and am developing a robust online training system for business owners. If you want to stay up to date with all of the cool stuff that is going on at Jeff Schuster Business Coaching and receive some awesome business coaching tools, sign up here.
Note from the Author
My name is Jeff Schuster. I am a certified Life and Business Coach serving small business owners, corporate executives and others who want to transition from “expert” to “entrepreneur”. I have been a small business owner for most of my 30-years in the workplace. I grew an energy efficiency and renewable energy engineering and construction company from nothing to over $10-million/year and sold it in 2013. I now help other business owners make amazing progress toward their own dreams of business ownership independence and success.