I am writing a mini-series of blog posts on the 5-keys to Business Success. The first key was FINANCE which you can read about by clicking here. The second and third keys are MARKETING and SALES. In this blog post, I will discuss the importance of the fourth key, OPERATIONS.
You have made it through the gauntlet of finance, marketing and sales… and now have a customer who has signed on the dotted line. All you have to do is deliver what you’ve sold. Operations is the core of what you do as a company. If you are a bottle manufacturer, then operations is everything it takes to make great bottles that your customers love.
Sales that have been made, but not delivered are called ‘backlog’. Throughput is the amount of product that is actually delivered to the customer. The rate of throughput will directly drive the rate of profit and customer satisfaction for any company. Two keys to a great operations department are: 1) Throughput; and 2) Quality.
In truth, the only way business owners make more money than the average working stiff is by mastering the concept of throughput. There are four ways to maximize throughput:
- Hire and train others to do the work of your company.
- Manufacture products
- Create innovative intellectual property
- Group service
Hire & Train Others
At some point, every solopreneur who is doing all of the work of their business by themselves figures out that they are not only not good at every task their business requires, they often do not like doing every task their business requires. The first stage of this growth is hiring administrative people to take on book keeping, call handling and basic tasks that lower paid people can do much more efficiently than the business owner. However, since we are talking about ‘operations’ in this post, I want to focus on the actual delivery of services or products to clients.
If you want to hire individuals to deliver services to your clients, you will need to develop systems and processes that your newly hired people can follow. You then need to train newly hired people to deliver services in your unique way. Some business owners hire others who carry a title like engineer or dentist and expect them to know how to do the job because all professionals ought to know what they are doing. Unfortunately, it just never works this way. It doesn’t matter if you are hiring a dish washer for a restaurant; or a young lawyer for your law firm. You need to provide training and orientation to the way you want things done. This orientation normally comes in the form of a documented training process, job descriptions and on the job training.
The next step is to ensure you have a system to measure the output of your trained employees. If ‘throughput’ is your goal in operations, you need to measure how much useful work is being produced by your staff. This output could be billable hours, projects completed, or whatever your customers value as output by your company.
Manufacturing is the byproduct of our industrial revolution that started at the beginning of the 18th century. It is the ability to have a machine reproduce some product that we have invented. If it takes a year to invent an ingenious product; it may only take a few minutes to make the product by creating machines that can reproduce the product over and over again.
Assuming sales are high, throughput of your product is as good as your manufacturing process. The more products you can produce in a short amount of time, the higher your throughput and therefore your profits.
Intellectual property is a tricky tool to leverage throughput. Intellectual property can be an internal company secret or it can be sold as a product itself. If you have devised a way to grow more corn crops faster than anyone in the marketplace, you can use this advantage in your corn growing operation to either sell more corn than your competition while investing less in growing corn and make more profit. Or, you can sell your idea to other corn farmers and make money on your idea.
The reason that this tool is tricky is that an ‘idea’ is hard to copyright or patent. In some cases, it may even be hard to document. Early in my sales career, I worked for a company that claimed their unique sales process was their ‘intellectual property’. However, after leaving that company, I found that many other companies in that industry were using the exact same sales process. So, the notion that that sales process was ‘intellectual property’ of my original company was false. If an idea is widely known, it is hard to claim any unique ownership of that idea.
If you want to use your unique idea and use this as a tool to increase throughput, the best way is to capture your idea in a product like a book, speaking series, or training program of some sort. Even then, you will need to ensure your idea is truly unique. If your idea is too simple; or not that unique… throughput will not be positively effected.
Many professionals try to help one individual at a time. After all, most individuals have unique circumstances that often require individual attention. However, in many cases groups of like individuals are often needing the same service. In these instances, a professional can create a speaking engagement series, or group sessions to help multiple people at the same time.
If you are a psychologist and make $100 per hour serving individual clients, you could increase your throughput by creating 5-person group sessions and charge a group of five people $350 per hour. You have increased your throughput by 250% and have reduced the price to your clients by 30%.
If the same psychologist creates a speaking engagement and charges $5,000 serving 100 people, throughput would be increased 100 times; and the price to clients would be reduced by 50%. Grouping is a tactic that increases throughput and decreases price to clients.
If you have high throughput, but a crappy product or service, it won’t matter much because you won’t get referrals or repeat customers. In fact, if your service or product is really bad, you may have to give refunds to existing clients. The only way any company can stay in business is by delivering superior quality. Instead of just providing service or products to customers and hoping your product quality is good, you need to check with clients to ensure they feel like they received superior quality. If they did not, listen to what they say so that you can improve what you do as a company.
Systems & Processes
The first thing you need to do is document your processes. Outline each step in your process. Once you have established processes for everything you do, employees will be able to replicate the quality that you want to deliver to your clients. If your process is too time-consuming; or results in poor quality; you can tweak it. If you don’t have your process documented, you can’t tweak anything, because you have nothing to start with. By documenting and constantly improving processes, you will be able to deliver reliable, and repeatable results for your clients.
Most small business owners skip this step in their approach to business. They think systems and processes are a waste of time. Then, they hire employees who join their company and become bewildered at why they have so much difficulty with employees that don’t do things the way they want. The small business owner is constantly spending personal time with their newly hired employees because they have no documented systems and processes. One of three things happen in this situation: 1) employees develop their own processes that may or may not be better than the owner’s intentions; 2) employees become frustrated and either quit or stay and become grossly inefficient; or 3) the owner will invest an inordinate amount of time micro-managing their newly hired employees. In any case, the business will operate inefficiently and deliver unreliable quality to its customers.
One aspect delivering high quality to clients is having access to reliable high quality supplies and contractors. Let’s say that you have enough size to handle 10 clients per month. However, your sales and marketing folks are killing it and deliver 20 clients in a single month? If you have a flexible and high quality supply chain, and the requisite financing, you should be able to handle this increased volume without a problem. It’s important to line up subcontractors who can help you with peak load events. If you sell a product that relies on raw materials of some sort, you need to make sure you have multiple suppliers that can provide you with comparable quality raw materials so that you can meet your client’s demands. There is nothing worse than having to either turn away willing clients; or deliver substandard work because you couldn’t accommodate suddenly increasing demand.
Let’s say that you make it through the operations gauntlet. You have exceeded your customer’s expectations in every way and that customer feels like they received exceptional value from your company. You now need to capture that feeling of satisfaction in words. Whether it is a written letter or a plug on Yelp or your website, customer referrals are the best sales and marketing tool you can have. What better marketing information than a real customer who has experienced the benefits of your company’s’ work first hand.