As a business owner, leader or board member, you are often tasked with the idea of increasing revenue to help build the company, improve the profitability of the organization and enrich the owners and employees of the company. At the same time, one might need to develop more stability, decrease risk and/or build value for potential future sales, all while managing it’s growth. As a company strengthens the complexity of the communications systems and all processes increases. Eventually no one person really knows what is exactly happening and for a small company these changes happen rather organically; without planning or design.
Let’s face it, everyone is very busy trying to deliver to the customer, not thinking about how the internal processes are working. That is normally the job of the COO, but that position may not be filled until the company is rather large and already unwieldy. So what can you do to staunch the inevitable flow of losses that result from such unplanned and chaotic expansion?
Here are five simple methods to review and evaluate your systems to see if you should be re-organizing your processes or your structure.
Review your actual monthly costs for the last 2-3 years. Are there any trends you can spot? Review these costs by product and overall. If you find that some costs are going up, investigate the reasons for the increases. Make sure that if you have a simple answer like “supply costs went up” you calculate how much of the cost increases are reasonably due to this supply cost increase. If less than 50% of the increase is explained, you probably have some process inefficiencies that should be removed.
- Walk through your company offices or manufacturing sites and look at them with very objective eyes. Do NOT warn your managers of this tour, and do not speak to them during the tour. Simply walk through and look at how orderly the place is. Look at how much extra material is stacked in corners. Check out how many files are waiting to be filed. See how many garbage loads are sitting around and how many tools are scattered. Check your delivery vans and company cars. Are they clean and orderly or filled with papers, garbage and tools and materials scattered all over? If you find a great deal of disorderliness, you should assume that your whole operation is disorderly and probably losing money unnecessarily. You have inefficiencies that should be fixed. Why? Hunting for a tool in a pile of tools is wasteful. Walking around a stack of materials in a pile hundreds of times is wasteful. You are paying people for non-value added time.
- Review your sales results monthly for the last 3 years. If you don’t have overall ratings for your product or service, use whatever measure you currently have. If you have delivery times or service times, you can use those. Use loyalty measures if you have nothing else. Have someone do a quick, statistical sample pull of all your current customers and research how long they have been a customer, and if possible, what their total spending has been in that time. What do these data tell you? Are your ratings falling? Do you have declining loyalties? What percentage of customers are very new versus long term? If you find that your customer base is very young, or your approval ratings are declining, you likely have some issues in operations.
- Review how many suppliers you have acquired over time. Compare the growth of supplier costs to the growth of revenue. Do these numbers grow similarly or are your suppliers gaining larger amounts of your profit? Have you lost some suppliers over time? Do you have ever more suppliers on your list? This can be due to inattention by your managers as they are under pressure to solve problems and simply find the first best solution. Beginning to review your suppliers in a more organized fashion with good quality checks, plant visits and cost analyses, takes time and energy but over time can save you a good deal. Chaos in the supplier system can create chaos in your system. New suppliers require start up which is costly. They can sometimes not deliver on time or provide different quality than you expect which disrupts your systems.
- Evaluate how you are making decisions within your leadership. Are you really analyzing all the risks or are you focusing simply on the financial costs? Bottom line leadership can temporarily work but over time can cause you to make very poor decisions, increasing your overall risk, devaluing your company and incorporating poor quality employees, systems and equipment that you will pay for over time with greater breakdowns, turnover and poor quality. You want the optimum in operations costs and risks, not the cheapest or lowest.
While there are plenty more places to look, for a small business owner or entrepreneur trying to successfully build their revenue over time, these are places to check for major issues that can develop. If you look at the 5 points you will see that the issues that are covered are Marketing, Sales, Production/Service systems, Finance, HR and Supply Chain. These major areas require a good balance for a company to operate correctly over time. Having your hand on the controls requires good measures or KBIs (Key Business Indicators). Use these to guide you in making good quality decisions about the direction of your company. Developing good KBIs early and learning how to use them well to lead will help you navigate growth with more confidence and success.
Written by Terri Friel