One of my mentors once described the economy like seasons: Fall when things were looking dark, winter when things were bad, spring renewal, and then the bounty of summer.
Unlike the natural world’s three month cycle for the four seasons, one season in the economy can last years. And unlike the natural world, it’s hard for most of us to tell that the season is
about to change.
I believe most of us are in a summer season and probably will be for at least another year. From the work I do, those businesses that are not reaping strong sales, production, and profits have
something broken in either the business model or the way they are managing their enterprise. They are not bad businessmen; they simply have something broken.
When we study the U.S. economy over the past 100 years, most businesses use summer to grow. But only a small percentage of businesses who consciously decide to grow live through the next full three seasons. Summer is the time to harvest the bounty and set some of it aside for the inevitable winter.
Today, I want to educate on how you store the bounty. Following is a description of a road map, or checklist, to guide you on your way. My hope is that this roadmap will be helpful to readers who
are considering growth.
Businesses are just as varied as people, falling into different stages, different ages, and different problems. What a young 8-year-old boy sees as a challenge is not the same for 38-year-old man.
The challenges faced by an owner of a three-man shop may not be the same for the owner of a 13-man shop.
A business that has 100 percent wholesale should be using different strategies than someone who is doing 90 percent retail. It wasn’t until someone older, wiser, and more experienced explained it to me as steps that it made sense.
The first step is mastery—over my time as an owner, over management of the team, and over the understanding of the numbers of the business. About 90 percent of all businesses out there are on
this step, either because they don’t have a compelling reason to move on (it doesn’t hurt enough), or they are not sure what is required to graduate to step two.
When I’m hired to coach a business, I spend a lot of time up front on the mastery of money. I want to make sure the owner understands everything about his three main financial reports, which measure the three main levers to focus on. Financial mastery is reached when you have a strategy for fixing the weakest. Thankfully, it can be simple to work on three strategies at once to work on the three weakest links. Many times this is all management needs. If they are good ball carriers, I just give them the balls and say “run,” and they score touchdown after touchdown.
For example, the real oxygen for any business is its cash flow. If there are gaps or shortages, pinpoint the reasons why. Is the gap caused by a fundamental problem in profitability? Do you know
what the profitability is on all your products, all your locations, all your salespeople, or all your SKUs?
Keith was a friend of mine years ago on the football team. He was scrawny and weighed 150 pounds, but man, could he kick. I was always amazed at how far the ball had to travel backwards after the snap to get it moving so far forward. Sometimes in business we have no choice but to back up so we can make some real progress moving forward. You may have to stop and do some investigation to ensure you can move forward.
Management mastery, simply put, is your ability to direct your team to reach a clearly communicated expectation. No need for airy leadership books; that comes later once your team is on your
page with expectations and goals. For now, ask if you can manage the guys to reach a goal for sales, for production, for delivery, for inventory, or for cycle times. Or maybe you must back up to kick a field goal again and get some goals. No shame in that. Your fellow business owners won’t admit this at the next social gathering, but trust me, many of them are in the same place.
After mastery of the team management and the numbers of the business comes mastery over your own time.
Have you performed an 80-20 analysis to determine what should get 80 percent of your focus and energy? Have you delegated some of the low-level tasks to a hungry up-and-comer so you can take on the more important work?
The final checkpoint for mastery is your fulfillment. Your business is nothing more than a promise to a customer for something. Customers give you some money and you fulfill that order by
making them a shed. Overall, how well are you doing on this fulfillment? Are there quality issues? Are there timeliness issues? Or maybe there is weak link in a subsection like final delivery.
My best advice to the small handful who will listen (Mrs. Coach Thom not being one of them) is to stay on step one until all these holes are plugged. When we go through obituaries of businesses that didn’t make it, 100 percent of the time the cause of death can be traced back to one of these weak links that were not reinforced before they embarked on growth. If there are any holes in time, team, money, or fulfillment, please heed my advice and get those fixed first before you continue.
For those who genuinely focus on these things first, the time spent on the mastery step can last as little as two years and as long as five. Your business model, your capital structure, or even your geographic location can make the time you spend on mastery faster or slower.
Once you have this near impenetrable foundation built, apply the weakest link theory again by looking around and asking, “What next?” Perhaps the weakest link is now systemizing the business so it is less dependent upon you. When the business is run on systems and not dependent on you, you can then fish all day, investigate a brand-new business venture, or work to make a big improvement in your current business. Or perhaps you want to strengthen the cash flow of your business by developing and executing strategies to decrease your cash conversion cycle by getting more dollars in earlier and holding onto more cash later.
A third popular choice for many manufacturers is refocusing with a pig-headed determination on gross profit (GP) improvement. The work done on GP in the mastery step was just to make sure there were no leaks. Now, perhaps you want to build up this muscle so it effortlessly pumps growth into the whole business. Additional analysis of what the winning and losing products are usually leads to strategies to stop selling the losers and sell more of the winners. If time and energy spent on margins won’t give that much of a return, perhaps the focus should be increasing the sales, whether through a better conversion rate, a stronger average invoice, or more top of the funnel with leads.
This is the road I would clearly mark as growth. But before trudging down the road of sales growth and all the different forms of expansion that come with it, I advise you to store the bounty and check on just three areas to ensure you’ll be able to handle it. Make sure you have enough cash, enough people, and enough space.
The first way to address these growth issues is by asking questions like: What will the implications be on cash if you decide to grow? If you expand to another sales lot, how much more in rent or labor will that be? If you sell 100 more units from this lot per year, how much more money in inventory will you need to purchase this winter to build stock? Should you invest in more trailers or trucks? With my clients, I stubbornly insist they complete another cash flow forecast for these big expenditures so we know just what the sales must be to break even and to thrive. I hate surprises.
Second, what are the people requirements? Using the growth example of 100 additional sheds from above, how will that impact production? Can your existing crew get this all done? What positions do you need? Will you need additional support or supervisors? Will you need more hours devoted to accounting, customer service, or delivery?
And finally, think through the new space requirements. Will you need more production space? Does it require you to move and find new space? Must you find new sales outlets to sell the new production? Will you need more offices? More pens, paperclips, and Post-It notes? You can see that both the people and space requirements should go into your cash flow forecast so you know
what the new requirements are on gross profit to give you the desired earnings.
I get annoyed when someone bombards me with questions. Especially if I barely have time to answer the first question before the second question gets hurled at me, just like I did to you here. I have these questions in a checklist form (with some other important ones added to it) if you want to go through it more slowly. Drop us a line, and we’ll send you this simplified roadmap that lists these questions.
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