The Facts of Business Life

by Bill McBean

  Establishing processes like these is extraordinarily important for several reasons. First, it enables owners to show their employees how they want the business to be operated. This is essential because, as I noted earlier, it is ultimately these processes that operate the business. In addition, processes by definition demand accountability, which in turn results in job expectation and performance standards, and makes it easy to evaluate an employee’s performance. Finally, when there are processes in place, it is much easier to spot problems and to fix them before they become serious. Unfortunately, establishing these processes—creating a company’s DNA—is perhaps the least understood and most underappreciated macro concept for business owners. It is also, though, one of the most essential.

  Leadership at Level 2

  A good leader has to have a toolbox full of skills, but at Level 2 the predominant skill required is vision, that is, the ability to look into the future. An owner has to be able to visualize how the company will operate in order to exploit the opportunity to its fullest and achieve the success forecasted. What that means is that you have to visualize what tasks must be accomplished, determine those areas in which processes must be established, assign accountability for them, and develop means of determining whether the processes are working the way they should be. This is the first step in creating a company’s DNA.

  If as an owner you cannot do this, your company will essentially be operating on the philosophy “If you don’t know where you’re going, any road will take you there.” And those roads lead to failure. However, by defining what needs to be done, designing processes to match that definition, and dictating how the processes will work, you will be exhibiting the kind of leadership that’s necessary at this level. It’s important to note, though, that determining what processes are needed can be a very complex task. If, for example, your company operates primarily on cash sales, everyone should understand how these sales are recorded and what happens from the time the customer hands the money to an employee to the time the money is deposited into the business’s bank account. One of the obvious benefits of establishing such a process is that it protects the business from theft and normal human absent-mindedness. What’s less obvious is that it’s also important to develop processes that determine how employees treat customers, when inventory should be replenished and when it shouldn’t, and when and how the customer should be contacted after the sale, as well as many other items.

  Management at Level 2

  Once an owner has determined what tasks must be accomplished and which of these require processes to be established, creating the step-by-step procedures and determining how to measure the results of those procedures is essentially a management function. For instance, in the preceding example, if you want to develop a procedure to follow up with a customer, it could be something as simple as sending an e-mail to thank them for their business. You could also contact them after some particular number of days to make sure they are satisfied and give them a special discount on their next purchase. Similarly, you could set up a procedure in which you inform them of a product or products that complement what they bought, or tell them about what other customers who bought what they did also bought. The point is, regardless of what you choose to do, it is important to set up a process for doing it—or nothing will get done.

  But setting up processes also helps you develop the company’s DNA in another important way—by helping you develop a clear picture of the kind of talents employees will need to ensure competent operation of the processes. This will in turn better enable you to determine the number of employees needed, the training required, the discipline you must have to make the processes work, appropriate performance expectations, and the means by which employees will be held accountable for results. And all of these things become part of the company’s DNA.

  Planning and People at Level 2

  As I mentioned earlier, in any successful business, it’s the processes that operate the business. But it’s the owner’s job to define these processes, and the employees’ job to operate them. At Level 2, DNA creation accordingly brings together leadership, management, and planning in that it connects the definition of success (leadership) and the step-by-step processes needed (management) to an organized format (planning) in order to make the success goal a reality.

  Planning for a business is actually similar in many ways to planning for a trip. When you’re planning a trip, you first decide where you want to go, then decide on the route, and then determine how long it should take to get there. Once you’ve accomplished this, you will know how many nights you will have to stay in a hotel, the number of meals you will have, and what your other expenses will be. When you’re planning a business, you also start with where you want to go—in this case, the success you are hoping to attain. Then you decide how you’re going to get there, how long it will take, and what you and your employees will have to do to accomplish the expected results, that is, how much sales revenue and gross profit you will need to meet your expenses and make a profit. And just as you need a map when you’re planning a trip, you need a plan when you’re starting a business so that you know which road to take, where to turn, and what you have to go through in order to get where you want to be.

  Employees are, of course, also an important aspect of DNA creation, but they also have to be controlled. That means they must have the appropriate skills and a great attitude, be adaptable to change, and be willing and able to work within the guidelines you establish. If, for example, you want your customers to feel that your organization is a professional one that they can trust, your staff must present themselves accordingly. If your company sold medical equipment and a customer came into your business and was greeted by an unshaven, 60-year-old man dressed in leather and covered with tattoos, the customer would not in all likelihood be favorably impressed. The important thing to remember is, where DNA creation and employees are concerned, the tail can’t wag the dog. That is, how your company operates must be your decision, not your employees’. Creating a company’s DNA is hard; enforcing it is even harder. But if long-term success is your goal, you really don’t have any choice.

  Marketing and the Customer at Level 2

  Nothing happens without the customer. And customers won’t know that your company—or the products or services you provide—exists without marketing. This is one of those business laws that you just can’t ignore, and one that, fortunately, most people know. What you may not realize, though, is that your company’s DNA has a very considerable influence on how your company markets and delivers its products or services. What that means in practice is that the kind of message delivered through your marketing should reflect the ethics and professionalism of your company.

  Virtually everyone expects politicians to make promises and then not deliver on them—it’s part of the game. But it doesn’t work with customers. If you make a promise to a customer and don’t deliver on it, he or she is very unlikely to come back. And because of this, it’s essential for your company’s DNA be a reflection of your marketing. That is, if the message your marketing sends to your customers makes a promise, you must develop your DNA to make sure both your products and services deliver on that promise. This is an important point that can easily be forgotten in the busy day-to-day operation of a business. You might be able to realize some short-term gains by making promises you can’t back up, but it’s one thing to attract a customer and quite another to bring a dissatisfied customer back to your business. And having a clearly stated DNA makes it easier to keep your marketing from making exaggerated or misleading claims that can get you in trouble with your customers.

  Marketing and customers go hand in hand, but the overall purpose of attracting customers is to get them to buy from you, then come back and buy again, and then tell their friends and relatives what a great business you have. Most customers are decent, law-abiding, moral people, and if you want to attract and keep the majority of them, your business has to operate in accordance with th
eir values. What this means is that everything about the way your business is run has to reflect those values, including how honest your advertising is, how a customer is greeted, how well employees are trained to respond to customers’ requests or questions, and literally hundreds of other aspects of your operation.

  Creating your company’s DNA begins at Level 2 but is actually an ongoing activity. Because the market and your customers are always changing, as your company moves through its life cycle you will have to periodically come back to Level 2 to create or recreate processes that reflect those changes. That’s one of the reasons it’s so important for you to think through and develop the kind of processes that your company will need to operate successfully at Levels 3, 4, and 5.

  Level 3: From Survival to Success

  The third level, From Survival to Success, is the point at which all the planning and preparations that were done at Levels 1 and 2 are implemented. It’s here that you must be relentless in your pursuit of putting those day-by-day processes into effect by measuring the results to make sure they’re accomplishing what’s expected, modifying them if necessary, and continuously working with your employees until those processes become second nature to them. The goal at this level is to move the business from the survival to the success end of the spectrum. That may sound simple enough, but the reality is that the majority of businesses that start Level 3 don’t make it past the survival end of the spectrum, and only 3 out of 10 survive more than 10 years. This means that Level 3 is not only where businesses begin, it’s also where most entrepreneurial dreams die.

  Although most of the failures at Level 3 can be traced to a lack of preparation in identifying appropriate opportunities and/or in designing how the business will operate, the fact is that some of those businesses could have been saved if their owners knew what to do, that is, revisit Levels 1 and 2 and make corrections. When problems arise at Level 3, failure is by no means inevitable, and owners have to understand that they have to fight to be successful. In fact, most owners become successful because of how they handle adversity. Things seldom go as planned, and Level 3 is more about working hard, being smart, and focusing on building a successful business one step at a time—sometimes by trial and error—than it is about being an overnight success.

  If, for example, you should find that your Level 3 business has stalled, or is not delivering the desired profits, you can go back to Level 1, look again at the information you gathered at that point, and determine if the opportunity you thought was there still exists. If it doesn’t, you can research the market again, find out where the opportunities are, and then change your company’s direction. However, if you find the opportunity does still exist but the company is not operating the way it should in order to take advantage of the market, you can return to Level 2, find the operational problems, and then create or recreate processes and procedures to enable the company to operate the way it should.

  Leadership at Level 3

  Level 3 puts an owner through more turmoil and change than any of the other levels of the business life cycle, and accordingly requires him or her to exhibit a variety of leadership skills. There are, however, three of those skills that are particularly important at this level: (1) defining reality, that is, making sure you have a good understanding of where the business stands right now; (2) determining what has to be accomplished and in what time frame; and (3) motivating employees to buy in to the owner’s vision and continue working to help move the company forward. Doing this is no easy task, and it doesn’t get any easier. In addition, the leadership that’s required at the survival end of the spectrum is different than what’s needed at the success end, which means the owner’s leadership qualities and skills have to grow and improve as the business moves along the spectrum.

  As you move your company along the survival–success spectrum, you will probably find that one of the most difficult battles is the one you have with yourself. Effective leadership means staying calm in the face of adversity, remaining consistent in your ethics and discipline, having the patience to see the plan through, maintaining the courage it takes to make decisions, and being continuously enthusiastic about the future. And that’s not easy, especially when your knees are knocking, you have to reinvest profits time and time again to feed the growing beast, you’re constantly faced with self-doubt, and you have to deal with all the other issues that ownership brings with it. Moreover, these battles erupt frequently and rarely let up, and it takes time before you become comfortable in the knowledge that the business can meet its goals and objectives.

  There is, however, one more important aspect of leadership that begins at Level 3 and continues through the end of the business life cycle. Although when you first start a business you cannot delegate leadership, as you become more skilled at it, it is essential that you begin—and continue to—develop as many leaders as possible among your employees. Doing so makes the company stronger because the more people you can develop as leaders, the more horsepower your business will have to pull it forward. And more horsepower means you will get to your destination faster and have a healthier business when you arrive there.

  Management at Level 3

  Because at Level 3 the business is “live,” that is, it’s become active, and its destination has been defined, it becomes management’s job to implement the processes created at Level 2 so the company can achieve its objectives and goals for sales and gross profit. In other words, at this level, management is about the day-to-day blocking and tackling of managing sales and profits, keeping on top of expenses, watching for changes in the market, managing the customer base, creating more customers, and improving processes, among many other tasks. However, important as all these functions are, the most important thing to remember is that results matter, and if the company is not achieving the results you intended it to, it’s essential you find out why and fix the problem. That’s because in the end results are what it’s all about, so results have to be your main focus from the time you open the doors in the morning until you close them at night.

  Planning and People at Level 3

  Although Level 3 is where the plan you developed for the business is put into action, the plan itself is not the main focus. As I’ve mentioned before, a lot of people can design a plan, but what’s more important is how you implement it and how you react to both successes and failures. This is because while the plan you formulated at Level 1 is essentially the road map showing you how your business will get to its destination, it has to be changed and upgraded as new information is accumulated. That is, even though the destination remains the same, time frames may have to change. For example, if your business has been slow in attracting and training people to work for you and you’re bringing in less revenue as a result, it will affect your financial forecast, and your plan will need to be revised to reflect the change. In fact, the key to planning at this stage of the business is recognizing the exceptions to the plan, both what is working better than expected and what isn’t, taking advantage of those things that are, and improving those that are not. In other words, developing a workable plan is important, but plans are about results, good and bad, and the skill of the owner and the employees in adapting to the results is where the “rubber meets the road” and success is created.

  Of course, in order for any plan to work, you need employees, and that’s not only a challenge, it’s frequently a problem as well. While some employees are likely to surprise you and others to disappoint you, both groups need constant attention. This is because at Level 3 the business goes through constant change as it moves along the survival–success spectrum, and employees tend to fight change because they don’t understand that it’s to their benefit, both in terms of pay and job security. If, however, you have designed processes within which your employees can work, those processes will keep them focused on their jobs rather than running around doing things they think are important or like doing, neither of which may have a great deal to do with the results you expect
of them. In addition, processes give you a means of measuring what your employees are doing. For example, if your plan and supporting processes call for 100 items to be shipped per day, and your measurement shows you are shipping an average of only 80 per day, you have a problem that needs fixing. The great thing about processes is that they measure output, and they can be an early warning of things going wrong or of things going better than expected, both of which need management input.

  Ultimately, particularly at this level, constant motivation, communication, and education are critical components for employees. This is because at Level 3 so much is happening it’s hard for employee’s not only to keep track of all the changes but to keep up with them. Making sure they are in the loop as far as information is concerned, and doing whatever you can to help motivate them, will go a long way toward keeping your company on an even keel.

  Marketing and the Customer at Level 3

  At Level 3, marketing is aimed primarily at the market in which your research at Level 1 indicated there was an opportunity. The challenge at Level 3 as far as marketing is concerned is that marketing costs money, and cash is usually tight when you are still on the survival end of the survival–success spectrum. It takes ownership courage to spend money without being sure of a return on the money spent. And because of that, it’s always a temptation to cut back on marketing at this level. However, the reality is that marketing is more critical at Level 3 than at any other point in your business’s life cycle because it’s marketing that leads to sales, and sales that supply the money you need to continue moving along the spectrum.