The majority of small businesses are owner reliant. As the owner, if you don’t turn up to work for the next 12 months, you’re business will likely die. The way around this, is to build and develop a team of people, both internally and externally that can run the business without the need for you being around.
It all sounds easy, but in practice, if you’re only a small business it can be impractical to employ extra staff to run the business, especially if it’s barely profitable.
So how do we go about it?
Well let me explain the thinking behind this. The biggest problem with most business owners, is that they are their own biggest obstacle to the success of their business.
For most, especially those with a more technically focused mindset, which makes up about 75% of people, believe that only they can do a particular job. That might be through perfectionism, where nothing is ever good enough, or it could be because they believe a process or task is so important, or so technical, it would be impossible for anyone else around them to achieve the same results.
But let me tell you one of the biggest problems a business faces. This is a problem shared by about 99% of small businesses, though business owners always believe they are the only ones having trouble.
The most common complaint, is that they can’t rely on their staff to do something, or they can’t find the right staff. But the problem isn’t the staff. If you’ve had this problem yourself, how many staff did you try before you came up with this conclusion? 5?, 10? 20 perhaps? That’s all those people, but with every single one of those people, there was always a common denominator… YOU!
You were the problem.
The reason these people were never good enough, never reliable enough, is because they were trying to live up to YOUR expectations and views of how something needed to be done. They’d set their ship toward the island of failure before you ever met them. They had no chance of turning it around, regardless of how much they tried. Now granted, there are some bad eggs, whether they repeatedly turn up for work drunk, they’re lazy, or they just can’t be bothered, but the majority of staff aren’t like that. The majority of people are just as committed to the business as you are, but they just have another, normally more important life to attend to, when that clock hits 5pm.
Just flip it on it’s head for a second. We decided what the outcome was, then as technicians, we engineered our own process to get there. If the member of staff didn’t follow that process to the letter, they’d fail. But actually the process didn’t matter.
It was always the outcome that mattered. It’s just that our technician brain got in the way, and let us believe the glory was in the detail.
Rather than focusing on the process, we’d have been better to focus on the end result. The outcome, or the objective. Everyone has their own method of thinking, and their own way of how they see the world. And that means they’ll always approach things in a slightly different way to you.
We also know that one of the biggest motivators to staff, is not to give them money, or other bonuses, but to give them responsibility and purpose. By giving them the freedom to make their own decisions, and autonomy to organise themselves, and be responsible for achieving a particular outcome, it naturally makes them happier, and more motivated.
So if we know that, then why don’t we just make them responsible for achieving that outcome instead. Why don’t we just tell them where we’re going, and what they need to achieve, to help the whole business get there. This means that they suddenly understand what part they play in the business journey, which helps them to buy into the vision and mission for the business.
Now you might say, how can i trust this person to do it, when they didn't do it before. But remember, they didn’t do it before, because their ‘success’ was based on your perception of how they should do it - and it's only you personally that could win that game. Inherently, everyone knows what they ‘should’ do. Think about it, when we were 8 years old, we didn’t need to be told whether it was safe to walk on a busy road. We instinctively know what is safe, or unsafe. We instinctively know what is right or wrong, good or bad. Admittedly, we all make mistakes too, but those mistakes happen from just being slightly off track to what’s expected.
It’s making these mistakes that help us become stronger, more experienced people in the future though. If you don’t give your staff room to make those mistakes, it’s like you’re just indirectly judging their success according to your own narrow views again. The only way to get around this, is to give them boundaries. For example, if it’s someone's responsibility for purchases, you don’t give them access to the entire bank account, plus your own personal life savings too. You agree the boundaries, by saying, for example, ‘this is what we’ve paid previously, if it’s any more than 5% above these prices, let’s review before you place the order’. That way they are still responsible for the outcome, but you won’t lose the entire family inheritance from one person's mistake.
So, in practical terms, how would we go about starting this process?
Well remember, a business is just a group of people all working toward a shared outcome. That outcome just needs to be broken down, to identify what are the key factors and milestones that we need to achieve to get there.
Now hopefully we’ve all seen the typical organisational chart for a business. Here’s one as an example.
This is the typical management focused structure. But every objective or outcome can be broken into mini objectives that fit into each of these job roles.
Even if your business doesn’t have these (or other) official positions, someone is still doing them, or else your business wouldn’t be trading. We just need to identify each person in the organisation, identify their skills, experience, qualifications, and most importantly, their career aspirations, and then slot them into the positions.
If it’s just you, as the business owner that’s doing 90% of the jobs, first of all, you need to ask what the hell are you employing everyone else for, if they only produce 10% of the outcome. EVERYONE employed in the business should NOT be there, to perform a task. Everyone in the business, should be there to achieve an objective, and their reward (salary) should reflect the level of the outcome they achieve, in relation to the larger vision objective.
If we adjust the organisation chart to an objective focused chart, we can then look at what needs to be achieved, and slot the appropriate people within the business, into those roles.
Let’s take a look at this now.
Let’s take a second just to talk through how we’ve changed each of these roles. Obviously this is a very basic example, but hopefully you can see how to go about setting this in place for your business.
So first of all, we start with the position at the top. This was previously the managing director role. Now this is probably you as the business owner. But lets distance ourselves as the business owner for this exercise.
This is how the process works. The shareholders, investors or the owners of the business say, ‘we want to see a particular objective achieved by the business’. In this case, we want to see the business grow to at least £1m in annual sales, and at least £100,000 in net profit.
It’s then the responsibility of that person, to put in place the strategies & resources to achieve that.
The next role down, and to the left, was previously the sales manager. Now remember the business needs to achieve at least £1m in annual sales, so we need to make sure we achieve that, or else the person at the top might face the chop. And ideally we want to exceed the target, because we don’t know if we might have a few slow months later on in the year, so we set a sales target of £100,000 per month, which gives us a 20% safety buffer.
Now anyone can sell if we’re making no money on it, so we know that we have to earn enough profit from every sale, to cover the overheads, and to include that minimum 10% net profit. So we set the minimum gross profit for every sale at 60%.
Moving to the right, this role was previously the operations manager. This role is basically responsible for all delivery of those sales. Putting the resources in place to make the delivery happen, but still be within budget. So for this role, we need to deliver £100,000 in contracts every month. Obviously this is reliant on having the sales to deliver on. And we know that some contracts might run over budget slightly, so we’ve allowed a small contingency in there for profitability, and agreed this person must deliver the projects at a minimum 55% gross profit.
Now this person is overall responsible for delivering two projects, so we’ve made each person responsible for delivering their own project. In real life this could be achieved by allocating a particular geographic area, or set number of customers or projects, that they are responsible for. But in this example, we’ve got one project with a maximum budget of 1400 hours, with a 1% maximum material wastage, and the second project with an 800 hour and 0.5% maximum material wastage.
The role that was previously seen as the trainee, we’ve now given this role its own responsibility in completing a smaller sub project. We ‘ve allocated hours for the individual to do that, and allowed a 0.5% wastage maximum allowance, which again relates to the bigger allowance for the project.
Moving to the right, we’ve got the position that was formerly the finance manager role. Now the ultimate responsibility for this role is to make sure we have the money to pay the staff, & pay the suppliers. They’re objective is to have at least £93,000 every month in that bank account. That person will have some guidance on how to do that, such as issuing invoices on time, but ultimately its their responsibility to achieve it. That could mean negotiating with suppliers to give 30 days extra credit facilities. Or it could be to source external finance.
Last of all, the role that was previously the admin role, we’ve set an objective for this individual to prepare and send out £100,000 of invoices every month. Obviously you’d also include an objective for paying staff and suppliers too.
Here’s another angle to look at it from.
If you wanted to, you could make this into more of a flat structure rather than the traditional pyramid. Rather than having the traditional managing director role, you could move this down so that you essentially have all four roles directly answering to the shareholders of the business. This works better for areas such as if the business needs additional funding. Giving the funding section of the business entire responsibility for sourcing that finance. The flat structure is very closely related to the C-level corporate structure when a business has CEO, COO, CMO, CFO, CIO etc.
With the pyramid structure, an individual seeking funding would need to go through the ‘managing director’ role, to access the shareholders, which is adding extra time, and more ‘passed-over’ responsibility to others in the business, and could ultimately mean the funding objective isn’t achieved, whereas the flat structure puts everyone in complete authority to achieve their own objective without relying on their line manager.
There are really some positive and some negative points for either type of structure. For example, if the owners of the business are dealing with 4 separate members of staff, it could be very time consuming. It can also lead to poor communication between the other members. In such a scenario it can be best to only hold group meetings, and all communication done via email with everyone copied into the email thread. There are online platforms that enable you to do this. They look, and work very similar to social networking platforms like facebook, but they are actually standalone platforms that members of your team can join the group, and see exactly what’s been said.
Now we’ll write about putting people in the right positions in a later post, but let's just say, that everyone in a business has a particular strength of personality, that they were born with. This has nothing to do with their skills or qualifications.
Some are more detail focused, some you might refer to as ‘heads in the clouds’. Some are natural extroverts, some are wild introverts. But there are specific roles within a business that match a particular personality type, naturally being suited to it.
I’ll give you an example, imagine a typical ‘head buried in the numbers’ accountant. Now imagine putting that person into that customer facing role such as a used car salesman. How successful do you think he’ll be? It isn’t the role that’s the problem, it’s the persons natural personality. We all know a natural born salesman, but try getting that person to do paperwork in a dark quiet room for a week, and they’ll make every excuse not to be there. In fact, by the third day, they’ll probably be calling in sick. By the 5th day, they’ll be resigning - and the work they did get done, will be to a really low standard (no offence salesmen).
So the next step is to look at your existing staff, and see where they can fit into the newly designed structure. If you’ve got job descriptions for your staff, these need to edited to be focused on outcomes and objectives now, rather than on performing particular tasks. Remember that it’s not about performing a task.
The key to success is about doing what’s necessary, to achieve the outcome.
If you enjoyed this post, and found it valuable, please share it with others you think might find it valuable. Tell us what you’ve found, from moving over to the objective focused structure. Do you think the flat structure is a good idea, or what do you think is the perfect structure for your own business.
In the next installment of the ‘10 things you’ll need to sell your business’, we’ll be looking at ‘Systemising your business - The key to reducing your day-to-day problem
We hope you’ve received some value from this article, and some information that you can use to move forward toward your vision.
If you’re confident that selling your business is the way to go, or perhaps you’re undecided, it’s important to consider the significant amount of effort and resource you’ll need to make it happen. It’s a full time job. - The time investment alone is enough to put anyone off. So imagine for just a minute, that you didn’t need to do all of this work. What if this could be done over the next 3 - 5 years (by someone else). Everything we’ve listed in this article, is what you’d need to do, if you were selling through a business broker, or direct to a buyer.
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