In our last chat, we looked in the review mirror back at 2018. We asked ourselves a few questions, which were:
- Did your business value increase or decrease?
- How much did it increase or decrease?
- Why did it increase or decrease?
What about 2019? Let’s modify those same questions just a little and gaze into the future.
- WILL your business value increase or decrease?
- How much WILL it increase or decrease?
- Why WILL it increase or decrease?
We can either let it happen, or make it happen. Let’s make it happen. Recently, I was having lunch with a business owner and discussed how to increase his business value. As we talked, I told him increasing value growth boils down to three things.
1. Get more through the funnel
Increasing sales is always a goal of businesses. You can either use a “carrot” or “stick” approach to sales. It has always been my practice to use a carrot and pay them for performance. The results you are getting are a combination of people and processes. So, if you are wondering why your results are what they are, it is because of the people you hired and the processes you asked them to use. If you set up the sales compensation plan properly, you will get the results you want. If you are not getting the results you want, then you either have the wrong people on your team or your sales compensation plan needs adjusting.
Bottlenecks, (see below), exist in the sales process as well. Examine everything you ask your sales team to do and see which ones drive sales up versus prevent them from selling. Too many reports and sales meetings can be counterproductive. Sales people need to be selling more than completing paperwork or call logs. I am not saying that reporting is not necessary, but some is good while too much is counterproductive. At the end of the day, your sales are either increasing as they should, or not. Examine the process and make necessary adjustments, removing bottlenecks where applicable. Then you will get the results you want.
2. Work with the same or fewer resources
What is the initial response that your management team usually has when you expect to get more through the funnel? “I need more staff.” That is the easiest and most expensive response.
Recently, I was performing a cost analysis in a warehouse. Materials arrived, and people worked at various stations to make the products. At the end of the day, products were placed on trucks, and shipped to customers.
As I observed operations, I noticed that some people were not as busy as others, and spent more time chatting. This was going on while another person was working his tail off. So, naturally, I began to ask, “Why?”
I discovered that there were basically 3 stages to making this product. Stage 1 could make 15 widgets in a day. Stage 2 could make 10 widgets. Stage 3 could only make 5 widgets per day. Their capacity was due to machinery and automation, not work ethic. They were all good, hardworking people. They were simply using the processes given to them.
So basically, Stage 1 was through producing by late morning and Stage 2 was through producing my mid-day. If they made any more widgets, they clogged up the process.
Result: instead of hiring more people, I suggested they manage the people and processes that they already had. They had an excess of labor capacity, which they began learned to better utilize.
More through the funnel with same or fewer resources.
3. Remove bottlenecks.
As a young boy growing up in Mississippi, we used to play outside in the summer. While May and June were hot, July and August were brutally hot and humid. The heat index was routinely 110 degrees. Occasionally, we would stop to drink some water out of a garden hose. Sometimes, the water would not come out, so we had to find the crimp in the hose that was causing the blockage, or the “bottleneck.” Once we removed the bottleneck, water flowed smoothly, and we could drink.
Bottlenecks exist in your business, perhaps right in front of you. Examine all your processes from sales, producing/delivering the product or service, finance, human resources, information technology, etc. Challenge yourself or your management team to examine every step in the process. Remember that little question we discussed last week? Ask why. If the answer comes back as, “Well, we have always done it that way.” That just means the person responsible for that process was not assertive enough to challenge it. If they still want to hire additional staff, ask them what they would do if they had to pay that staff out of their own pocket? I bet you start getting more cost-effective answers.
In summary, take these steps for 2019:
- Get more through the funnel.
- Work with the same or fewer resources.
- Remove bottlenecks.
If you have any questions about measuring and growing the value of your business, please contact me for a free conversation.