CHAPTER ONE
The Discipline of the Enterprise Leader
“‘How come you never told us any of this?’
the bosses inquired. ‘How come you never asked?’
the workers replied.”
From Gonzo Marketing by Christopher Locke
Sarah and I agreed that it would be good, for this phase of our journey, to meet in person instead of on the telephone. It hadn’t been that long since we met at my home, but, strangely, I was looking forward to seeing her again. Despite the fact that we had met many times in person, most of our contact this time around was by telephone, so when I thought of Sarah, rather than seeing her, I could only hear her voice. To me, Sarah was her voice. We accomplished so much, we shared so much truth and vulnerability, so much life and vitality, all over the telephone. So, even though a part of me, of course, knew what Sarah looked like, I couldn’t wait to see her, to see how the work we had done together since the last time we met had changed the way she looked.
It was a delight to see her!
Her face was bright, flush with life, her eyes clear and excited, her smile beaming. We hugged each other like old, old friends do, and spoke each other’s names—“Hi Michael,” “Hi Sarah”—and then moved apart to look at each other again.
“I’m so glad we decided to meet in person, Sarah,” I said, feeling the truth of it as I looked into her laughing, warm eyes. “It’s perfect. I can’t wait to get started.”
“Me too, Michael,” Sarah responded, sweetly, truly meaning it. “I’ve got so many questions, and so much to say. But I know you’ve got an agenda, Michael, you always do!” She laughed, wholeheartedly, and then said, “So my questions can wait. Just as long as I’ve got some time to pursue them.”
“Sarah, you’ll have all the time you need. So rather than standing here in the doorway, why don’t we go to my office where we can sit down and get started.” I took her by the hand and led her where we needed to go.
Just as there are universal principles that determine what works and what doesn’t in a business, the same can be said about leadership. The social role of the leader may be perceived differently in different parts of the world and in different types of institutions, but the discipline of enterprise leadership, and the rules, standards, and practices that define it, are the same no matter where they are practiced, regardless of the type and size of business. When it comes to building a World Class Company, what is first and foremost is the entrepreneur’s readiness to wear the mantle of leader.
“Easier said than done,” I said to Sarah as we made ourselves comfortable at the table we set up between us in my office.
“I think I know what you mean but what do you mean?” Sarah asked.
“Because of the discomfort it creates in most people,” I answered. “While we may be comfortable leading in circumstances where we feel we know best, because we’ve proven to ourselves and to others that we do know best, in circumstances where we’re unsure, as in the creation of a company we’re not certain we can create, most of us would rather sit it out to figure out the rules of the game and to become competent at them, rather than risk making a fool of ourselves.
“Leaders are always risking making fools of themselves,” I continued.
“The willingness to risk how they look is one of the things that makes them leaders.
“And in the process of creating All About Pies and establishing yourself as the leader, you’re going to risk yourself again and again, Sarah. If you didn’t, and if you don’t, nothing other than what you’ve already created would be created. It’s your commitment to create something significantly different than what you’ve already created that’s going to challenge your leadership capability, because the more unknown the outcome is, the more stress will be created as you not only attempt to lead your people, but challenge yourself to rise to the occasion. And the more stress that’s created by your fear of the unknown and by your unknown and yet untested ability to push beyond it, the more challenged you will be as a leader. Challenged to find the right words to say. Challenged to make the right decisions. Challenged to hold yourself and your people on target, when the target itself is unclear, and constantly shifting. Challenged by your constant feeling of being hopelessly alone. That after you have said what you have said, done what you have done, concluded what you have concluded, argued, deliberated, debated what you have believed in and fought for, after all of that, still there will be that deathly uncertainty in your own mind, your own heart, about whether you were right, or whether you will be successful, or whether the decision you finally made is going to come crashing down in the future. And that feeling of being alone, late at night, or early in the morning, or even in the middle of the action when you are being forced to make a decision, that feeling is more isolating than anyone can ever know until they’ve experienced it. What happens then is what will determine your ability to lead.
“Because ultimately, Sarah, when everything is said and done, when the leader has made her best decision, the only one left at the end of the day is her. The leader is always alone. With the decisions she’s made and the ones that she didn’t make but were made on her watch. A leader must be able to stand in them alone.
“And that’s why the reluctant entrepreneur is almost always a reluctant leader.
“Because she is always alone, even when she isn’t, even when she is surrounded by people, clamoring for her attention.
“And being alone can be no fun.”
The first practice of an enterprise leader is learning how to live with being alone. How to come to grips with it. Learning how to accept the hollow reality of it, the tiny sound of your own voice in your self-induced vacuum, the sound of your voice when you know you have no idea what you’re saying, when you have absolutely no idea whether or not the decision you’re making or, even worse, about to make is correct. Is this the right decision? Is it? Am I about to do something stupid? Did I just do something stupid? The leader is always thinking to herself. She never thinks to ask those around her whether the decision she has just made, or the decision she is about to make, is stupid. Are you kidding me? I’m supposed to be the leader. Of course, feeling alone is made worse because some part of her knows that there are a lot, oh, a lot of people, who are thinking how very stupid she can be. They would never tell her. But they think it. And the worst part is, if she’s at all honest with herself, she knows they’re right! But only off the record, in the privacy of her own thoughts. In her own monkish mind, and in her own solitary heart, the lonely leader is always alone, and always stuck with the plain, unvarnished truth: When it comes to the really hard decisions, she can be as dumb as a stump.
So why do it, you ask? Because in the thick of the action, leading is godawful fun. If it weren’t, who could bear the rest of it? You’d have to be a moron to bear up under the sheer, incredibly insufferable, chilling, no-escaping-it lucidity of seeing one’s own massive dullness, one’s own stultifying lack of clarity, unremarkable vapidity, downright stupidity, if it weren’t for the fun.
You might add to that the belief that it’s either lead or be led, and leading is the only way to create the company you want to create. In my experience, these are the only three reasons for taking on the challenge of leadership. And taking it on is obviously something you’re determined to do, so you might as well do it wholeheartedly.
THE FIRST ASSIGNMENT
“Learning to live alone, the first practice of leadership, means learning to take full accountability for everything on your watch. Which means, the buck stops here. Which means, the fish stinks from the head down. Which means, there is nowhere else to turn, but to yourself. What does that feel like to you, Sarah?”
“To be honest, I never feel like I know enough. I constantly feel inadequate to the task. I feel that there are decisions I need to make that I don’t know how to make, that I’ve never taken the time to learn. It brings up a lot of stuff about not really being a leader. The word itself doesn’t fit me. Being ‘the boss’ fits. I feel big enough to be ‘the boss’ but being ‘the leader’ feels like my sense of my own importance is all out of whack. Leadership is what big people do, not people like me, running a pie shop, doing the insignificant things I do. And when I think about some of the dumb decisions I’ve made just to get through the day, believe me, I’m not a leader.”
“Exactly,” I said. “And that’s why this conversation about leadership is so important. The word ‘leader’ is used academically, but not personally or functionally. Nobody I have ever met has been comfortable referring to himself as a leader, even when they are. People will discuss the subject of leadership all day long, but because leadership is not a function or a job or even a role in any company, only an arrogant son of a gun would refer to himself as the leader in reference to a position he holds. But everyone will agree that leadership is critical to the success of anything that calls for organization.
“To become a leader, you first have to learn to live with the word, accept its importance, and its responsibility. You have to learn to feel at home with ‘I am a leader. I am called upon to do the work of leadership.’ The first assignment is to say that to yourself, over and over again, until it begins to find a comfortable place to rest in you.
“No matter how silly this seems to a part of you, Sarah, your first responsibility to yourself as a leader is to become comfortable with the fact that you are a leader. And that it doesn’t matter how large or small an organization you are leading. Leadership is leadership. And learning to lead in a small organization will prepare you for the large organization you’re determined to create.
“So, that’s your first assignment, in our new and evolving relationship, Sarah, which also, and not coincidentally, calls upon the first essential skill of leadership, Concentration, to pull off. And that is this, to remember to say to yourself, whenever you find yourself alone, with a decision you need to make, with your mind running a mile a minute about this problem or that problem, when you’re simply sitting watching television, say to yourself, ‘I am a leader. I am called upon to do the work of leadership.’ And say it over and over again. Say it every chance you get. Say it when you’re confronted with the choice to either do the work or get someone else to do it. Say it when you’re feeling exasperated beyond all belief. Say it, say it, say it: ‘I am a leader. I am called upon to do the work of leadership.’
“To do that will call for concentration, which is really focusing your attention, remembering your commitment to this exercise, not just the words, but the emotional experience of living into the meaning of the words. You have to mean them. And to mean them you need to concentrate on the feeling those words evoke in you. You have to take them in as deeply as you can. You have to own them. ‘I am a leader. I am called upon to do the work of leadership.’ The words have a weight to them that ‘being the boss’ doesn’t. The word ‘leadership’ imparts to every activity a significance the activity would not necessarily have in itself. The word ‘leadership’ has a gravity to it that no other word in this context possesses. That’s why people feel so uncomfortable using it to describe themselves. And that’s exactly why you need to do it, Sarah. To take in the size of the word and to grow to meet its size, not reduce the word to the size you feel you can fill. The discipline here is to remember to do it.
“Any questions, or thoughts about it?”
Sarah answered immediately. “I’ll do it, but I can’t help but feel silly even thinking about it.” She put a fake frown on her face, raised her head squarely, threw back her shoulders, and with mock sincerity, said, “I am a leader. I am called upon to do the work of leadership. Oh, really.”
“Yes,” I said, “you are a leader, and you are called upon to do the work of leadership. But not by me, and not by anyone else. But by the entrepreneurial commitment you have made to build a World Class Company. That’s a serious commitment. If you truly want to build a World Class Company, no matter how big that company may be in the end, then everything we commit to do with each other is serious. And nothing is more serious than this first assignment. Because it pushes the window of your willingness, your determination, to take yourself seriously. You won’t take your commitment seriously if you can’t take yourself seriously. If you take yourself seriously, even if you don’t feel like a leader, even if this feels silly, you’ll find how much this exercise will move you in the right direction.”
“Even though this is sooo embarrassing, I really do get it, Michael,” Sarah said. “A part of me is just afraid. That part of me feels like I’m jumping off a cliff. But, in some strange way, I also trust that I’ll fall into something soft and safe.”
The second practice of the enterprise leader is choosing where to focus your attention. It’s not a question of what’s important and what isn’t—in a World Class Company everything is important—it’s a question of what is most important and what is least important from a leadership perspective. This calls for the skill of Discrimination, the second essential skill of leadership, learning how to choose between one alternative and another. If concentration is the skill of how to focus one’s attention, discrimination is the skill of where to focus one’s attention. Concentration makes discrimination possible. If you can’t focus your attention, you will never learn how to use it to select the most important things to do. A leader who can’t concentrate, cannot discriminate. A leader who can’t discriminate will spend as much energy on the least important things as the most important things.
So, what are the most important things to the leader of an enterprise? They are the strategic drivers of the enterprise: the vision, its substance and how it is communicated, with intention, with conviction, with sincerity, and, most of all, with clarity; the business model, the unique way the enterprise works that differentiates it from the rest of the market; the consciousness of the enterprise, how people are regarded, how they are compensated, the core ideas that are important to them and to the enterprise that provide meaning to what they are expected to do every day, and how that is reflected in the look, feel, and function of the enterprise; and, finally, the end game, what it is, when it is expected to happen, what has to happen between now and then to make sure it does, how much capital is needed to assure its success. In short, the focus of the leader is to assure that the enterprise will function in a world class way.
THE SECOND ASSIGNMENT
“To be clear about where you are going, and why, is the leader’s responsibility, Sarah. Lack of clarity about outcomes, about the end game, about what your company needs to achieve when it’s finally done, when you’ve completed your mission, feeds uncertainty in your people. Clarity provides people with the certainty they need. Your number one job is to provide that clarity.”
“But, how do I provide my people with clarity when I don’t have it, Michael?” Sarah said. “One moment I’m clear, then something happens I didn’t expect and I lose it. Everything seems to change, based upon circumstances, upon what’s important in the moment. First, we’re focused on this, and then on that. That’s what doing business has been about for me, being able to respond to what comes up. That’s my version of clarity. The clarity you’re talking about sounds so unrealistic.”
“And that’s why there are so few leaders in business, Sarah. Especially in small business,” I said. “Because there are so few who start out with a clear, long-term vision, most are just reacting to what comes up, confusing their ability to react with their ability to lead. The two are very different. A leader is someone who can remember what he wants. And what he wants has little to do with what comes up. What comes up is called tactical work from a leadership perspective. What he wants is a strategic question through which a leader evaluates everything that comes up. Which brings us to the next assignment I’d like to give you, Sarah.
“Your second assignment is to begin to develop the brand of clarity I’m talking about through the practice of discrimination. Every day, I want you to write down what you do. Everything you do. Make a list of what you do, no matter how insignificant it is. And at the end of every day, I want you to assign a work designation to the items on your list: E for entrepreneur, M for manager, or T for technician. Work you assign an E to is leadership work. Work you assign an M to could be leadership work, but for our purposes here, it’s management work. Work you assign a T to is absolutely not leadership work, it’s the work of a technician.”
“So, how do I know which letter to assign to which task?” Sarah asked.
“Let’s look at that,” I answered. “Let’s start at the bottom. If the work you do is related to something that needs to be done to fulfill an objective in your company, that falls within the operation of your company—you make a sale, you bake a pie, you hire a new person—it is either the work of a technician or the work of a manager. Think about your store, and think about the operation of that store as though it were separate from your corporate offices. None of what’s done in that store called ‘doing business’ is the work of the entrepreneur. The entrepreneur may visit the store, but the entrepreneur doesn’t work in the store. Does that begin to clarify it for you, Sarah?”
“Yes, it does,” Sarah answered, “but all I do is work in the store.”
“Exactly!” I said. “And that’s the point of this exercise. To see clearly how much leadership work you are truly doing.
“That’s why,” I continued, “this assignment is really important. Take it to heart, Sarah, and you will discover more about what you do and the implications for growth than just about anything I can imagine you doing. Not only will it help you to develop your ability to concentrate and discriminate, it will give you clarity about how you spend your time.
“Every day you go to work, you discriminate. The problem is that you don’t do it consciously. Discriminating consciously is a learned skill, one that will cause you to see yourself more clearly than you ever have before.
“Conscious discrimination is one of the leading indicators of whether you are a practicing leader. Your people will grow to depend on it.”
As a leader learns how to concentrate and to discriminate, he is able to develop the third essential leadership skill, Organization. Organization defines the functional component parts of the whole and relationship between the parts.
Organization is the skill through which chaos is turned into order.
Organization is the skill through which sense is made out of nonsense.
Organization is the skill through which the things of your business that have a place are discovered and put into the place they are supposed to be in, and the things that do not have a place are discarded or put aside. Just like when puzzle pieces are put together, the sense of order is a sense of completion. A leader drives organization in his company, the desire for it, the need for it, the perfection of it, the will to achieve it. Organization is essential to the growth of a company, and no company can achieve world class status to the degree it has not developed a world class ability to continually organize itself and reorganize itself into an ever-increasing sense of order and predictability.
THE THIRD ASSIGNMENT
“The completion of the second assignment will bring you naturally to this one, the third assignment. I know you already get how uncomfortable, but necessary, it is to make the transition from thinking of yourself as the boss to thinking of yourself as a leader. Once you start writing down everything you do every day, and identifying whether it is the entrepreneur’s, the manager’s, or the technician’s responsibility, you’ll notice how little you’ve been discriminating between the strategic work a leader does and the tactical work that a technician does. This discrimination alone will have a profound impact on your day and the choices you make, Sarah. The third assignment will take this to the next level by giving you an opportunity to organize your day into strategic and tactical segments, and an experience of spending your time accordingly. I’d like you to set aside certain times every day dedicated to entrepreneurial work, management work, and technician work. It doesn’t matter which times are devoted to which work, but for the purpose of organization, discrimination, and concentration, it is critical to you that you do this faithfully every day, and that you confine yourself to doing the work you have committed to doing in each of those daily segments you have selected for each.”
“I haven’t a clue,” Sarah said, “how I could possibly determine in advance what I’m going to be doing in any particular day? That isn’t how my business works, Michael. I do what I’m called upon to do.”
“I know that, Sarah. But that’s what we’re doing this work for. To show you that there is a completely different way to do what you do, the way it’s done in a World Class Company by leaders who are living a life that is completely different than yours.
“Until you can make the distinction between strategic and tactical work, and make choices accordingly, stuff will continue to happen to you, and the stuff you want to happen to your business will never happen. You can determine what you do every day, once you make up your mind that this is what your relationship to your business will be. And once you make up your mind to do this, it will become a reality if you practice it. So this is your third assignment, to practice organizing your day into work segments, during which you only do the work you have committed to do during that segment. Your job is to do that, and then to tell me what happens. Okay?”
“So it doesn’t matter when or how much time I commit to each type of work?” Sarah asked.
“Well, yes and no,” I said. “The only thing that matters right now is that you do it. What will matter once you do it will become obvious to you. Right now it’s only important that you do it.”
As you begin to consciously focus your attention, discriminate where the maximum leverage is, and begin to organize your day in such a way as to reap maximum benefit from this new awareness, you will recognize the need for continual improvement in everything you do and everything your business does. This call for continual improvement creates a demand for the fourth essential skill of leadership, Innovation, in you and your people, and, ultimately, as a core capability resident in your company. Innovation depends on discrimination. If improvement is the objective of innovation, the standards by which current performance is evaluated are defined by the vision of the end product, a World Class Company, and nothing else. At E-Myth Worldwide, for example, our vision is to become the preeminent provider of small business development services worldwide, with the objective of transforming small business worldwide. Everything we do and how we do it can only be measured by how well it contributes to achieving our objective. And since the methods, systems, and processes we utilize to fulfill our objective are always subject to improvement, it is critical to us that we possess the ability to improve them.
The process of improvement is very straightforward. Step One: Select the aspect of your business that you wish to improve. Step Two: Determine what the process is for doing what you have selected. For example, if you wish to improve the way you acquire new leads, determine what the current process is for acquiring new leads. If there is no process in place for acquiring new leads, create one. If there is, go to Step Three: Quantify how effective your lead-generation process is. Step Four: Rely on your quantification to tell you where you can and need to improve your lead generation process. If your ad isn’t pulling, change it or test other lead generation methods. If your call center results are insufficient, rework the call center script. If your lead conversion rates are low, change the system for following up on leads. Only change one thing at a time so you can perform Step Five: Test it. Then go to Step Six: Quantify the results of your test. Step Seven: If the results of your test are positive, orchestrate the use of your new process or system. If the results of your test are not positive, go back to Step Four again. And do this, over and over again, continuously, in every part of your company.
THE FOURTH ASSIGNMENT
“So now we come to your fourth assignment, Sarah, to begin practicing the discipline of improvement in your company, through the development of the skill of innovation. What you choose to improve at this point doesn’t matter, Sarah. As you begin to do the first three assignments, it will become obvious to you what is in need of improvement. Those things usually stick out like a sore thumb. Just begin the seven-step process. Pick something to improve. You simply need to focus your attention right now on practicing the skill of innovation, through an effort to improve one result your company produces through people other than yourself, using a systems approach for improving it. I want you to improve your ability to improve your company by leading the process of improvement, not by improving a process in your company by yourself. The improvement of your company will be a function of your enhanced ability to improve your company, which is the skill of innovation.
“What you’re going to discover as you begin to do this, Sarah, will be the need for strong, effective communication with your people, the essence of the fifth assignment. So let’s go right there and then I’ll answer the questions I know you have.”
THE FIFTH ASSIGNMENT
“The fifth essential skill of leadership is Communication, Sarah, how you communicate to your people what you expect of them, how you listen to their understanding of what you communicated, and how you improve your communication to diminish the gap between what you communicate to them and their understanding of it over time.
“So here’s the assignment. Once you have completed the fourth assignment, and measured the effectiveness of your process improvement, I’d like you to do a review of each and every benchmark of the process. I want you to look at the scripts you used to communicate what your expectations were of your people, the words you used in those scripts, where you used scripts and where you didn’t, and the implications of your decisions for the effectiveness of the process. In short, your fifth assignment is to complete a critical assessment of the effectiveness of your communication during the fourth assignment, including what you would do differently next time. The essential question you want to answer is: Did you organize the communication of your expectations to your people in a clear, compelling, and inspirational way?
“In my experience, Sarah, business owners spend far too little time, energy, and attention on increasing the effectiveness of their communication skills. People simply do what they do. And they have no idea the price they’re paying for it. Communication is the skill through which a leader moves people, and is moved by his people, to build a World Class Company.
“And there are five essential functions for increasing the effectiveness of your communication: Inspiration, Education, Application, Implementation, and Continual Improvement.
“Let’s take a brief look at each step in the communication process, Sarah.
“Inspiration is the result of seeing clearly. It is the result of suddenly, in a moment, understanding the world differently than you did, discovering that your relationship to the world possesses possibilities you never realized before. Inspiration, borne of organic, impossible to contrive, epiphany moments, provides you with the motivation to act. Inspiration is food for the spirit. Inspiration touches the deepest part of all of us. It awakens our passion.
“Education moves inspiration to a deeper level of understanding of the discipline we’re discussing. This is where the usually formless idea—of leadership, of marketing, of finance, etc.—is given form, where the magic of the epiphany is filled with content, where the pieces of the puzzle, and the picture they make, come together in a logical, pragmatic, sensible, justifiable way. ‘Oh, so that’s what it looks like!’ is the response to education I’d be looking for. Education doesn’t require the student to do anything other than to study the content, and to develop an intimate understanding of the relationship between the components of the finished puzzle. Education is food for the mind.
“Application is the logical result of education. It is the process through which one validates what she’s learned by testing it out in the real world. The inevitable result of the application of education is skill improvement. Whether someone is engaged in learning how to plan or manage money or generate leads, application turns training into competence. Until ideas work in your life by improving your ability to navigate through life, it’s all academic. Application, therefore, is doing. Application is food for the mind and the body.
“Once you can demonstrate to yourself that education can be applied to produce real results in your day-to-day work, you are then ready to expand your reach through Implementation company-wide. By introducing the inspiration, education, and application steps to your employees so they can be in alignment with this process of transformation. Having successfully learned how to plan, or manage money, or generate leads, personally, and demonstrated the pragmatic results of it to yourself, you are now ready to communicate what you’ve learned and experienced as a strong advocate to others. The intent here is to drive the E-Myth perspective and process down into the operating level of the organization, to produce a planning system or a money management system or a lead generation system or a whatever system. Implementation is food for the mind, body, and emotions.
“Continual Improvement is the watchword of the entrepreneur. To the entrepreneur, nothing remains static. Everything always improves and changes. When people seem to resist change like the plague, how is it possible to create an environment in which people are engaged with the change that continual improvement drives? In which people are willing to give up their attachment to something they just learned how to do well and start down a new path without the same sense of competency? The answer lies in the integration of Innovation, Quantification, and Orchestration into the culture. These processes are the learned systems and practiced skills that every entrepreneurial company needs to build into its operations and its people so that continual improvement becomes a lifestyle, a way of being, rather than simply a way of doing.
“So, Sarah, you’ve been so patient. What are you thinking?”
“I know I told you weeks ago, Michael, that the change in my thinking was changing my sense of time, that I had much more time to do the important things than I thought, but I’m feeling pretty overwhelmed by all of this right now. I’m not sure how I’m going to fit these assignments into my already busy day,” Sarah said.
“These assignments are designed to organize your attention differently. That can only occur even if a sizeable chunk of the tactical work you do as a technician is sacrificed for some period of time. You have to begin to study your attention for the time being, not your work. If we can alter the way you think about your day, how you approach your day, how you engage your mind in your day, how you relate to your role as leader, everything you do will change, Sarah. So will the results your business produces. After one month of doing these assignments faithfully, you will be on your way to being a different person, the leader of a World Class Company in the making. When that happens, you will answer the question you’re asking me better than I ever could. In fact, at that point, you will be asking a very different question. Right now, your technician is worried about time. As you move through these assignments, and your perspective changes, the emerging leader in you will be speaking for you.”
Sarah smiled in acknowledgment of what I just said. “I know you’re right, Michael. Old habits die hard. I understand that what you’re saying to me is that I need to focus my attention on fulfilling my obligation as a leader if my company is to grow in a world class way. And that the five essential skills of leadership are critical to that discipline. What happens while I’m developing those skills? What happens in the meantime? Does the company have to wait until they are fully developed in me?”
“Oh Sarah, I so understand your concern about how all of this will work. But of course not. Both you and the business will transform in a parallel way as you make the commitment to do these assignments. The commitment to doing them is everything. As soon as you begin, you will be well on your way. And as you proceed, the new leader in you will awaken a new, more mature and more aware leader who will lead you to what’s next. Our work will be done, Sarah. The rest of the process will be miraculously guided by you. You will become not only the leader of All About Pies, but the leader of your own journey toward the creation of a World Class Company. It is the only way. And it starts with your commitment, the commitment you’ve demonstrated so beautifully in the months we’ve worked together.
“You’re already in the throes of leadership work, Sarah. Your interest in the truth, about yourself and your business, in both freeing and harnessing your passion, about why you lose interest only to regain interest again, about what it really takes to build a World Class Company, and whether you’re the person to do it, whether it’s something you really want to do. All this, Sarah, has been the work of a leader, going through your process, digging down deep with an earnest wish to know.
“You’re ready to take on the E-Myth Mastery processes on enterprise leadership. I’m going to give them to you today and ask you to complete them on your own. As you go through them, Sarah, questions will come up. Most of them will be answered through your work with the other six disciplines but, of course, I’m available to answer any questions you might have. By the time we’re done working through the seven essential disciplines, we will have answered a lot of questions, and raised a lot more. Many will remain unanswered for some time. But, of course, that’s what building a World Class Company is all about, raising questions that create answers and more questions. The process never stops. It’s like the movie my kids watched when they were little, The Never Ending Story. Building a World Class Company is a never ending story.”
SELECTED E-MYTH MASTERY PROGRAM PROCESSES IN ENTERPRISE LEADERSHIP
The Business Plan That Always Works: Making Your Vision a Reality
A business without a vision is directionless. It lacks purpose. It lacks the essential idea from which commitment, growth, and the sense of personal achievement arise and flourish.
But a vision without a plan is only a hope. A vision needs a plan to make it come alive, to make it a reality.
The vision of your business reflects thinking and feeling on a grand scale. It then requires smaller scale strategies and even smaller scale tactics to make it happen. Like the tiles of a mosaic that first form individual pictures and then a grand mural, your business tactics will accomplish your primary strategies, building to the overall impact and results you want your business to have.
So your vision needs the form, direction, and clarity of a business plan to give it relevance to the day-to-day operation of your business. Your business plan is the link between the work of your business and the vision that work is intended to produce.
THE “TRADITIONAL” BUSINESS PLAN VERSUS THE BUSINESS PLAN THAT ALWAYS WORKS
A plan is a plan, right? It’s a document that’s intended to help you start a new business or make a success of the business you’re already operating. It’s a document you can hold in your hand, read, and show to other people.
But why is it that business plans almost never come to life? Why do almost all of them, once written, sit on a shelf and gather dust, while the futures they describe never see the light of day, and the businesses they describe wobble their way into their uncertain futures?
A traditional business plan is head-centered; it’s an exercise in what business owners think they should do. Writing a traditional business plan is usually precipitated by one of two thoughts: either (1) we’d better write a business plan because “that’s what successful businesses do,” or (2) we need to write a business plan if we want to go out and borrow some money.
A traditional business plan is also static. The expectation behind its development is that the plan will be “decided” and then implemented. Case closed. There’s usually no room for change in the plan. A company sets its “best” people to work on developing the business plan, and it’s their job to account for all possible contingencies in the plan. Otherwise, why bother creating the plan in the first place?
These first two characteristics of traditional business plans are quite intentional. That’s the way business plans are done. Thoughtful, analytical, complete, decisive. All the hallmarks of a supposedly “smart” business. And, ironically enough, they’re precisely the reasons that result in the third characteristic of the traditional business plan, that is, a traditional business plan doesn’t work. It’s the one that ends up in the drawer, collecting dust, only to emerge sometime in the future with the “whatever happened to…” or “do you remember when we planned…” remarks.
Traditional, head-centered, static business plans don’t work. Can you see why they don’t? A plan that starts in the head, with logic and reason and thoughts, lacks passion and excitement and purpose. And a plan that starts with the assumption that it’s been able to capture and account for all the relevant changes that will happen in the future is obsolete before the “ink is dry on the page.” Any employee in your company could tell you that! Traditional business plans are not alive and they’re not realistic. Why would anyone feel a sense of commitment or pride or accountability around a business plan like that!
The bottom line is that a traditional business plan simply won’t give you the results you want or need—it won’t work if nobody’s committed to working it.
The business plan that always works looks a lot like the traditional business plan. You could put them side by side and not notice any difference. But their appearance is where the similarity ends.
The business plan that always works does work, and can only work, because it starts from a completely different place, with a different set of operating assumptions. It starts from a heart-centered planning approach, which means it starts with the experiencing of the feelings you’ll have, and your people will have, and your customers will have, when your plan has been accomplished. When you start by defining the true end result, how you’ll feel, then all the logic and analysis and numbers will really mean something.
The business plan that always works also assumes, and rightly so, that at the time you’re creating the plan you can’t possibly predict all the changes that will occur. So this plan not only tolerates change, but relies on your building in change as a key factor that will keep you on the best course. With a clear vision, and a business plan that adjusts its strategies to account for the world as it really is, the work of your business can be best positioned to achieve great results.
The real difference between the business plan that always works and the traditional business plan is in how you think and feel about the plan—it’s your attitude and your relationship to the plan that will make all the difference.
THE MYTH—AND THE TRUTH—ABOUT PLANNING
When business gurus and management experts talk about building and growing a business, one central topic that usually comes up is planning; that is, the need for a plan to achieve the growth.
The idea of planning is very comforting. It makes people feel safe and secure to know that there is a plan guiding business activities in the “right” way. But the kind of planning you’ll need to do in the 21st century is probably not the same planning that you’re used to.
The pace of change in today’s world, which will be even faster tomorrow, makes traditional planning virtually meaningless. The forces of technology and social change, among others, and their reach into our lives, call into question everything we do in business and everything we believe to be true about the way business operates. What we accept as reality today, changes in the blink of an eye.
So it’s time to dispel the most common and dangerous myth about planning:
Plans do not insure that what is planned will actually come to pass; plans do not predict the future.
This requires us to reexamine what it takes to grow a business. How does one lead when the future is so uncertain? How does one plan when the outcomes of what we envision today and begin implementing tomorrow are so unpredictable?
In this mass of uncertainty, one thing is—or should be—certain: your vision. So that’s where you start. Your business plan will be a statement of your vision and a current description of the main strategies and tactics you’ll use to make your vision come true. From the strategies and tactics discussed in your plan, each department and position will be able to develop the additional strategies, tactics, and systems to achieve their results and, ultimately, the Strategic Objective and Strategic Purpose of the company. Not only do your Strategic Objective and Strategic Purpose create pictures of what you want your company to become, they provide the head-centered and heart-centered foundations for the choices you’ll make in your business plan.
Here are some “productive points of view” about planning that will make it a truly worthwhile endeavor:
Start with what’s important to you. A mediocre plan that you (and others) feel passionately about will serve you better than a technically superior plan that you don’t feel strongly about.
Approach planning as more of an art than a science. Documented business plans that are professionally formatted with charts and graphs and lots of quantification give a false impression of certainty and precision. Use your best thinking when you plan, but don’t forget that even the best thinking involves guesswork. Educated guesswork, to be sure, but guesswork nonetheless. Remember that even the best-looking business plan contains guesses based on assumptions. If you’re aware of this, you can use it to your advantage as you create and implement your plan. Be sure that you and anyone developing portions of the business plan document all planning assumptions that underlie the actual content of the plan.
Create a planning framework that accommodates change. Don’t think of your plan as a rigid “final product” with every detail pinned down. Think of it more as a series of guideposts of key topics to focus attention on and targets to aim for. Welcome opportunities to add to or revise any parts of your plan, or even eliminate parts of it, when the talent and judgment of those around you and your own inclination tell you it’s the right thing to do. Don’t follow through with something in your plan simply because it’s “in the plan.” And don’t forgo opportunities that are staring you in the face, simply because they aren’t in the plan. Develop a system for building change into your business plan (you’ll see one way to do this later in this process).
Treat the plan as a living, growing document. Make a conscious decision to review your plan periodically, evaluate it, and revise it. Keep questioning your assumptions. Stay flexible and open to change. Don’t let your pride or inertia get in the way of reworking the plan and moving forward.
GETTING STARTED
Many people approach writing a business plan as a daunting, burdensome task. If you approach it that way, then it certainly will be! But it doesn’t have to be that way. If you have a vision for what you want your business to become, and if you really want to make that vision a reality, here’s where you get to draw the map that will get you there. Just jump right in. You’ll probably see that you’ve already done a lot of the necessary thinking and documentation. Use the Getting Started on Your Business Plan worksheet to clarify the thinking you’ve already done.
Here’s an easy way to begin:
Be clear about what you want to achieve. This is a thought process that actually has two steps. First, you need to be clear about your vision for the business—what you want your business to achieve as expressed in your Strategic Objective and your Strategic Purpose. Second, you need to be clear about how you’ll use your business plan to achieve that vision.
Your business plan can be the “call to action” for your people because it lays down the overriding goals and fundamental strategies your company will use to achieve them. With this map in hand, every person in your business can determine how they will individually contribute to making it happen.
Another way to use your business plan is to communicate with the “outside world,” usually potential lenders, shareholders, or the community at large. If this is the kind of plan you need, you have some choices in how to approach it. The easiest way, which happens to also be the most productive way, is to start by creating the more internally focused plan, as described in this process. Then you can adapt the contents and format, if necessary, for the particular external audience you want to address. When you get to this stage, you could even bring in an outside professional to fashion this plan, because you’ll already have most, if not all, of the essential ingredients.
Choose a time horizon for your plan. Company visions come in all shapes and sizes; some are very long range and others are more immediate. Building your business plan so that it covers a specific time span will help you maintain its focus and direction. There is no right or wrong time frame to use; many business plans are written for three-to five-year periods, but you should do what feels like the most sense for you and your business. Remember that you’ll be building your business plan to embrace changing conditions, so the time horizon you choose shouldn’t feel like a constraint, but more like a temporary frame of reference that will help you see the elements of your plan more clearly.
Get organized. This is as much a state of mind as it is a physical phenomenon. Make a commitment to yourself to devote the time, attention, and resources to creating your plan. Make it your intention to produce a plan that will work based on this new way of thinking about a business plan. Then assemble all the physical elements that will allow it to happen.
Think about how you’ll get others involved. As a general rule of thumb, the more involvement, the better. You’ll not only get the benefit of more knowledge and more help, you’ll also create a sense of shared commitment and participation. The emotional impact that people feel when given the opportunity to engage at this level of business planning is more than worth the extra time and coordination it may take. Group involvement leads to group learning and a more “intelligent” company.
BENCHMARKS FOR PRODUCING YOUR BUSINESS PLAN
The concrete steps reviewed in this section will lead you through the process of producing the physical document of your business plan. These are not, however, the steps of the business planning process. The distinction is that the business planning process is how you actually formulate the content of your plan—the reasoning and proposed activities that arise from it. This is discussed in the specific business development processes that relate to the various systems in your business: marketing systems, financial systems, sales systems, management systems, and so forth.
The following benchmarks will help you pull all the pieces together into a document that combines heart-centered and head-centered planning to become the living, breathing “game plan” for your organization.
1. Create the mental picture of the impact you want your business plan to have. How would you feel if your plan actually had that effect? The premise for this step lies in the concept of heart-centered planning, which describes the importance of feeling a sense of passion or excitement as a necessary prerequisite to any plan in order for that plan to work.
Picture in your mind a coach handing out the season’s new playbook to the team. Or a director passing around new scripts to each member of the cast. Everyone is silent as they wait to get their hands on a copy, or murmuring excitedly to one another. They open it up and leaf through the pages. You hear oohs and ahhs, some gasps and a few laughs. You see the intent and animated expressions on their faces….
Now imagine you’re that coach or that director. You’re distributing your company’s new business plan. Look at the faces of your people. What do you see? What kind of feeling is in the room? How are people responding as they read it? How is everyone using the plan as they go back to their individual accountabilities? How are departments working with each other differently as a result?
Picture it exactly the way you want it. And don’t go on to benchmark 2 until you do.
2. Outline your business plan. This will become the table of contents for your business plan, and a “pre-plan” that will help you organize this effort and distribute development accountabilities to others. The next process will give you a sampling of the items you can include in your plan and the Business Plan Contents checklist will help you get your outline started.*
3. Prepare your business plan binder. The best way to begin assembling your business plan is in an everyday, three-ring binder. This way you can move sections or pages around, replace old versions with revised ones, and continue to build your plan over time. Start by creating your cover and/or title page and insert dividers for the major business plan sections as identified in your outline.
4. Gather the materials you already have. Depending on how long you’ve been engaged in business development, and how diligently you’ve been documenting as you go, you should have a good number of the items for your business plan partially or completely ready. Some examples of materials you may already have are your: Strategic Objective, Strategic Purpose, organization chart, descriptions of your target markets, positioning statement, marketing plan, financial strategy, financial statements, and product/service strategy. Put all the pieces you have in your business plan binder. Decide whether each piece is complete as is or, if it needs to be revised, use the Business Plan Development worksheet to indicate who should be accountable for the next step, and a due date.
5. Identify what you need to produce. What pieces of your plan don’t you have? What will be needed to produce them? Who should do it? Start your thinking about these things, but don’t come to any final conclusions (unless you’re going to develop the entire business plan yourself). Now you’re ready to leverage yourself, bring others in to participate, and complete your business plan sooner rather than later.
6. Conduct a planning meeting. Gather the group of employees you’ve identified to move the business plan through its remaining steps. “Enroll” them in this process; don’t just dictate assignments. Paint the big picture. Get them excited. Ask for their suggestions, and really listen. The end result of this meeting (or it could be a series of meetings), in addition to getting people’s commitment to the business plan, should be to have a clear understanding of who will do what by when. In other words, each piece of your business plan should have someone accountable for completing it and a specific due date for completion. Record what’s been decided on the Business Plan Development worksheet.
7. Prepare, review, and revise your business plan materials. This is the “tactical work” step. This step will involve all the accountable people thinking, analyzing, developing, writing, meeting, reviewing, rewriting, until each section is done. You should review every piece before it’s finalized and make any additional changes. Also it’s important that you make sure all the pieces are consistent and work together as an integrated whole (for example, that you have the production capacity to meet sales forecasts, etc.).
Beware “analysis paralysis” at this stage—the endless revising and revising based on continuing thinking and analysis to the point where no plan seems acceptable. To combat “analysis paralysis,” remember that your plan will change and adapt over time to reflect and meet changing circumstances. Of course, do the necessary analysis. Get your best thinking and planning on paper now, finalize it, and be ready to make changes down the road.
8. Produce your “final” business plan. Now you’re ready to put your plan together and craft the “look” of your document. (Final is in quotes because it’s not really final—you’ll revise and update it for as long as you’re in business.) Give your plan a polished, easy-to-read appearance. Do what you need to do in order for your business plan to have the impact you want it to have, but don’t go overboard. Keep the three-ring binder format for your working version so you can easily make changes. If you want to produce variations of your business plan for outside parties (lendors, investors, shareholders, etc.), you’re now ready to do that, too. For these audiences, professional printing and bindery may be a good idea.
9. Create the mechanism for building change into your business plan. This last step is absolutely vital if your business plan is to really work. Do it now—don’t put it off! Think about how you’ll accommodate change into your business plan and create the system for doing it. Because you know that no sooner will you dot your last “i” and cross your final “t” than something will happen that you didn’t expect. The best system is a two-pronged approach: First should be establishing a “formal” review period, either quarterly or semiannually, when you review the entire plan and update it, as needed. Second is to review part or all of your plan when something significant changes (for example, a major competitor enters or leaves your market, an unexpected regulatory change, natural disasters, etc.). One tool for helping you do this is the worksheet called Building Change into Your Business Plan.
WHAT’S IN IT? THE INGREDIENTS OF YOUR PLAN
This section presents one model for the contents for your business plan. It’s based on the “seven centers of management attention” so that your plan will contain the goals and strategies you’ll use in each of the main arenas of your business to accomplish your overall vision. Use this as the basis of the outline for your company’s business plan (see benchmark 2), modify it, or create your own.
The items listed are self-explanatory or are described in detail in other business development processes within the E-Myth Mastery Program.
GO FOR IT!
You’ve read the lists, you’ve read the rules, you’ve read the logic. You understand it; it makes sense. But how do you feel about it all?
If you feel that writing your business plan is going to be a waste of time and energy, don’t do it! It will be a waste of your time.
But if you feel passionate about what you want your business to become, do it! If you feel excited by the idea of your vision becoming a reality, do it! If you want a way to drive the sense of shared commitment throughout your company, do it!
SAMPLE BUSINESS PLAN CONTENTS LISTING
What are the remaining ingredients that will make your business plan really work?
Make it easy. It doesn’t have to be hard. Use what you’ve already got. Build on it. Include the elements that make the most sense for your business. Don’t load it up unnecessarily for the sake of volume. Delegate what you can. And have fun with it.
Make it robust and flexible. What would a robust and flexible business plan look like? It would be easy to use and easy to read. It would be “attractive” to its audience. It would adapt easily to change. It would have a clear purpose and be appropriate for the result it’s intended to produce. It would be balanced in terms of how it addresses the different areas of the business. It would have a clear monitoring and follow-up mechanism. And it would have “energy” and reflect the passion you feel for your business.
Build in “frames of reference.” These are intermediate completion and celebration points that will help keep everyone motivated as you develop the parts of your plan. Make it a practice to create individual and group frames of reference.
Use common sense. Don’t be swayed by any “logic” and don’t include any “plan” that doesn’t make sense to you.
Can you see that the business plan that always works is not just a planning and implementation document? It’s a “catalytic converter” that takes the ingredients you put into it and intensifies them. If you put passion, excitement, and commitment into your plan, they’ll come back out, and become magnified as they spread throughout your company and become fundamental to the way you and your people operate every day.
You, your people, and your business deserve to have a meaningful, honest business plan to give your efforts direction and to guide your path toward the results you all want.
Business Quantification: Looking at Your Business Objectively
Quantification is one of those habits that can become so basic you do it without thinking. That’s good and bad. It’s good if the idea of quantification is so ingrained that you automatically use it to understand every part of your business.
But it’s not so good if you do it mindlessly, without carefully thinking through what you’re quantifying and how it will tell you what you need to know.
Quantification isn’t an afterthought—it’s an indispensable part of the business development process of innovation, quantification, and orchestration. Without quantification you don’t know if your innovation has worked, and you lack the controls to orchestrate it properly.
YOU DON’T KNOW YOUR BUSINESS UNTIL YOU’VE QUANTIFIED IT
All business owners can walk through their businesses, listen to their employees, look at their business activities, and get a sense of whether things are going well or poorly. Some do it better than others, but all business owners do it.
It’s a valuable skill, but it’s not nearly enough.
If you haven’t quantified your business, you’re not objective about it. You’re seeing it through a distorted lens no matter how objective you try to be. Without quantification, you make judgments based on what you personally see and hear, and that’s both limiting and biased. Because your eyes and ears can’t see everything, and they’re your eyes and ears and are, therefore, attached to your personal biases and beliefs, your personal view will always be distorted. Despite your best efforts, your decisions will be based on misinformation.
But by creating an effective quantification process you can pinpoint exactly what’s going on in your business, for better or for worse. You can anticipate problems before they materialize. You can know exactly which areas need your personal attention, and which do not. You can be completely objective and accurately informed. Your decisions will be sound because they’ll be based on good information, not belief, not opinion, and not on an incomplete view of the business.
Quantification, if you do it right, gives you a “sixth sense” about your business. It’s not at all mysterious. It’s a logical, practical process. And it’s a process you can comfortably manage because it’s one based on your own needs, abilities, and preferences.
So when the question is “Do I quantify?” the automatic answer is “Yes!” And when the question is, “What do I quantify?” the answer is “Everything.”
THREE LEVELS OF QUANTIFICATION: STRATEGIC, SYSTEM, AND BUSINESS INDICATORS
At the highest level of information, there’s strategic quantification. You strategically quantified your business when you established your key strategic indicators. You should be reviewing your strategic indicators at least quarterly.
Strategic indicators give you a sense of your progress toward your Strategic Objective, and they give you a feeling for the general health of your business. They give you the “big picture.” But they aren’t meant to help you navigate the day-to-day management of your business, and they aren’t precise enough to help you detect and diagnose problems within your business.
Key Strategic Indicators show how the business is progressing toward its Strategic Objective and indicate the general health of the business.
Key Business Indicators enable the chief executive and senior managers to monitor and manage the business and its major sectors as an integrated whole.
Key System Indicators show managers and employees at all levels and in detail what is right and wrong with every system.
At the most detailed level of quantification, there are key system indicators. Every time you develop or innovate a business system, you determine its key indicators and establish a baseline against which to measure performance and progress (see Systems Innovation, Systems Innovation: Analyzing and Improving Your Business Systems). You, or your employees, should be watching your systems indicators continuously.
Key system indicators are detailed and precise. They’re the best way to detect when something in your business is going awry and what’s causing the problem. For day-to-day and minute-to-minute management nothing beats key system indicators for knowing exactly what’s happening within any one system. But they don’t tell you about the business as a whole or even significant portions of your business.
That’s what Key Business Indicators are for.
KEY BUSINESS INDICATORS TELL AN INTEGRATED STORY
It’s an obvious point, but it bears repeating. Too many business owners lose sight of the fact that a business is an integrated organism. What happens in one corner of the business impacts what’s happening in the other corners. If you’re only managing the parts of your business, you’re not managing the business.
When you look over the listing of suggested key business indicators later in this process notice how they form a complete picture, covering all areas of your business. They’re multidimensional, multifunctional, and all-inclusive.
The concept of a business as an integrated organism goes over the heads of most business owners. And without that insight, it’s impossible to manage a business in this integrated way. It’s one of the things that makes an E-Myth manager stand out from the crowd of would-be managers who only think they understand their businesses, but actually only understand pieces, and even those not very well.
OPERATIONAL AND FINANCIAL QUANTIFICATION
When you look at quantification across thousands of companies, you notice that financial quantification is highly uniform and operational quantification is extremely diverse. Financial quantification takes the form of financial statements (balance sheet, income statement, cash flow statements), highly standardized accounting and bookkeeping conventions, and even a whole set of conventional approaches to financial analysis.
By contrast, operational quantification is infinitely varied with few standardized practices. In this process we focus on operational quantification. But always remember complete business quantification must include the financial quantification.
Thus, when you monitor your key business indicators, your budgets, cash flow, and financial statements are an integral part of it all.
YOU DON’T HAVE TO BE A ROCKET SCIENTIST
If you can add, subtract, multiply, and divide, and if you can use a pencil and a pad of paper, you have the essential tools of business quantification. If you can use a computer and draw graphs (or have employees who can), so much the better. You don’t have to be a rocket scientist. In fact, it’s better if you’re not because scientists sometimes get caught up in their own numbers and lose sight of the fact that the numbers are a tool, not an end in themselves.
A FEW GUIDELINES FOR DEVELOPING YOUR BUSINESS QUANTIFICATION
Start with your highest priorities. You’ve already quantified your highest priorities. Those are your key strategic indicators, the ones that directly reflect your progress toward your Strategic Objective. To quantify your key business indicators, start with those aspects of your business that are most critical to your success. You’ll probably classify the critical parts of your business something like this:
People
Production and productivity
Customer satisfaction
Lead conversion and lead generation
Market standing and competitive position
Administration and support
Profit margins and other financial indicators
You’ll create your own quantification for your own situation, but the table that appears later in this process shows examples of the more useful and common key business indicators.
Start small and build. Don’t overwhelm yourself or your people with measurement and tracking. Sounds like a contradiction, doesn’t it? Quantify everything, but don’t do too much.
It’s a matter of finding the balance point. Learn as you go. But make quantification a priority, and continue to improve and add to your quantification systems. It’s not just a numbers exercise. It pays dividends, and it can save your company by revealing problems when they are small and manageable. It can also help you identify opportunities before your competition finds them.
GIGO. Remember, “garbage in, garbage out.” When you measure something, make sure the measurement means what you think it means.
For instance, take the case of a small metal products manufacturer (mail-boxes and lawn furniture) who measures the days of raw materials inventory on hand by getting the information from the shipment notices his suppliers fax to him. He thought he had a 15-day supply, but he neglected to account for the fact that supplies arrived at his plant an average of 7 days after they were shipped out of his suppliers’ warehouses. So he actually had only an 8-day supply of raw materials. No problem, until a big customer doubled the size of his order for lawn chairs. He ran out of raw materials, and his plant virtually shut down for three days while he panicked his way through the situation. It cost his company thousands to rectify the problem.
Minimize the work of measurement and tracking. Whenever possible, draw upon existing systems, procedures, and paperwork. But don’t shy away from installing systems and creating work in order to get the information you need to understand and manage your business.
Focus on the meaningful. You can measure and quantify anything you want, but some things just aren’t worth the effort and some things don’t tell you what you think they do. Usually it’ll be obvious, but not always.
There was a management consulting company that measured and tracked the number of clients served. That’s an interesting number and useful for public relations and a general overview of the scope of the company. But the economics of the company were driven by the hours of consulting labor that were spent doing the consulting work, not by the simple number of clients. They paid too much attention to how many clients they had and too little to the economic realities of their kind of consulting.
CONVERTING DATA INTO INFORMATION—MANAGEMENT REPORTS
It’s just as important to put your business quantification into usable form and distribute it where it can do the most good, as it is to gather the data in the first place. All your measurement is merely data—facts—until you make sense of it and convert it into information. You do that by organizing the data, possibly performing some calculations, and displaying it so that it makes sense and helps you understand what’s really going on in your business.
The primary tool for making sense of data is the management report. A report is simply an orderly display of information. Its purpose is to present information so that it can be quickly understood and absorbed. The tools of management reporting are familiar to everyone—tables, graphs, and charts. They are easy to scan, efficient to produce, and convey large amounts of information in a compact format. They are also easily computerized.
EXCEPTION REPORTING—SEEING WHAT’S IMPORTANT
Anyone who works with management reports quickly learns the value of “exception reporting.” As your quantification systems grow, you’ll find that most of the numbers fall within normal ranges most of the time, and that your attention is drawn to abnormal measurements, those that fall outside your expectations either favorably or unfavorably.
In time you’ll become adept at setting up your management reports to highlight these abnormalities. It’s called “exception reporting,” and it’s the most efficient way to keep your attention focused on what is important.
Graphs and “variance analysis” are two useful ways to focus your attention on exceptions. Graphs are visual and quickly draw attention to spikes and dips, which are nothing more than “exceptions” to the norms for your business. Variance analysis accomplishes the same purpose with a little subtraction. For each measure that you are tracking, you simply subtract last year’s (or last month’s, or the average of the previous x months) readings from the current reading. This shows you how much the current activities “vary” from your business’s norms, hence the term “variance analysis.”
TIMING AND FREQUENCY OF MANAGEMENT REPORTS
How frequently should you collect and report information? That depends. A retailer will collect sales information at least daily, maybe even two or three times a day. He’ll probably want to review customer complaints and compliments less frequently, say monthly. A manufacturer will probably want to look at inventory and production information daily, but only needs to review downtime information monthly. It depends on both your need for the information and your personal preferences.
Data collection and management reporting do not have to follow the same schedule. You may measure store traffic and collect the data continually as people enter and leave the store. But you may only report that information weekly or monthly.
As a rule of thumb, you should collect the data for efficiency and report it for utility. Collect the data in ways that require the least effort and annoyance to you and your employees. Report the information when it will be most useful. Looking at store traffic information as it is collected, at 15-minute intervals, is nearly useless—you can’t detect any patterns. But looking at weekly or monthly patterns gives you information on which you can base staffing decisions and special promotions.
REPORT FORMAT…WHATEVER WORKS FOR YOU
The format of management reports—tables, charts, and graphs—is a matter of personal preference. Some owners prefer narrative descriptions. Most owners like to look at tables and charts where they can run their eyes down columns and across rows and immediately spot the items that stand out from the company’s norms. Others like everything put in graphical format. Bar charts, pie charts, line graphs, scatter diagrams—they all draw the eye immediately to unusual activity, which is exactly what a manager needs to focus on. That’s why the “exception reporting” approach is so useful.
EASE INTO IT
If you and your employees are not accustomed to this kind of information gathering and reporting, you can expect some resistance. (You may feel a little resistance yourself.) That’s normal. After all, quantification to the inexperienced can seem like busy work and bureaucracy. But as you experience the benefits of quantification—early detection and prevention of problems, feelings of professionalism and greater control of your business, clarity, the ability to make more realistic (and more aggressive) plans, the competitive advantage of spotting opportunities first—the skepticism vanishes.
Plan to ease into quantification a step at a time. Select your most important management information needs and begin your quantification with them. Then, as quickly as you can, but keeping pace with your own growing familiarity with the quantification process and the ability of your people to implement quantification, introduce more data collection and reporting processes.
It’s a never-ending process, just like systematization is a never-ending process.
DISTRIBUTION OF MANAGEMENT REPORTS
If your business is a five-person operation where you manage everything, then distribution is easy. All management reports go to you (you probably produced them all, and “them all” probably means only one or two reports of key information).
If your business has several dozen or a few hundred employees, and you have a number of subordinate managers, then you will probably produce numerous management reports of different kinds, and distribute them to several different levels in your organization. The key is to get the information to the people who can do something productive with it. We can’t tell you what reports should go to what people, but we do provide worksheets and guidance on how you should structure your management reporting system.
And now it’s time to do just that.
THE BUSINESS QUANTIFICATION PROCESS—CREATING YOUR MANAGEMENT REPORTS AND THE SYSTEMS THAT BRING THEM INTO BEING
The process of quantifying your key business indicators has the following steps:
1. Identify the business activities and results to be quantified. Determine appropriate measures and timing of measurement. You can select quantification measures from the list provided or devise measures of your own. The Business Quantification worksheet can be used to keep track of the measures you want to use. As you identify specific measures, also be thinking about the source of data, who in your organization should be accountable for reporting it, and what management report will be needed to present the information.
2. Establish your management report structure. Identify and give a general description of each management report that will be created in the future. The Menu of Management Reports worksheet will help you do this.
Most owners organize their management reports by functional area. That would result in a menu containing reports with titles such as “Monthly Staffing Analysis,” “Production Tracking Report,” “Sales and Marketing: Month of Xxx and Year-to-Date.” You might prefer to structure your management reports along organizational lines, reporting marketing information to your sales and marketing people, production information to your production people, and so on. You might want “top line” information (key indicators of company performance) for yourself and detailed reports for your managers, or you might want all the details yourself. It’s all up to you.
Every report, in addition to its title, should show the period of time for which the data were gathered, and should have the name of the person to contact for questions.
For each management report to be produced, use the following development procedure:
3. Create a system for collecting the necessary data. Your data collection systems should cover:
Source of measurement data (“piggyback” on existing information flows whenever possible)
Frequency and timing of data collection
Person (position) accountable for collecting data
Data collection procedure
4. Design the management report. The design should cover:
Format and layout of the report (graphs, charts, tables, narrative, and combinations of these)
Information content and any calculations (formulas) used
Time period covered by the report
Frequency and timing of report distribution
Distribution list
Contact person (person who can be contacted to answer questions about the report)
5. Create systems for producing the management report. Often the people who collect the data are not the same as those who produce the report. Your report production systems should cover:
Report specifications
Obtaining data from those collecting it
Organization and storage of data
Processing the data into report information
Reproducing and distributing the report
6. Continually refine and upgrade the report. Produce the first report; obtain feedback and experience using the report; modify the report and the process as appropriate.
A very small business will probably simplify this process. The owner might be the one who designs the format, collects the information, and produces the report, and is the only user of the report. A larger business may want to add other steps to the process. Either way, the same tasks must be accomplished.
THE QUANTIFICATION PLAN
Once you’ve identified the management reports you’ll need and you have the basic development process in mind, it remains to convert this information into a plan. The Quantification Planning worksheet will help you. Simply list the management reports by name in priority order in the left-hand column. Then write in the time intervals (weeks, months, quarters) across the top, and estimate the timing of each report’s development across the rows using the benchmarks indicated by steps A, B, C, and D at the top of the worksheet.
“LIES, DAMNED LIES, AND STATISTICS”
Mark Twain once said, “There are three kinds of lies: lies, damned lies, and statistics.” Some feel the same way about business quantification. The truth is that in some businesses, quantification is misused, twisted to cynical purposes by dishonest or incompetent managers in pursuit of self-serving ends. Too bad, because they would be better served by honest, insightful quantification.
Quantification reveals problems and suggests solutions. Quantification eliminates personal biases, decisions based on anecdotes and personal observation, and confusion. Quantification gives you control, objectivity, and a deep understanding of your business.
Quantification is the magnifying glass, the X-ray machine, the telescope, and the microscope that allows you to see into every corner of your business and, at the same time, enables you to see the integrated whole of it.
Quantification isn’t just numbers. It’s insight. It’s understanding. It’s the path to a business that works.
EXAMPLES OF KEY BUSINESS INDICATORS
PEOPLE
