Thursday, 9 October 2014

Billy's Thirty Third Law - Transition Two: Operations must become systematic

The biggest challenge to scaling your business is to move away from the chaotic and towards the systematic.
When we start our businesses, there are usually no business processes.  Everything is new...everything is custom...and everything is often made up 'on the fly'  Business is improv theatre or  jazz.  For some, these free wheeling forms are a means of expressing creativity and uniqueness.  Just as many marketing entrepreneurs love customer acquisition, or hunting, many technically oriented entrepreneurs love the challenge of developing something new.  For them, routine is boring!

In the previous blog, I talked about capability-- the different things a business can do with its existing resources.  This week, I want to introduce a second term...capacity. Capacity represents how much your business is capable of producing or providing.  In a service business, it may be represented by 'billable hours'.  In a production business it is the number of units you can produce.  A restaurant's capacity is limited by the seating.  Growing a business inevitably means managing capacity growth.  The wise entrepreneur knows how to get the most with what he or she has before hiring more people or purchasing additional assets.  The starting point means developing a business process.

The business process takes the guesswork out of producing or providing products or services.  It is the difference between playing off of a musical score, and jazz improvisation or the difference between adding a pinch of this or that until you like it and cooking from a receipt.  Developing systems allow you to duplicate and scale your business.  Michael Gerber's The E-Myth and Hammer & Champy's Reengineering the Corporation effectively address the issue business systems and documentation.
The Limits to Systems
Many entrepreneurs resist systems.  We believe that each situation is unique and that each situation has a unique solution.  Gerber takes the opposite approach, believing that everything is as systematic as making a McDonald's Big Mac.  Gerber is wrong.  There are many parts of a business process that involve creativity, special skills or scientific knowledge.  This is the ‘missing link’ in process development. Some of these include: creativity, special knowledge, special skills & abilities and judgement. 
A bank may have a process for a business loan application.  Sometimes, the answer is an obvious yes, or an obvious no.  These are decisions made by the system.  Some situations are somewhere in between.  The bank may default to saying no, to those ‘in between’ situations.  A better process would include having a specialist evaluate these situations and making a decision based on judgement. 
A manufacturing client of mine had a request for a lower cost for a particular part.  The owner could not produce the part for less, and was unwilling to reduce the price without reducing the cost.  The solution was to re-design the product and the process, creating a less expensive part to produce thus reducing the cost of the part to the customer.  The solution was a combination of both creativity and special knowledge.
The challenge is to develop flexible systems.  These systems allow you to combine structure with creative and specialty skills and knowledge to affect growth without compromising the uniqueness your enterprise provides.   
Remember...think systematically but never forget the importance of creativity, knowledge and judgement! 

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