Are you working in the business and not on it?

Posted by Phil Murray 05 December 2014 09:00 AM

Michael Gerber is probably the world’s number 1 small business guru. In his now famous book, “The E Myth, Why Most Small Businesses Don’t Work and What to Do About It”, Gerber outlines the major pitfalls that small businesses fall into when they set up their own business.

It is probably worth clarifying that the “E” in the title stands for “entrepreneur” rather then “electronic”. He describes brilliantly the classic scenario where the business owner becomes a technician and creates a vicious circle where they work harder and harder for an ever dwindling financial return. Does this sound familiar?

Like many, the business owner typically has to be involved in managing everything, from sales development, to order collection, to production and even delivery to the customer.

They make the ultimate mistake of working in the business rather than on the business and it eventually fails because it lacks any strategic direction and its ability to grow is fundamentally restricted by the limited time the owner has “to do stuff”.

Gerber contrasts this with what he calls the Turn-Key revolution. What he is talking about here is the massive growth and success of the franchise operations such as McDonalds and KFC. The secret of their success is the fact that they have systemised their business. By documenting their branch organisation structure, roles, procedures, processes and recipes they are able to open new branches very easily because the know-how in their business has been captured and is therefore transferrable.

Gerber’s point is that if the large franchise operations can do it there is no reason why the small company shouldn’t also systemise their business. This would then allow the company to grow because all members of the team, not just the business owners, know what they have to do, why they do it, when they do it and ultimately how they do it.

In addition, team members also understand which performance measures are critical to success in doing their job. New members of staff can be very easily trained to replicate these tasks because the systems are documented. Fundamentally, the business becomes less reliant on its owner for managing the operation freeing them up to focus on working on the strategic direction of the business. The owner no longer has to do all the work.

In my experience in both PLC and as a consultant at Harlands one of the best ways to start the systemisation process is through implementation of a Performance Management System which involves:-

  • Defining your organisational structure so that staff members are made aware of formal reporting lines.
  • Producing role portraits for your team members that clearly explain each team member’s job purpose, accountabilities, and key performance measures (KPI’s) against which their performance will be appraised.
  • Develop a management objective based appraisal system which would set, monitor and evaluate team members performance in meeting their objectives
  • Develop One Page plans which summarise the performance of the overall business, departments and even individuals against the critical KPIs which were defined in their role portraits

As mentioned previously, I believe Introducing an effective Performance Management System is a key step in the systemisation process by making it clear which responsibilities have been transferred to other members of your team. Most importantly it helps to build an exciting culture where success is celebrated.

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Topics: Business Start Up Business Owner