Thursday, October 30, 2008

Organize Your Business Using The Franchising Model

For those who have read Michael Gerber’s The E Myth Revisited, you’ll recognize this theme: Organize your business as though you were going to franchise it.

Franchising is simply a method of distribution of a product or service utilizing the brand, operating systems and support of the franchisor. Applying these principles to your own business can help improve your productivity and profitability even if you never plan to actually franchise it.

The foundation of a franchiseable business is replicable operating systems. “System” is defined as a coordinated body of methods and procedures, but I would add that for business purposes it needs to be documented in a form that can be most effectively utilized by those responsible for its implementation. So where do you start if you want to document operating systems for your business? I recommend that you create a “map” of your organization, sorted by job function, responsibility, and task. From that map you can document the systems for each key responsibility.

As an exercise, write in simple outline format how your business is organized. Example:

I. Marketing/Advertising
II. Sales
III. Production
IV. General Management/Financial

Then under each section, write the related responsibilities. Example:

IV. General Management/Financial
a. Planning & budgeting
b. Bookkeeping & accounting
c. Human resources
d. Office administration
e. Operational performance review & analysis

Then under each responsibility, write the related tasks. Example:

IV. General Management/Financial
e. Operational performance review & analysis
- Review goals & objectives monthly
- Review job cost reports
- Review cash flow reports
- Review financial statements monthly
- Review marketing numbers monthly
- Review sales plan vs. actual monthly
- Compare closing ratios to plan monthly
- Compare gross profit to budget monthly
- Determine where and why variances occurred
- Make changes to plan and budget monthly

Now create a spreadsheet with a page (tab) for each section, with the responsibilities and tasks listed down the rows. At the head along the columns, list the job functions, not titles, in your company (as the general manager, you may also be the sales manager and production manager; so list all three functions). Where a job function and a task intersect on the spreadsheet, place an X if that function handles that task. Ideally, the responsibilities and tasks will be in sequential order, ascending, so the information will be in a “day in the life” order. Example:

With this breakdown, you can provide your staff with an outline of their duties. This, however, is not an “operating system.” A true system would include a written, graphical and/or video description of how to perform it, which should address the “who, what, where, when, and why.” This would be a staggering project for all the tasks that have been mapped out, so the realistic approach is to identify only the most critical tasks and document those. But don’t assume the burden of doing this all yourself; delegate pieces of it to your staff. If they’re not comfortable with writing, meet with them and tape record what they say.

Sunday, October 26, 2008

Self-Accountability: The Biggest Challenge

Years ago, I counseled one of my franchisees who had been a trainer for my company before he left to open his own franchise. He was struggling to survive, and finally reached out for help. Here was a bright young man who had been in the position of teaching franchisees how to improve their business performance; and yet when I asked him the most basic questions (what were his sales against plan, what margins was he hitting, what was his monthly nut), he sheepishly admitted to not having the answers. Even though he knew what to do, he didn’t implement the very lessons he had taught to others because apparently there was no one in authority to kick his butt.

That encounter crystallized in my mind the need for a mechanism to hold the business owner accountable. When you’re the owner, who do you answer to? And what do you do if you don’t like your performance? Unless you have exceptional self-discipline, you probably cut yourself a lot of slack. When work is plentiful, the requirements of the contracting process provide both the structure and urgency that motivate productive effort. But when there’s little to no work on the boards, is your day-to-day activity driven by a comparably clear and pressing set of objectives? In either case, are you managing your business as effectively as possible?

If this isn’t an issue for you, stop reading. For the rest of you, consider developing an external accountability system that will help you focus and perform at the level necessary to navigate through leaner times ahead. Here are two ideas:

> Create a checklist of your key performance measures broken down by category – Marketing & Advertising, Sales, Production, and Management & Financial. For example, the list would include number of leads received, number of sales by source of lead, gross margin achieved, net profit for period, and so on. You should be able to come up with at least 20.
> Once a month, meet with an outside advisor (your banker or accountant, or a successful business owner) to report the previous month’s performance on these measures against your budget (assuming that you have one). Defend and analyze the results.

The nominal purpose of this exercise is to help identify problem areas and to establish corrective action. But the actual purpose is to force you into a discipline of planning, tracking performance, and analyzing performance against plan; and to do so in a recurring, timely fashion… all of which are essential to the competent stewardship of a company. Using an outside advisor establishes a de facto accountability relationship, because it’s human nature to avoid the embarrassment of failing to be prepared for the meetings and wasting someone’s valuable time.

Another option would be to join a peer review network that specializes in the construction industry, such as Business Networks (not to be confused with BNI). A good peer review program will require you to meet a high standard of participation and be metrics-intensive, providing a comprehensive data base against which to benchmark your performance. Membership costs money, but if you follow the system your return will far exceed the investment. Having your peers hold you to account, as well as provide you with advice and support, is priceless.

Whether it’s a DIY program or a professional membership, an external accountability system will provide the framework that can motivate you to take needed action when you otherwise might not.