The average business owner is always on the run, trying to do everything in his or her power to keep up, solve problems, please people, pay the bills and make a little profit—to survive, grow and prosper.
In our fast-paced and complex world, many voices are calling out for our attention, advising us where to go and what to do to achieve success. We hope for a breakthrough idea that will propel us to the “next level,” but we’re not always sure what investment of our time, effort and money will provide the biggest payoff.
However, many of the best ways to improve a business are found in doing small, simple and inexpensive things that can have a significant positive impact on employees, customers and business results.
How to Improve a Business
Here are t SIMPLE ACTS that will elevate your business and put more money in your pocket.
- The SIMPLE ACT of smiling, showing kindness, or expressing gratitude will lift everyone you come in contact with, engender loyalty, and elevate employee performance.
- The SIMPLE ACT of creating checklists to ensure procedures are precisely followed will reduce the number of mistakes people make, and the unnecessary waste of time and materials.
- The SIMPLE ACT of measuring a business process and providing your workers frequent feedback will increase motivation and productivity.
- The SIMPLE ACT of applying a 5-Whys Analysis will help you quickly uncover the root cause of many business problems.
- The SIMPLE ACT of getting your operation cleaned up and organized will impress customers, increase efficiency, and boost profit. Make your business shine!
- The SIMPLE ACT of assigning ownership to business systems, processes, or activities—and making team leaders accountable for their results—will dramatically elevate your business performance.
- The SIMPLE ACT of identifying and monitoring key performance indicators (KPIs) will cause you to focus attention on the areas of your business that matter most.
- The SIMPLE ACT of asking your employees about persistent problems, bottlenecks, and ways to improve—tapping into their ideas and insights—can reveal many opportunities for innovation and cost reduction.
- The SIMPLE ACT of implementing the WOW Factor in your business operation will help you attract and keep good customers and valuable employees.
- The SIMPLE ACT of holding a weekly business improvement workshop will eventually give you a world-class organization.
One More Simple Act
Finally, the SIMPLE ACT of reading “Box Theory™: Double Your Profit with High-Performance Systems and Processes” and becoming a Systems Thinker will raise your business I.Q. by 80 points—overnight!
Forgive me for this little sales pitch; I don’t do it often. However, I truly believe that applying the Box Theory™ Way (eCourse, all-in-one software, and Business Systems Academy) is the most important thing you can do to have a smooth-running business that attracts customers, retains the best employees, and generates a healthy profit.
Remember: by small and SIMPLE ACTS are great things brought to pass!
The Next Step...
Colonel John "Hannibal" Smith is a fictional television and movie character and one of four ex-Army Special Forces soldiers. Near the end of the Vietnam War, they were all convicted of a crime they did not commit and managed to escape from the Military Police. As fugitives, this group, known as the A-Team, worked as soldiers of fortune, using their military training to fight oppression or injustice.
Hannibal, the oldest and most experienced of the group, frequently came up with a strategic plan to accomplish the team’s objectives and win the day. At each moment of victory, Hannibal was heard to say, “I love it when a plan comes together.“
There’s a Plan in Everything
I, too, love it when a plan comes together. Every time I complete a business system that performs as expected, I feel exhilarated. I feel like jumping up and down and congratulating the team. I feel a great sense of accomplishment. You can, too!
And we’re not necessarily talking about big plans (BHAGS). Small improvements carried out each day have a significant cumulative effect. Below is an example of a quick little plan or system created by a client during the busy Christmas season.
“I walked into one of my retail stores unexpectedly on a Saturday during the Christmas rush and was shocked by the deplorable appearance of the store, inside and out. Shopping carts were scattered throughout the parking lot. Restrooms were filthy. The front of the store was a disorganized mess. Having been exposed to Systems Thinking, I avoided confronting employees on the spot. (It took everything I could muster to smile and remain calm). However, on Monday morning, I brought the staff together and we created a checklist to solve the problem. Now, on busy days when normal custodial service isn't adequate, the store workers complete the five-minute cleaning checklist every two hours. The store always looks tip-top, and I don’t have to worry about it anymore.”
An Amazing Plan That Came Together Perfectly
After years of preparation and seven months of space travel, a NASA team successfully landed the robotic rover “Spirit” on the surface of Mars January 4, 2004. Over time, Spirit accomplished far more than its expected mission and became one of the most successful space projects ever.
The incredible video below is an illustration of what can happen “when a plan comes together”—when a system is designed and executed with such precision that it generates astonishing results.
What We Learn From This Video
- Ordinary people can do extraordinary things with a good plan and attention to detail.
- Business systems that consistently deliver on their promise are what create world-class organizations.
- The unique business systems and processes you create reflect ingenuity, hard work, and desire for excellence... AND THEY TOO CAN BE REMARKABLE!
You may not have a budget like NASA, but you can create business systems that will cause people to stand up and cheer. (The last scenes of the video could be YOUR customers!)
Like Hannibal Smith, you may occasionally be heard declaring, "I LOVE IT WHEN A PLAN (SYSTEM) COMES TOGETHER!"
The Next Step...
A business is made up of people, products, and processes organized to find and keep customers profitably. Many companies fail because owners and managers are unable to create effective business processes that accomplish this fundamental objective.
So, what exactly is a business process? And how can you create processes that will help your company achieve greater customer loyalty, profitability, and growth?
There are business process experts who get deep in the weeds when defining a business process or trying to distinguish it from a business procedure or a business system. However, for entrepreneurs and owners of small to mid-size businesses, a few simple definitions will be sufficient for our discussion.
- Business Procedure – a sequence of actions taken to accomplish a task (emphasis on following steps in a specified order).
- Business Process – a series of ordered activities that transform inputs into higher-value outputs (emphasis on transforming materials or information into a product or service).
- Business System – a group of interacting, interrelated, or interdependent elements forming a unified whole (emphasis on related parts working together for a desired outcome).
A Process is Just a Recipe
As a business owner or manager, you may use these terms interchangeably. They are all business activities designed to produce a specific, pre-determined, and consistent result. They include your processes for marketing and sales, hiring and training employees, customer service, production, order fulfillment, accounting, and many more, some unique to your industry or company.
Business systems and processes—whether in the store, the office or the workshop—are your unique recipes for getting work done. They are governed by the Law of Cause and Effect. The result (effect) of a business process is determined by the ingredients used (e.g. , forms, checklists, materials, supplies, equipment, software, people, and so forth) and the procedure followed (cause). The only way to get a better process result is to improve the ingredients or the procedure of the recipe.
For example, when you carefully follow the detailed instructions of a chocolate cake recipe, you get the same result every time. However, we all agree there are chocolate cakes and then there are CHOCOLATE CAKES! (e.g., Chocolate Thunder). They may go by the same name, but the unique recipe makes all the difference.
The same is true with your recipe for generating sales leads or hiring the best people. A little change in ingredients or procedure can give you far superior results!
Correctly designed, your business systems and processes support the mission, strategy and goals of your organization. While people may come and go, the successful recipes you have created remain constant. Furthermore, the better your recipes are, the greater the customer loyalty, profitability and growth you will enjoy!
Simply put, 100% of your business is made up of systems and processes (recipes) that can be managed and improved by applying correct principles to fine-tune 1) the ingredients or 2) the procedures. There is no other way!
Three Types of Business Processes
Effective systems and processes are the essential building blocks of your company. There are three general types to consider:
- Management processes include planning, organizing, controlling, and leading—the activities for governing your business (e.g., developing strategy, management meetings, and board of directors).
- Operational Processes constitute your core business and create the primary value stream for customers (e.g., lead generation, sales, purchasing, production, order-fulfillment, shipping, and customer service).
- Supporting process uphold and sustain the core processes (e.g., accounting, hiring, information systems, safety, and custodial).
Most business systems and processes are unique to your company (like fingerprints) and differentiate you from all other companies, unless you are a franchise. They include sub-systems or sub-processes that focus on the details of your business activities. For example, a marketing process has a sub-process called lead generation, which has sub-processes such as print advertising, radio, social media, or a website. It is in the details—the sub-systems and processes—that profit dollars are made or lost!
Good business systems and processes have three primary purposes: 1) to attract customers, exceed their expectations, and transform them into loyal fans, 2) eliminate operational waste and inefficiencies that rob profit, and 3) to create differentiation and domination in your target market.
Michael Gerber, author of the E-Myth Revisited, teaches, "Organize around business functions, not people. Build systems [and processes] within each business function. Let systems run the business and people run the systems. People come and go but the systems [and processes] remain constant.”
Describing a Process: Procedure vs. Checklist
When the steps of a task are performed in a specific order, the term “sequential steps” or “procedure” is used. For example, in a furniture shop, you first cut the wood, then sand the wood, and finally paint the wood. Doing these three things in the right order is essential. You would have an unacceptable finished product if you painted the wood before you sanded and prepared it.
A flowchart diagram with boxes and arrows—indicating steps, decision points, branches, and loops—sometimes makes it easier to describe a multi-path process than does a written procedure. Using the furniture example, if the wood has a rough edge when it arrives at painting, your decision is to reject the wood and send it back to the preparation stage. There it is re-sanded and returned to painting. After painting, a branch in the process might send different colors of wood to separate pallets for storage.
When the steps in a process can be performed in any order, a simple "checklist" is all that is needed. For example, your office custodian might empty the trash, dust the furniture, and vacuum the floor. However, it doesn't really matter in what order they are completed. Checklists are easy systems that do not require flowcharts and can be created quickly.
Remember: While much thought, planning, and experimentation may go into developing a high-performance business system or process (see Your First Business Improvement Workshop), everything learned is eventually reduced to a single procedure or checklist that is used by the people who operate the system. Their responsibility is to follow that procedure with exactness until the system is improved. If you encourage and reward innovation, system operators will also drive the improvement process.
Processes Are For Customers
A primary purpose of your business processes is to provide value for customers—to transform information or material into something that customers want, and which meets their specifications and expectations. Customers can be those who ultimately buy your products or services; however, business processes also serve the similar needs of your internal customers (see Your Five Different Customers).
For example, in your business operations, the next step (a person, team, or department) in a business process is the customer of the previous step in that process. In an assembly line, station two is the internal customer of station one. The order-fulfillment department is the customer of the order-processing department. The sales team is a customer of the advertising or lead generation team. Each “customer” in a chain of business activities looks for added value, and also wants their specifications and expectations to be met.
In addition, employees are important customers of the business. They too have specifications (e.g. work hours, wages, and benefits) and expectations (e.g., rewarding assignment, opportunity for advancement). Whether spoken or not, if you fail to meet their requirements, they will eventually go elsewhere. Good business processes support the learning and growth of your people and encourage their loyalty.
All of your business processes must deliver four basic things to its varied customers: 1) quality—low defects, does what is supposed to do, 2) speed—on schedule, meets deadlines, no delay, 3) low cost—high perceived value, competitively priced, and 4) pleasurable—no hassle buying experience, “killer customer care.”
In summary, good processes exist to please and satisfy all types of internal and external customers (see Five Customer Types).
Business Process Development
Learning how to develop good business processes is the Master Skill of the entrepreneur. All business functions—marketing, finance, and operations—fall within the scope of this single skill mastery. What’s more, the true value of your business is found in the maturity of its business processes—their ability to produce desired results consistently. (How would you and others grade YOUR business systems and processes?)
Below are ten characteristics of an effective, efficient and even exceptional business system or process:
- The process is built with the customer in mind. (Does this process help turn your customers into fans by meeting or exceeding their expectations? Does it help your workers perform at their best and get top results?)
- The process represents “best practices” or your best-known way of doing something. (Are you getting less than 1% errors? Is the process as fast as it could be? Be honest. Is this the best you can do, or could you make the process better?)
- The business process is designed with one primary purpose (more than one purpose usually means that processes are wrongly combined). In addition, the process has no unnecessary steps and little or no idle time between steps. (Is the process stable, steady, and paced with sales orders and fulfillment? Are the process goals aligned with your company goals?)
- The system or process has an owner or team leader. (Who is accountable for, and reports the results of the process? Is the person rewarded for exceeding performance standards or making improvements?)
- There is ongoing and updated documentation on how to execute the process properly, including the handling of details and exceptions. (Do workers fully understand the process and can easily repeat it with consistent results? Have you created a good recipe?)
- The process is as simple as possible to get the job done, but not simpler? (Can you lesson complexity, customization and exceptions in products and services? Can you reduce the physical path, clutter, barriers and distractions? Can you drop unprofitable product lines or services?)
- There is a sufficient focus on system details to eliminate most bottlenecks, inefficiencies, delay, mistakes, defects, and rework. (Every process has waste. Have you reduced it to a minimum? Do you accumulate defects for later handling or do you properly fix problems in the process as they occur?)
- The system is not hampered by poor planning (lack of materials or labor) or stop-start work-flow as people switch between processes. (Are your workers losing productivity or making excessive errors caused by shifting assignments, multitasking, being "spread too thin," or "wearing too many hats”?)
- The system has performance standards, and results are measured. (Are you "managing by the numbers" for maximum profit? Do you celebrate success?)
- Workers get ongoing feedback about system performance and are recognized or rewarded for exceptional results. (Do people always know how they are performing in relation to the goal? Is feedback self-administered, and in real time like a sporting event? Simple tip: To improve performance, increase the frequency of the feedback.)
Quality + Speed = Low Cost
By creating business processes that have minimal mistakes, defects, and rework (quality), you will reduce waste and increases process speed. By eliminating delay, downtime, and other speed bumps, you will boost sales throughput. This powerful one-two punch of quality and speed will give you the lowest possible operational costs and your customers the greatest value.
Outstanding business systems and processes are the "magic formula" for success! Superior quality and speed are the “secret sauce” that will wow customers, boost profit, and blow your competition away. These two ingredients will turn your recipes and your company into a “CHOCOLATE THUNDER.”
Well-designed business systems and processes increase efficiency, accomplish objectives, and give customers what they want every single time. They are your answer to customer dissatisfaction, poor performance/productivity, waste of resources, employee turnover, excessive costs, slow cash flow, weak sales growth, low profit margins, daily frustration, and all other business problems.
Whether in the office or the workshop, developing effective business systems and processes begins with good system design. After creating a flowchart or checklist, and acquiring components necessary to operate the system, you now focus on improving its quality and speed. Measuring system performance provides the feedback for making adjustments and improvements.
More specifically, each box or step in the process flowchart contributes value to the customer. The process generates output that meets quality standards, with no accumulation of rejects or rework. The workload is level, with standardized tasks, and paced with the input of sales orders. Bottlenecks that delay order completion are eliminated. "Speed bumps" such as clutter, poor layout, and downtime are minimized. Employees are well trained and incentivized when possible. People and systems learn and improve from the ongoing feedback of process results.
So, what exactly is a business process, and why should you care (a lot)?
In the game of work, good systems and processes embody your distinctive business strategy. They are your means to create higher customer value and product demand. They enable you to differentiate yourself in a crowded marketplace. They help you maximize efficiency for greater profit, more personal income, and the ability to share financial rewards with others. In addition to people and products, processes give your company a unique identity and place in the world. Is it worth it to learn the Master Skill? A thousand times, “YES”!
There is an art and a science to creating exceptional business systems and processes and growing a remarkable business enterprise. I invite you to check out the Box Theory™ Way today and discover our eCourse and breakthrough business process software, especially designed for small to mid-size businesses.
If This Article Got You Thinking...
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- Ten low-cost things you can do to remove waste and inefficiency, and build a results-driven organization?
- How good systems and processes will help you start, grow, fix or franchise (replicate) your business.
The Next Step...
Many business owners wait too long before facing the brutal facts that their business is in trouble. Then they discover—like a bug in a flushed toilet—it’s nearly impossible to escape the downward spiral.
We begin our business filled with hope and optimism. Before long, forces start into motion to test our grit. Getting sufficient sales and good employees is harder than expected. Bookkeeping and paperwork are burdensome. We face government regulations, slumping economies, cost increases from vendors, customers who pay slow or not at all, cash flow headaches, growing tax bites, unproductive workers, stiff competition, obsolete inventory, and constant customer demand for new and better products. (It wears me about just thinking about it.)
However, this is the profession we chose; the above challenges come with the territory. So, we suck it up, we adapt, we improve, and we work diligently to overcome the unrelenting forces trying to put us out of business.
Furthermore, not all problems we encounter are equal. Some have the power to kill our business if we fail to remedy those threats without delay. Our survival depends upon it!
Below are ten business killers that, if not addressed, can bring about the big flush and send your business spinning out of control and down the proverbial drain.
- Killer #1 Low Market Demand – Your business and revenue model break down quickly when people aren’t much interested in buying your products or services. Perhaps your offering doesn’t solve problems or reduce pain as well as expected. Maybe it is getting old or outdated, running out of steam. Your message could be unappealing and doesn’t attract interest. Customers may be staying away because you don’t have a great reputation for delivering on your promise. Whatever it is, without sufficient product demand, you really don’t have a business.
Blockbuster Video recently closed their last store—demand for rented movies moved to Netflix and digital delivery. Question: What is causing the lack of demand for your product or service, and can you fix it?
- Killer #2 Hard to Reach Target Market – Are you having difficulty finding an easy and cost-effective way to get your message in front of your ideal customers. Maybe they don’t have obvious hangouts for you to find them, or there isn’t an easy way for them to find you. Do you have a bad physical location? Are you not being easily found on the Internet? Could too much competitive noise be drowning out your message? Is your reach to prospective customers about as effective as a billboard in the desert?
Business philosopher Jim Rohn teaches how to be a master communicator: "First, have something good to say. Second, say it well. And third, say it often." I repeat: Do you have a clear and cost-effective channel to deliver your message often to large numbers of people in your target market? If not, can you fix it?
- Killer #3 Superior Competition – Your potential customers are always looking for the best deal, not necessarily the lowest price. If your competitors are bigger, better located, have superior products or services, provide better customer care, shorter lead times, more knowledgeable sales people, and so forth, you will lose business. It’s hard to get customers to beat down the door if you are second best, unless you do it like Avis Car Rental.
“The phrase ‘We Try Harder’ has gone down in advertising history as one of the longest-lasting and respected taglines. The origination of the slogan was not to create a cute, gimmick, but instead it was— and is—a business philosophy that every Avis employee holds true. ‘We Try Harder’ has helped Avis earn a reputation as one of the most admired businesses in the world.’”
You don’t have to be the biggest, but you must strive to make your business so good that people would be crazy to buy from anyone else. What can you do to inspire this kind of loyalty?
- Killer #4 Undifferentiated Strategy – In this day and age you have to stand out like “purple cow in a field of brown cows” (Seth Godin). You constantly have to promote your unique selling proposition (USP)—your main selling advantage. Perhaps you can be better, faster or cheaper than your competition, or you can provide “killer customer care.”
What makes some of the big boys stand out: UPS (logistics), COSTCO (value), Amazon (convenience/ease), Coldstone Ice Cream (quality) or Wal-Mart (low price). What compels you buy from specific stores in your area? Follow the successful strategies of others.
You must have some way of doing business that makes the customer remember their experience, feel that WOW thing, and tell their friends. If you are like everybody else, then it is only luck that that determines your sales. What makes your business strategy —your game plan— a winner? Can you adjust your strategy to dominate a niche market?
Cash Flow and Profit Killers
- Killer #5 Not Managing by the Numbers – If you aren’t sure how well your company is performing or why you are losing money, you have a serious problem. It is critical that you understand your leading and lagging indicators, the numbers that tell you where to focus your business improvement efforts. Maybe you are in denial about what the numbers reveal; if so, the longer you wait, the worse things get and the harder it is to recover. If necessary, find a financial person to help you understand what your numbers are trying to tell you.
In 1891, a British scientist named William Thompson, also known as Lord Kelvin, said, “When you can measure what you are speaking about, and express it in numbers, you know something about it. But when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.”
Are you aware of numerical clues that expose the problem areas of your business operation? When you find the under-performing systems or processes that are causing those numbers, can you fix them?
- Killer #6 Inadequate Margins – There are very few problems in an established business that can’t be solved with good margins—gross margin, operating margin, and net profit margin. Avoid the temptation to be the lowest price in town unless you have a legitimate cost advantage or operate on a very high-volume business model. Instead, focus on giving your customers the best overall value and buying experience.
To improve margins, you have to raise your prices, reduce the cost of your products and services, and/or lower your overhead expenses. Which solution is best for you to increase your margins? Without adequate margins, you’re just working hard for the fun of it.
- Killer #7 Insufficient Working Capital – If not remedied, cash flow cancer is a deadly disease that will eventually kill any business. You have to have enough money to buy goods, cover payroll, and meet your monthly financial obligations. Borrowing money to do this is a bad idea if you have not resolved the underlying business killers discussed above. However, borrowing can be OK to support growth when you have good profit margins. As you dig out of a cash hole, consider the tips in this article, “A Business System When the Wolf is At the Door.”
Caution: Beware of excessive inventory and accounts receivable that suck cash and make you feel poor even when you are earning a nice profit. Do you know where all your profit has gone? What can you do to move more of it into working capital? If you have little or no profit, you better focus on lack of sales and/or insufficient margins—PRONTO!
Business Operations Killers
- Killer #8 Lack of Innovation – If you are not coming up with new ideas for improved products or services, and for better systems and processes to run your business, you will be left behind. Your company will become stale, undifferentiated in your target market, and ho-hum boring. Competitors that are innovating will surge ahead. Innovation is essential to stay on top.
Business expert, Peter Drucker teaches, “A business has two purposes: marketing and innovation.”
What new things could you do to draw more attention, serve customers better, and create higher quality and more efficient business operations? You have endless opportunities. Make innovation a part of your daily routine.
- Killer #9 Weak Business Systems – Without good business systems and processes, you have a disorganized, seat-of-the pants operation that is frequently in crisis mode (every crisis is a system breakdown). Putting out fires is your daily routine. There is never-ending frustration for customers and employees. It’s time to end the madness. What grade would you give your business systems?
Good systems will increase sales, customer loyalty, advantage over competitors, and profit margins. They are essential to a smooth-running and prosperous enterprise. Every business turnaround I have been involved with required drilling down into the operations to find ineffective systems and processes with excessive mistakes, inefficiency and waste.
In a mature company with adequate product demand, reducing waste is the key to rescuing the business. What core systems in your organization drive its economic engine? What improvements could you quickly make? Where might you turn for help?
- Killer #10 Uninformed or Ineffective Management – Poor management can drag your business down in a hurry. You have to “get the right people on the bus and the wrong people off the bus” (Jim Collins, “Good to Great”).
You need people who are Systems Thinkers (a learned skill) and results-oriented who can help you create a culture of excellence.
Furthermore, managers must be in-the-know about the challenges your company is facing. Tap into their unique talents and insights. And remember: Good managers get the best possible results with the least amount of resources.
Finally, a frequent cause for business failure is that owners and managers do not create business systems and processes that effectively carry out the mission, strategy and goals of their organization. Do you currently have top-notch people? Are YOU an effective leader?
Turning Your Business Around
When an established business enters hard times, it has a lot more staying power than might be expected. I have seen companies struggle for years before going out of business or turning themselves around. They are able to live off of the good-will they have earned with vendors, customers and employees. They find needed cash from shrinking inventories and accounts receivable. They get support and softened terms from banks and vendors.
Struggling business owners who exhibit high integrity, courage to face the truth about their challenges, and who forge ahead with pig-headed determination, are often able to swim upstream to safety. And everyone will be cheering them on.
However, you can’t just hope for a better day. You must have a game-plan to solve the killer problems we’ve talked about. You have to get real, and get going—AND THE FASTER THE BETTER!
In my experience, most attention should be focused on either of two things, getting more high-margin sales or eliminating inefficiency and waste. Simply put, you have to focus on the right things, drill down into the details of your business systems and processes, identify the weak links, bottlenecks, obstacles and problems, and fix them. (See some examples of this.)
Hiring the right turnaround consultant might be helpful, but it is usually expensive and not always the best solution. Paying out more money that you cannot afford also adds to your burden and risk.
You know your business better than anyone else. Maybe you can do it! Becoming a Systems Thinker and following correct principles is the key. If you do it yourself—with your team— you will be forever stronger from the experience. You will become the master of your own fate.
The Next Step...
Success in any business depends a great deal on how well you manage the details. I like to say the "dollars are in the details." However, many business owners and managers are overwhelmed by the minutiae of daily business life. They haven't discovered where to focus attention to accomplish the most good for the least amount of time, effort and cost.
So, what details in your business operation are most critical to success? The simple answer: those that propel you to achieve your business goals and those that obstruct you from reaching your business goals. Let's focus on the latter.
Most operational details causing frustration and hindering results are not obvious; if they were, you could quickly fix them. So how do you uncover the obstacles, weak links, bottlenecks, waste and delay buried in your daily business processes? More importantly, how can you spend your valuable time solving the most important problems—the ones with the greatest impact on customer satisfaction and your bottom-line profit?
The Root Cause
With business problems, we often tend to focus on symptoms such as excessive product returns or unproductive of employees, and fail to discover the true source of the problem—the "root cause."
By definition, A root cause "is the most basic cause that can reasonably be identified, and that management has control to fix. The fix will prevent (or significantly reduce the likelihood of) the problem’s recurrence" (Mark Paradies, TapRoot).
In a business setting, the job of the Systems Thinker is to drill-down and pinpoint the exact step within a business process that is under-performing and preventing expected results. Drilling-down is like looking through a microscope to examine the details and discover the underlying cause.
Keep in mind, however, that a symptom may have more than one cause. For example, lack of sales conversions from a website (symptom) may be from an overpriced product, a confusing sales message, or too many "hoops" for the customer to jump through in the buying process (causes). In addition, a single cause can create more than one symptom. An untrained worker could cause customer complaints and frustrated co-workers.
Finding the root cause of business problems is a skill that must be mastered by all business owners and managers. Understanding the Theory of Constraints will help you do just that. Once the true cause—the root cause—of a business problem is identified and fixed, all other dependent systems and processes are simultaneously improved.
Vital Few vs Trivial Many
When picking business improvement projects, it is important to prioritize and focus efforts where they will do the best good and help you achieve fast results. A few targeted improvements can be leveraged to create significant benefits to your organization.
In their book, "Six Sigma for Dummies," the authors write:
"The law of the 'vital few versus the trivial many' comes from the work of early 20th century Italian sociologist and economist Vilfredo Pareto. You may also know his law as the 80-20 Rule, where twenty percent of the inputs in any system account for eighty percent of the influence on that system.
"Pareto determined mathematically that, while a great number of factors are connected to a given outcome, only a few carry the weight to change that outcome in a significant way. In a business, system, or process, a few key variables are the cause of most performance problems. When you look for leverage in business, you search for the minority of variables that provide the majority of power in solving problems in manufacturing, assembly, distribution, accounting, finance, customer service and so on.
"There are more factors, contingencies, and dynamics to manage than possible when trying to break through to new levels of performance and success. The natural tendency is to try and manage and control every detail, but this is a slippery slope. The trivial many will bury you in a pile of unnecessary cost, trouble, worries, wasted energy and valueless action. No one, and no company, has the luxury or reason to manage all the details. Instead, the right path is to manage only those that are critical to producing the outcomes you desire. Focus on the inputs that really matter. All the rest, leave alone unless they become significant" (Craig Gygi, Neil DeCarlo, Bruce Williams, 39).
Getting to Work
Focus on the vital few details that will give you the biggest bang for your buck. What systems and processes can you improve that will help you reach company goals? What can you fix to eliminate road blocks, waste and inefficiency? What improvements will provide the largest financial payoff? How can you reduce frustration for customers or employees? What tweaks can you make quickly and inexpensively?
Once you pinpoint the vital few areas to focus on—your priorities—the best way to drill down to the root cause is by asking the right questions to the right people—a 5-Whys Analysis.
And please don't forget, The Box Theory™ Way—software and methodology—is also the best tool around to help you identify the root cause of problems and elevate your business systems and processes for high-performance results.
The Next Step...
Every businessperson with a vision of where they are going, and specific goals to get there, will face obstacles or barriers that hinder them from achieving success. Frequently, when confronted with solving problems or making improvements, business owners or managers feel overwhelmed. They lack the time, money, or resources to correct the problems they are experiencing. They often feel like their hands are tied and don't know where to begin.
You can start by confronting the brutal facts about your business operations—the problems that are staring you in the face. For example: from customer or employee complaints, discouraging financial or performance reports, or just plain gut-level frustration, you have a general idea of your weaknesses and challenges. As discussed earlier, these symptoms are the result of unhealthy and under-performing systems.
In 1984, Dr. Eliyahu M. Goldratt, in his book The Goal, introduced the Theory of Constraints (TOC) as a management philosophy based upon the application of logic and scientific principles to help organizations achieve their goals. The principles of TOC will provide you the shortest distance between two points—where you currently are, and where you want to go.
Theory of Constraints (TOC)
The Theory of Constraints is based upon the assertion that: “Every real system, such as a business, must have within it at least one constraint (limiting factor). If this were not the case then the system could produce unlimited amounts of whatever it was striving for, profit in the case of a business . . ." (Dr. Eli Goldratt).
In other words, every business operation has something inhibiting it from reaching its full potential. Some condition exists that limits sales or production output. This limit or constraint determines the maximum capacity of the system. By removing or improving the single constraint, the system is elevated to a higher level of performance.
Below are six types of constraints that can hold back an organization. The solution to your problems can be found in any or all of them; some may overlap.
- A Logical Constraint - Faulty thinking or assumptions can block success (e.g., believing people are the problem when ineffective systems—hiring, training, and so forth—are the real problem).
- A Process Constraint – The output of work processes is reduced by a weak-link or bottleneck in the process (e.g., work piled up in an in-basket; inventory waiting to be processed).
- A Physical Constraint – Physical components of a process often have limitations (e.g., capacity of a machine; available space or time; capability of a person; physical obstacles such as clutter or travel distance, and so forth).
- A Self-inflicted Constraint – A company's culture, rules, or policies can have a detrimental effect on results (e.g., lack of accountability, not hiring older people; sticking with the "sacred cows" of work practices).
- A Personal Constraint – Personal traits of an owner or manager can hinder performance (e.g., disorganization, procrastination, perfectionism, indecision, fear, incompetence, lack of time, or failure to face problems. Do you have any beliefs or behaviors that are holding back your business?)
- An External/Market Constraint – Obstacles can exist that you have no control over (e.g., market size; customer attitudes; competition; the economy). You can often adapt to these these external constraints over time by adjusting your business strategy.
As with a medical diagnosis, the symptoms of a business problem don't always point directly to the cause of the problem. In fact, most of the time, the problems you experience are not the real constraint. Just as a cough is only a symptom of an unhealthy system within the body, the pain or frustration you feel about your business may only be the effect of a deeper problem. Physical constraints are more apparent than logic constraints.
Consider this: While there can be a variety of problems within a system, only one step of the process at a time is the constraint on the whole system—the weak link and true cause of restricted output.
You can only improve the results or output of that system by eliminating the weak link or elevating its performance. Time, effort and money spent to strengthen the other links in the chain—the other steps in the process—will not improve the system output. The weak link governs the performance of the entire system!
(Answers: Step 4; 14 per hour)
Once you have strengthened or elevated the weak link, another link or step in the process becomes the weakest and may deserve your attention. Thus, by always focusing efforts on the weakest part of the system, you get the maximum benefit from your business improvement efforts.
Because only a few core systems drive your business results, and each has just one constraint at a time, you can now focus your energy on the few problems that really matter the most. Improve, grow, stabilize, and then tackle a new constraint. Watch your business take off!
Theory of Constraints: Performance = Full Potential – Constraints
The Theory of Constraints assumes that a system has a single productivity goal. The challenge is to increase the output, or "throughput" of the system by managing the constraint that blocks your ability to reach the goal.
For example, the throughput of a marketing and sales process is measured by the dollar value of orders written. The throughput of a production system is the dollar value of products shipped. For a business system as a whole, the measurement of throughput is the cash collected from the sale of its products or services.
Many company owners mistakenly think they need to optimize all of their business systems and processes (logic constraint). They often measure individual processes and reward performance independent of overall business results.
Surprisingly, the improvements of quality or efficiency, as important as they are, do not always lead to a corresponding improvement in throughput. In fact, an optimized system can create a negative effect on the next system by overwhelming it with inputs.
Improving any but the weakest step within a process creates excess output that piles up in front of the weak step, often called a bottleneck. Bad things happen when work piles up, when you overfeed a process. Don't create any more inventory or work-in-process than is necessary to maximize throughput!
Remember: The key is not just to eliminate the bottleneck of a particular system, but to elevate any system in the chain that constrains the throughput of the entire business. All of your core business systems must work in synchronization to achieve the best result. While efficiency and cost cutting are important, the best measurement of real improvement is increased throughput—revenue and profit.
In my experience with small businesses, insufficient sales are usually the major constraint on the throughput of the business. No matter how efficient the operation, without a steady flow of sales into the pipeline, the output is always disappointing.
By the way, your cost of goods plus overhead expenses create a monthly sales break-even point for your business. Throughput should cover those costs as early in the month as possible. You only make a profit on orders shipped after you reach the break-even point!
TOC in Action
Kid's Korner manufactures and distributes a unique line of children's furniture and accessories through five retail stores located in shopping malls. Owners want to double annual sales from three to six million dollars without the cost of adding more stores. They also want to preserve the margin in their product by staying in the retail market. They decide to put their resources into Internet marketing.
The first constraint the owners face is that not enough people visit their sorry website. They hire a person skilled at search engine optimization (SEO) and Google Adwords to improve online traffic. With more people coming to the site, their constraint is now the low percentage of visitors who become paying customers.
The owners hire a professional copywriter to improve their message and add an irresistible offer of free shipping. To their surprise and excitement, product sales start to take off! Sales throughput, however, does not increase as expected. They soon discover the next constraint, their inability to fulfill all of the orders on a timely basis. They add a person to the shipping department, and the problem is solved; throughput goes up.
The results from the website continue to exceed the owner's expectations, but now they can't keep all of their products in stock—a new constraint to overcome. For example, they have a line of lamps that come in twelve different styles. Production is hampered because they have to break down and set up the production line for each style.
A review of sales data shows that four lamp models account for 75% of their lamp revenue (see Pareto Principle). They make a difficult decision to trim the models to four. A miracle occurs! While they lose a few sales, production is much more efficient and the throughput on lamps dramatically increases—overall business throughput also jumps.
Lamp production has improved enough that sales again become the constraint for this item. The owners decide to take advantage of the productivity and warehouse the excess inventory. This proves to be a costly decision. It ties up needed cash. Demand drops drastically on one of the stocked lamps, and a production flaw, not caught during the inventory buildup, causes a significant amount of rejects and waste.
The owners revise their strategy and begin to pace lamp production with sales—no inventory buildup of potentially obsolete items, no cash sitting on shelves, no hidden production flaws. They discover that more profit is made when sales and production flow through an evenly paced system.
By applying the Theory of Constraints, the owners focused on the critical systems that would increase throughput and help them reach their six million dollar goal. While you may have a different business model, these principles also pertain to your company.
Now, go find the contraints—weaklinks, bottlenecks, obstacles—that are hindering the throughput of your business! (Check out the "Elevating Constraints" section to learn five ways to eliminate bottlenecks.)
The Next Step...
With some people (like owners and managers), everything seems to be urgent, pressing, dire, critical, serious, or top-priority. With others—employees who are laid-back, casual, carefree, lackadaisical, or even unconcerned—nothing is urgent.
In business, a general sense of urgency is a good thing, but it usually doesn’t happen automatically.
My mother recently fell and broke her pelvic bone. She is recovering in a rehab facility. Never-ending patient demands at the care center keep the staff on-the-run all day long. Urgency, and the resulting productivity, is built into the culture. The business owner just smiles as he watches people scurry around getting their work done.
You may not be so lucky. Most owners and managers have to be more creative to infuse their company culture with a sense of urgency. If done successfully, however, the payoff includes motivated employees, happy customers, lower costs, and greater profit.
An Example of Urgency
When I was a young man going to college, I worked for a company that had a “hot product.” We were three weeks behind in production and shipping. Customers were constantly calling to have us trace their order, thinking it must be lost. A picture hung on the wall with a chimpanzee dressed as a shipping clerk. To a customer over the telephone, the chimp declared, “Trace it! We haven’t even shipped it yet.” That was our story.
Every shipment was urgent to prevent orders from being canceled. One day, I decided to pack an extra twenty cases of product and process a few more orders after my regular shift was over. It took me another twenty minutes. Continuing each day, I packed an additional hundred cases in the week and about 450 cases in the month. My shipping buddy decided to join in, and we completed nearly a thousand extra cases in the month for our employer. It was urgency that drove us to it. (And truthfully, we wanted to avoid being yelled at by angry customers or a grumpy-pants boss.)
Bad Urgency vs. Good Urgency
Urgency that comes from “putting out fires” is not good. It is the result of poor planning and execution of business operations. This kind of urgency is very stressful and a real downer for everyone.
However, when the energy is properly harnessed, urgency can elevate business performance and produce amazing results (motivated employees, happy customers, lower costs, and greater profit).
Simply put, urgency will increase productivity and accelerate the sale of goods and services. Employees are motivated by a sense of accomplishment (and sometimes incentive pay). Customers love to receive products fast. Higher sales-throughput enables a company to reach its break-even point earlier in the month, and that sends profits soaring. Everyone wins!
Dos and Don’ts
Before you try to introduce urgency into your business operation, keep in mind there is a RIGHT WAY and a WRONG WAY to go about it.
Here are three things you don’t want to do to add the element of urgency:
- Don’t set goals to motivate people that are unrealistic. Goals that are too hard to reach kill motivation and cause resentment (especially when there is a financial incentive involved).
- Don’t skip steps in a proven business process. Skipping steps such as a preparation step or a quality-control step for the sake of urgency will create problems that nullify any gains.
- Don’t turn up the speed on the conveyor belt. People can only work so fast and still maintain quality. Efficiency is better achieved by eliminating speed bumps and system busters than by pushing people beyond a reasonable work pace.
Now, here are four legitimate things you can do to create a sense of urgency:
- Let customer expectations drive the urgency. Tell customers you have next-day shipping or one-week lead time, or a specified completion date. Employees will do what it takes to fulfill the company promise.
- Set daily, weekly and/or monthly goals. Speed and urgency naturally increase as people get closer to a deadline. For example, employee productivity accelerates to meet a shipping goal by the end of the week (e.g., number of boxes, orders, or dollars). It is a good idea to post results and hold people accountable for achieving the stated goal.
- Create financial or other incentives. Self-interest is highly motivating for most people. A good incentive system—financial or otherwise—will lift employees, speed processes, and drive down unit costs.
- Declare an emergency. This infusion of urgency can only be used once in a while and should be substantially true (e.g., you may lose an order). Proclaiming an “emergency” too often is an indication of weak management. Declaring emergencies that are not real is like the boy who cried, “Wolf.” The plea for help will eventually be ignored.
Keep in mind: A high-level of urgency cannot be sustained. People have peaks and valleys of energy and productivity. They can’t stay in top-form all day, every day. You have to accept that. However, you can have higher and longer-lasting peaks and shorter-shallower valleys by adding one or more of the urgency triggers described above.
Where Do You Start?
Infuse the power of urgency into the weakest of your core processes for selling and delivering products and/or services. Watch as surrounding workers and processes catch the fever. Keep an eye out for the physical bottlenecks that may be holding people back, and elevate those constraints.
Oh, and one more thing: Kick your business into high gear fast with Box Theory™ products.
The Next Step...
We can't learn too much about our customers—who they are, where they hang out, how they think, and what they want. Most of us don't have enough customers and would like to get more.
Stating the obvious: Happy customers translate to more sales. Increased sales enable your business to hit the break-even point earlier in the month. After reaching the sales break-even point, profit margins go up dramatically. With more profit, everything gets better, and you have a prosperous enterprise.
Are your customers as happy as they could be? Do you have "killer customer care?"
Four Things Customers Want
Customers all want the same thing—the best deal they can get on products and services. They want high-quality. They want it fast or on time. They want it at a good price. And they want a pleasurable buying experience.
Learn from the Experts
Many lessons have been learned over the years about how to serve customers well. The slideshow below will provide you some great insights. These profound statements are from people who truly understand the principles of customer care:
Sam Walton (Wal-Mart)
Ray Kroc (McDonald's)
J. C. Penny
John F. Kennedy
Your Customer Care System
Keep in mind, the informative statements you are about to read won't help your business one bit unless you incorporate them into a business system or processes. There is no other way!
Review the slideshow. Make notes. Then, go apply some of these principles to elevate your customer-service systems today.
The Next Step...
Starting a new business is both exhilarating and downright scary. Every new business owner has a story to tell about the early days.
When I was a young man, my father sadly passed away of cancer at age forty-on. He had a life-insurance policy of $30,000. My mother felt that he would want my brother and me to have this money for a new business venture we were considering. Craig and I were pretty naïve back then and did not realize how likely it was we would lose it all. Fortunately, our startup manufacturing business landed a big customer and was able to leverage that income to get the ball rolling.
However, Craig and I were not only youthful and naive about the perils of starting a new business, but we were clueless about how to create a fully-functioning and profitable business operation. We jumped in, started making and shipping products, and enjoyed a short honeymoon. Then the harsh day-to-day business realities began to settle in.
The Game of Business
We discovered it was not so easy to keep customers, employees, vendors, bankers and landlords happy all the time. We realized that the more we sold, the more our accounts receivable and inventory grew, keeping us cash-poor. We learned that we needed to make a high-quality product every time and all the time, and that we had to watch every penny in the process. Given the many variables, unexpected costs, and things that can and do go wrong, making a profit turned out to be a tricky proposition. At the end of the month, we took home a meager paycheck and wondered, “Where has all the profit gone?”
Craig and I didn’t understand the importance of creating business systems, or the underlying principles for making them efficient and effective (8 Characteristics of Good Business Systems). We spent our day putting out fires and stumbling around to improve the operation. Eventually, some rudimentary systems emerged, and we began to learn how to play the “game of business” (see Grade Your Business Systems).
As a new enterprise—one that expects to add people, products and processes—you must give attention to creating fundamental business systems and processes such as those described below. Some should be developed before the business rollout, while others can be created and refined during the first year.
- Systems to Acquire New Customers: marketing, lead generation/advertising, sales, website/SEO/social media
- Systems to Get Good Workers and Teams: hiring, training, compensation/incentives, safety, employee policies, performance evaluations/recognition
- Systems to Make and Deliver Products and Services: production, order fulfillment, shipping and receiving, customer service, inventory management
- Systems to Manage Money: accounting, payroll, purchasing, credit/collections, tax/compliance, cash management
- Systems to Support the Above Systems: facilities management, computers (IT), housekeeping, security, maintenance, office management
- Systems to Improve the Business: product/service development, business systems development, business improvement workshops.
Good Business Systems Make All the Difference
Getting off to a good start with effective business systems and processes will produce consistency, confidence, and accelerated sales growth; it will put you on the fast-track to earning your first profit.
New Customers Will Love You Because Good Systems:
- Help you meet and exceed their expectations
- Provide a great buying experience
- Give customers the “best deal”
- Increase consistency, quality, speed and reliability
- Help you become a standout in your target market
(Customers see will you as organized, credible, and professional.)
Employees Will Thank You Because Good Systems:
- Make job expectations clear
- Reduce training and supervision
- Improve productivity, quality, safety and cleanliness
- Elevate job satisfaction
- Reduce employee turnover
(Employees will see you as a great company to work for.)
Your Business Will Reward You Because Good Systems:
- Maximize your income and ROI to make a profit sooner
- Eliminate chronic frustration and excessive costs
- Reduce dependency on people who come and go
- Build long-term value into your business
- Enable you to eventually sell, replicate, or have others run it for you
(Stakeholders will have confidence in your Leadership.)
Don't Do What I Did
Starting and running a new business is high-risk. You have to work on the business as much as you work in the business (Michel Gerber, “E-Myth Revisited”). That means creating effective, efficient and even exceptional business systems and processes.
Don’t do it like I did. Do it right, and right from the beginning.
Quite frankly, the Box Theory™ Way—the methodology and software—is the best tool available for business startups. It will get you organized, develop your Systems Thinking skills, and help you learn the Master Skill for creating growth-producing, customer-pleasing, waste-removing, profit-boosting business systems and processes. And it will pay for itself almost immediately!
Please take a minute and check out the Box Theory™ Products. It may be the most important thing you do today.
And One More Thing: Don’t become one of the dismal statistics that describes the failure of most business startups. Even good business systems and processes won’t save a company with low market demand, insufficient working capital or profit margins, superior competition, an undifferentiated strategy or value proposition, difficulty reaching the target market, or ineffective management. These conditions—if not remedied—can kill a new business, so proceed with caution!
The Next Step...
At the root of all business problems is some form of waste, either defects in products or services, or time-wasting delay. This is what causes customers to go to competitors. This is what raises cost and erodes profit. This is what ultimately drives owners out of business.
Every product, service or transaction-based business has two “factories” running simultaneously according to Jay Arthur, author of Small Business Guide to Six Sigma. The "Main Factory," where you focus most of your energy, produces goods and services for your customers.
The second factory is less noticeable. It is the "Fix-it Factory," which cleans up all the mistakes, rework, defects, breakage, returns, scrap and other problems of the Main Factory. This frustrating underbelly of the business primarily deals with waste and delay. Every business has a Fix-it Factory that requires people and financial resources. You might be surprised by the cost of running your Fix-it Factory!
Waste is Expensive
Most small-business owners do not face the brutal reality of waste in their business. However, experts estimate that the average small business has at least 3% waste (Jay Arthur). Many have more. Some have much more!
For a company with one million dollars in sales, 3% waste amounts to $30,000 in cost. This expense, however, is not paid out of revenue dollars, but is paid out of profit dollars! If the company’s net profit before taxes is expected to be 8%, or $80,000 dollars, 3% waste would reduce the profit to $50,000.
Stated another way, the company has to sell nearly $400,000 more to replace this $30,000 loss in order to achieve the desired profit level. (I don’t want to depress you, but it actually gets worse because there are additional costs in handling the waste.)
Do you realize what I just said? All wasted time and material come directly off the bottom line. In this example, waste of 3% of sales translates to nearly 40% in lost profit!
Mistakes are Prevalent
How often have you purchased a product or service and had something in the transaction go wrong? For the last ten years, I have been telling my wife that it seems like half of our purchases have one problem or another.
For example, several years ago our financial services company was teaching workshops to educate our customers on the development of effective business systems. In putting together our little workshop facility, I had to buy a variety of equipment, furniture and accessories. Here's what happened:
I purchased eight high-back chairs for the lobby that came with the wrong fabric. I had a wall-to-wall counter built that was one-eighth of an inch too long and had to be returned for trimming. Paint came off ceramic candy dishes when removing the price labels. I ordered new blinds for five windows. Four blinds arrived together, but the installer had to make a trip back to install the fifth blind. I bought special narrow conference room tables that came with the wrong style legs. The company graciously remade the tables, but this was particularly annoying because it delayed our kick-off date. In the second batch, one table had a large dent in the top. In addition, the skirting on the tables didn’t stay attached so we removed them altogether. The audio-visual person put the ceiling speakers in a different place than I requested. I didn't make him move them, but it always bugged me.
These common mistakes cost the vendors most or all the profit from my business. However, this is only part of the story. The Fix-it Factory erodes profit in another way. You see, I may never do business with some of these vendors again; they caused me too much pain. Worse yet, I may tell other people of my bad experience. You can see that the overall cost of 3% mistakes is enormous!
Walmart Gets It
Walmart is relentless at cutting waste from their business. For example, they have distribution centers as large as twenty-four football fields, with up to nineteen miles of conveyor belts. Many trucks are simultaneously loaded at the docks and dispatched to regional stores. Now get this! Wal-Mart measures the efficiency of their loading operation by how much space there is between boxes traveling down the conveyor belts. If the boxes are touching each other, the maximum number of boxes can be loaded. The space between the moving boxes is actually “waste” or inefficiency, and it increases the cost of every unit of product on the conveyor. This kind of attention to detail is what makes Wal-Mart so successful.
Waste and mistakes are a common occurrence. Every customer purchase has many choices, options and variables followed by a daunting trail of paperwork and computer processes. Consumer demand for new and improved products and services—change—puts pressure on maintaining quality. The turnover of people in the workforce reduces overall competence. Holy cow, no wonder so many mistakes are made! It’s not surprising that we go around frustrated with employees who we think have messed up, or mumble when customers take their business elsewhere.
Cut Waste to Survive and Prosper
The truth is that times have changed. To survive, the small-business owners of today must accomplish the seemingly impossible. They must squeeze out every possible defect and delay from their business. They must execute operations with exactness. Every part of their business must be systemized to reduce costs and eliminate customer dissatisfaction.
Here’s the deal. You—the business owner—are in control. It is up to you to create a “culture of discipline” (Jim Collins, Good-to-Great) and drive the waste out of your business. If it's not important to you, it won't be important to others. Make it a top priority!
Get started turning your business into a “house of order.” Develop effective business systems that will shut down the Fix-it Factory. Start working on the business and not just in the business (Michael Gerber, E-Myth Revisited). You can do it, and I am going to show you how!
The Next Step...