CHAPTER 5

How

When the idea becomes an opportunity for success, it is time to move carefully. Successful entrepreneurs move at just the right speed. Avoid being impulsive by taking time to go through each step. Move forward without procrastination. Remember that following an organized and systemic approach reduces risk and helps ensure success.

Evaluating Operational Readiness

Being good at what you do does not always translate into understanding all of the factors involved in running a business. You do not have to start by knowing all the answers. Most entrepreneurs do not. Evaluate what you know about your business using an Operational Assessment.

Operational Assessments contain a list of questions about how your business is or will be run. Obviously, if you are starting a new business, you are likely to have many more gaps than someone who has been in business for a while. However, these assessments help identify gaps in businesses of any age. There are a wide variety of assessment questionnaires available. Some are longer than others are. Assessments range from two pages to a hundred pages depending on the size and complexity of the company being assessed.

Use the six page assessment audit found in resources at CapacitySquared.net to begin your assessment. Do the assessment with your leadership team if you have one because your team members may have answers you do not. If you come to a question that is not applicable, then put “N/A.” If you come to a question that you do not know the answer to yet, enter “I/We do not know yet.” Add questions and thoughts the questionnaire raises in the notes section and address those as well.

Review your assessment when completed making note of your gaps. As you move forward, many of these gaps will likely be addressed. Keep your assessment handy updating it as you learn more while moving onward with your business opportunity. You may want to go over your completed assessment with a trusted adviser, leadership peer group, and/ or mentor to gain new insights. Many find reviewing the assessment with others is just as valuable as completing it.

Organization Strategic Planning

Operations is simply put everything you do to run your business. Your organization strategy sets the direction and priorities for your business creating a healthy environment for good decision making. Having a strategy often makes the difference when it comes to growing capacity without chaos and turmoil. Companies that work from a strategic plan often save time and money while avoiding frustration.

Small business owners who intentionally and carefully manage their businesses tend to do better than those who do not according to a 2017 study. After looking at 31 empirical studies, researchers Bert George, Richard Walker, and Joost Monster concluded,

Your operations must always strategically support your mission, vision, and values and be in alignment with your end goal. Small businesses that operate from core values inspired by the mission and vision that drive the business operate with more clarity. Grow capacity by slowly implementing the tools necessary to support your strategic direction and priorities.

Strategically run organizations utilize these tools:

KPIs

KPIs measure how well you, your teams, and/or your business achieve your objectives such as reducing errors by 30 percent or increasing revenues by 15 percent. KPI metrics help mobilize your workforce and inspire success. Metrics create targets that clearly define what success looks like.

Roadmap to Success

What entrepreneurs report needing most often is a plan that they can see visually that is flexible and easy to manage. Roadmaps work well because a properly built roadmap holds all your ideas until you are ready to focus on them. Great ideas never get lost. Roadmaps help ensure your ability to grow capacity in an organized manner. Use roadmaps to decide what to focus on now so that you and your team are not fragmented, overloaded, or distracted.

Your roadmap can be built in less than a day most of the time using no technology. This does not mean that technology cannot be used. There are a myriad of software tools available to build and manage your road-map. The steps are exactly the same with or without technology.

Building a Strategic Roadmap

Do this exercise alone or with your team members. Including your team in your Roadmap to Success is a good idea. Your team members may add valuable insights into goals and priorities otherwise missed. Use post-it notes to capture goals and move them from the roadmap to quarterly goals and then to assignments when everyone is in the same room if you are doing the exercise manually. Use any software that allows you to cut and paste shapes if you are doing the exercise online.

Step 1—Brainstorm

Step 2—Prioritize and Estimate

Step 3—Build the Plan

Figure 5.1 Roadmap to Success quarterly goals

Figure 5.2 Roadmap to Success quarterly goals

Figure 5.3 Roadmap to Success resources

Step 4—Fill the Quarter

Step 5—Finish the Plan

Milestone Checkpoints

Milestones are just key points where you stop for review making sure you are still on the right path. Every plan that is carried out in your business for more than three months should have milestone checkpoints. Milestones are useful at the strategic level, the business opportunity level, and the project level. Use these moments as a time to review where you are and at key decisions necessary to move forward.

For any plan to work, you need to know if you are on target. Use milestones to mark checkpoints on your plan schedule. These checkpoints measure metrics such as percentage of completion, revenue growth, customer growth, profit margin, and so on. Long-term strategic plans may require many checkpoints.

Understanding whether you are moving forward as you planned helps to determine whether the plan is working. Milestones provide moments of reflection that help you make adjustments while keeping the end goal in sight. If you do not know whether you are ahead or behind, then you cannot do course corrections. Course corrections are often necessary because the reality of working your plan can be different than you thought it would be in theory. In addition, things change as time goes. Good plans change as well.

Predictable Planning Reviews

Accurately predicting how long it takes to get things done may take some time and experience. This is one of the reasons for writing down plans and promised actions so that deadlines become a part of the company’s historical record. Hold yourself and your team accountable for the predictions. As you start to build a historical record, compare the amount of time you thought it would take to do a task, resolve an issue, or complete a promise against the actual time it took. Your estimates may be off at first but understanding that gives you the information to do better next time. You may soon be surprised by how accurate you become.

Management Periods

Book time for management tasks that must be accomplished in order for your business to be successful. Schedule a meeting with yourself so that others do not book the time you need. These are meetings you make with yourself to get your work done so that working on your business does not start at 5:00 PM when everyone else is finishing up for the day. These self-appointed meetings do not have to be carved in stone. You certainly do not want to miss a big contract because you scheduled budget planning at the only time your client/customer can meet. However, do not make a habit of rescheduling frequently because this time is important to managing your business well.

Agile Status Meetings

Many entrepreneurs start their own businesses because they hate what they refer to as red tape. Red tape includes long business meetings. However, any business with two or more people requires that information be shared in a timely manner. Brief Agile Status Meetings are the answer. These allow you and your team(s) to do micro day/week planning that helps keep your larger plans on track.

Agile Status Meetings may happen daily or weekly depending on the pace of work. Schedule these brief meetings for 15 minutes and stick to your start and end times. Any longer and you are likely getting off track. In the meeting, team members answer the same questions about the day or week at hand.

Answer these questions:

These status questions tell you a great deal. If the answers raise more complicated questions that must be addressed, set a time for that later. Address any delays. Keep a list of issues in the way of success and assign someone to address each making sure to set a deadline for resolution. These brief meetings avoid surprises that cost time and money.

Building Strong Teams

Now that you know you have a product or service the market will support, it is time to consider the right team to make your business a success. The best plans in the world will not succeed without the right team. Team members have the right skills to fit into your team where you need them and are a good match for your work environment.

Ross Perot, founder of Electronic Data Systems (EDS), started his business in his garage and grew it into a successful multinational corporation that was eventually purchased by General Motors. People who worked for EDS were not just expected to be a good fit for their jobs; they were expected to be a good match as well. EDS team members were considered some of the best skilled in their fields. EDS employees were comfortable working in a very formal work environment with a military style hierarchy, and extensive reporting requirements. Workers were expected to work on tight deadlines with the flexibility to quickly shift priorities when required. Candidates had to have great skills to fit and they had to be a match for the culture.

A Fit for Success

Candidates must have or be able to quickly learn the skills to do their job. It does not matter if the job requires great expertise like a doctor or an engineer or less like a person who makes pizza. The right fit looks different depending on the position. Candidates do not always have to arrive with the skills you need. Effective training assists new team members in acquiring the skills necessary to be a good fit. Others may not be a good fit if they have to be trained. Some people need to know more than you do.

For example, if you are not an accountant and you do not love numbers, you may want a bookkeeper and perhaps an accountant that can do the job you do not want to learn. Staying up all night making a mess of it yourself does nobody any good. Your accountant should not need any training. Your account should know more about accounting than you do.

A Match for Your Environment

When employees are the right match, they are happy in their job. They are not just the right fit, but they enjoy the culture, have the right authority, and the work they do interests them. They are happy to come to work each day and do not need much supervision. If you have to be involved in every aspect of your business to be successful, your team is not a good match. Well-matched employees are empowered to own and do their job without you hovering over their shoulders.

Matching avoids:

Culture Contamination

Even among companies who are close competitors, cultures vary widely. Some businesses are more formal and regimented. Others are more casual and creative. Some resources may fit more easily in one environment than they do in the other.

For example, a consulting company whose teams often worked on site for clients was looking to add a software engineer to a remote team. The remote team had been given very little space, so traditional offices were not available and cubes were not a good idea. This is not uncommon for consulting groups who are used to working with what they are given even if it is just a conference room. This group had pulled together working desks in groups of five or six shared randomly. Team members took whatever seat was available when they came out of meetings.

A candidate who was a good fit was given a tour. He seemed concerned and kept asking where he would store his stapler. This was a red flag. Another candidate who fit the need was given the same tour. She seemed comfortable and told a story about working in a similar environment. She was a fit AND a match. She got the job.

It is important to remember though that matching culture is not a code for discrimination. Successful companies in the 21st century consider all resources regardless of race, creed, gender, or sexual orientation. Matches are matches to business environment not physical characteristics or personal lifestyle.

If your teams are too homogeneous, you may be missing out on the benefits of diversity including attracting the right candidates. According to a 2020 Glassdoor D&I (Diversity and Inclusion) Workplace Survey, “More than 3 in 4-employees and job seekers (76 percent) report a diverse workforce is an important factor when evaluating companies and job offers.” (Harris Poll 2020) Even if you must mix things up a bit and your teams get a little uncomfortable during the change, having a wider array of perspectives can be GOOD for the bottom line.

In the 2020 report, Diversity Wins: How Inclusion Matters, researchers at McKinsey and Company studied hundreds of companies for six years. They saw that a few companies were adopting systematic, business-led approaches to diversity, equity, and inclusion (DEI) and named that group “Diversity Winners.” They reported, “Our 2019 analysis finds that companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile—up from 21 percent in 2017 and 15 percent in 2014.” (Dixon-Fyle, Hunt, Dolan, and Prince 2020)

Irreplaceable People Threat

Make a list of all the people in your organization that are irreplaceable. These are the people you think you could not do without. People you think have unique skills or knowledge, who if they left your company you would hurt. This includes you. Make a contingency plan for each position.

Single Source of Failure Threat

These are people who do a job that no one else does. They do it well. They may or may not be considered irreplaceable. However, if these resources were gone, there would be no one else to do their job and that would cause some pain. They may do something simple but having someone else take over that task may mean hours or days of figuring out what to do. Reduce the threat by documenting these tasks. Handing off the task with instructions makes the transition easier saving time and money.

Position Mismatches

Be careful when rewarding your staff with titles. Many small businesses give titles rather than raises when cash is short. The problem with giving titles to staff members that do not accurately describe the work they do is that now you have created a mismatch. You leave no room to bring in other more skilled people later when you need them. If your bookkeeper’s title is CFO, what will you do when you need financial leadership beyond your bookkeeper’s skills? Similarly, if the team member who provides people with access to your business applications is called your CIO and not your Systems Administrator, what will you do when you need a CIO to negotiate contracts, direct implementations and so on.

Giving your team members the right titles helps them move on when the time is right as well. People can get stuck when they have a title on their resume that does not reflect the work actually done. They may not be considered a fit for their next position. Consider the titles you have given your team so far and determine whether the titles and work requirements are a good fit. Check out the Position List in the back of the book if you need help.

Changing a Threat to an Asset

Things happen. People move on to other jobs or leave for a variety of reasons. Make sure that you can move on without your irreplaceable or single source of failure resources because you shifted the threat to an asset:

Planning ahead and taking the steps to mitigate your risks make your business more resilient. Investors and bankers like to know that you are not vulnerable if key resources leave. You need to know that as well.

The Right Role for the Job

Accurate roles go hand-in-hand in helping you build stronger teams. Many small businesses start by hiring friends, acquaintances, and family and then figuring out what they can do. This is backward and often ends up with people in positions for which they are not fully qualified. Even in family businesses where the purpose of the business is to give family members work, it is important to first define the resources you need. Only then, place your family members in the position where they are a fit. By defining the role before you assign work, you create clear expectations.

Roles vary. Before defining a new role in your business, make these decisions:

Employee or Contractor

The benefit of employees is the consistent use of their time and skills. You have staff you can invest in and train building your resources into a reliable team. These resources often expect benefits. In exchange, they work under your supervision; you are in control of their hours and the tools and equipment they are allowed to use. Contractors come and go as agreed using their own equipment and setting their own hours. Often contractors relieve the load during projects that have defined start and end dates that require additional or especially skilled resources or during seasonal increases in business. They tend to supervise themselves and can be let go with no consequences. However, they may not be available at the exact moment you need them because they are free to take work from anyone.

Full-Time or Part-Time

The difference between full- and part-time resources seems obvious at first. Full-time employees have traditionally worked 40 or more hours a week. Part-time workers worked fewer hours in jobs that tended to require fewer skills. Many entrepreneurs now embrace part-time professionals as well. They may be graduate students, parents of young children, or recently retired professionals who are not quite ready to give up working altogether. They come with skills and experience but for personal reasons do not want to work full-time. These professionals meet the needs of small businesses who need professionals on a budget but often demand concessions about where, when, and how they are willing to work.

Fractional Leaders or Executive Suite

Fractional leaders resemble part-time C-suite and senior leadership professionals who provide strategic leadership services to businesses as a contractor not an employee. Look for fractional leaders with the wisdom and experience you need to fill skill and leadership gaps. Fractional leaders provide the right direction as a contracted partner not an employee. While your business may not have the budget or benefit package necessary to attract the right full-time executive today, you may find your budget does allow for just enough fractional guidance to move you forward toward your goals until you do.

Good fractional leaders have at least 15 years of experience with a track record of success. They have strong business networks that could benefit your small business. They tend to be experienced consultants or former executives who are in the middle or near the end of their careers. Some focus primarily on tackling specific problems. The best factional leaders are known as small business advocates and may also do work with programs that support small business. These leaders enjoy working with startups or growth stage companies.

How Does Fractional Leadership Work. Businesses that use fractional leadership have part-time agreements that work in a variety of ways:

Benefits of Fractional Leaders

Consider adding fractional leaders to your team to:

Provide Credibility

One of the most often expressed frustrations among business owners who are looking to grow quickly or win bigger contracts is lack of credibility. Before a client, investor, or banker takes a risk, they want to know the business has a reasonable chance of success. When you offer a business or growth plan that includes executives and key senior leaders in the right positions to guide larger business initiatives, you gain credibility.

Avoid Leadership Gaps

Small business owners can find sudden loss of leadership puts their organization in a precarious place pretty quickly. Finding the right person to serve as a full-time senior leader or executive can take weeks, even months. It is clear to see that one way to avoid leadership gaps is by using fractional leaders as interim leadership until you find just the right person for your permanent executive team.

Create Change and Make Pivots

Sudden emergencies such as pandemics or civil unrest can happen overnight. Changes in regulations or laws can sneak up quickly. The need to stay up with the times is a long-term priority. These are the times when you may find an expert who can help you look objectively at your business, your staff, and your opportunities the most helpful.

Add Scalability

Fractional leaders have already experienced the pitfalls of growth and change. They know how to clear obstacles and prepare in advance for complex challenges. It is clear to see how being able to turn to someone with experience can reduce risks as you grow.

Get a New Perspective

Adding any leaders to your team brings in new perspectives. It is easy to see that because fractional leaders are experienced at developing strategies for success and may have worked in multiple industries; these leaders are often prepared to help small business owners think outside of the box. These leaders often become mentors to business owners and/or members of their leadership team.

Organization Charting

Use an organizational chart like the one that follows (Figure 5.4) to outline your organization today and/or your planned organization tomorrow. Consider using two charts. One for now that identifies all positions needed or filled today and one that shows the positions required as the company grows according to your growth plan. Understanding the resources you need in advance keeps you from hiring people because you like them and not because you need them.

Your chart should look something like the example provided. The titles may be different, but the shape should be very similar. The hierarchy helps show who reports to whom so that there is no confusion among team members.

Figure 5.4 Sample Organizational Chart

Use real job titles in your chart. Some companies enjoy creating job titles that are fun and nontraditional. If your employees, clients, and customers are not going to need to find the right person to speak by asking for a title, there is little harm. Creative naming usually only works in very small organizations.

The benefit of predicting how your team may grow shows the ability to more accurately predict the cost of your operations. When you can predict the cost of your resources, those costs can then be included in your budget projections.

Uncovering Growth Options

Growing capacity means growing your business by expanding into new markets, building new opportunities, and/or improving the way you do business that better control your costs and is effective.

Here are some ways to expand your capacity you may not have considered:

Government Contracting

The United States government invests in small and minority-owned businesses by setting aside a minimum of 3 to 5 percent of all federal contracting opportunities for small, women, minority, and veteran-owned businesses. Many years, the investment is higher. In 2018, the SBA announced, “The federal government exceeded its small business federal contracting goal for the sixth consecutive year, awarding 25.05 percent in federal contract dollars to small businesses totaling $120.8 billion, an increase from the previous fiscal year of nearly $15 billion.” Most states have similar programs. (SBA 2019)

To qualify, businesses are required to undergo a certification process to prove eligibility and then register to bid. Certification and registration can be tedious and time consuming. The SBA provides resources to assist you in determining what certifications may be available to you. The SBA also provides free and low-cost training and guidance for small business owners going through the registration process.

Accelerator and Business Education Programs

Many corporations such as Capital One, Target, and Goldman Sachs set money aside for small business acceleration programs. There are multitudes of free and nearly free programs designed to educate and assist small businesses. Businesses who operate as part of their small business community often access accelerator and incubator programs to help fill in knowledge and skill gaps. Nonprofits that support business acceleration know that business owners are stronger together. These organizations believe that with the right connections and support offer you the opportunity to you grow your capacity.

It is never too soon or too late to invest in support and education. There are programs designed to fit every need. Investments in business education and training increase your credibility and make you more bankable while teaching you new skills that grow capacity. Find the right program for yourself in the list provided at CapacitySquared.net.

Diversity, Equity, and Inclusion

Many corporations reach out to small and diverse businesses with supplier diversity programs similar to government contracting programs in an effort to be more inclusive. These companies pledge a certain dollar amount of the company budget to the certified small veteran, women, and minority-owned businesses that might not otherwise be considered as vendors. Some corporations even pass the DEI requirement on to their larger vendors choosing vendors with their own supplier diversity programs more frequently.

According to the Harvard Business Review, “Some large companies encourage, and in some cases, require their suppliers to create their own diversity initiatives to broaden the impact. For instance, as of 2019, the retailer Target spent $1.4 billion on goods and services provided by first-tier diverse suppliers and influenced its first-tier suppliers to buy over $800,000 worth of offerings from second-tier diverse suppliers.” (Bateman, Barrington, and Date 2020)

Getting access to DEI programs often requires some effort. Most corporations require program registration with a proof of certification similar to the government. Registration processes tend to be tedious and do not guarantee an opportunity. National registration programs attract mid-size organizations looking for small and diverse suppliers giving your company a broader chance at a match but may require paid memberships to be included.

Mergers and Acquisitions

Acquiring a competitor or merging with another small business provides another pathway to rapid growth you might consider. Acquisitions or mergers offer a variety of opportunities you might find attractive. Keep in mind, the transition of two companies into one must be handled carefully. The combination of two cultures, two sets of business processes, and two management styles into one new cohesive unit requires careful preparation.

For small companies, the planning and transition process cannot be taken for granted. When two small businesses come together, it can become quickly apparent that neither has the infrastructure to adequately operate the new larger entity. Change management considerations are even more important. Your larger business will likely need new management to drive new processes and procedures to move information efficiently, make decisions, and deliver on time.

Acquisition Reasons

There are many reasons for considering growth by acquisition or merger. Here are few:

Market Share Expansion

Whatever reason a business owner looks to make an acquisition, the added benefit can be a new list of customers. A loyal customer base is a valuable asset. Of course, making sure the customer base is loyal is the key. The purchase of a troubled company can come with customers who are not willing to trust the new owner and make the transition. Additionally, the purchase of a company that already sold several times may leave customers change weary and disloyal. Success requires careful upfront investigation and proper transition planning to encourage and support customers in making the transition.

Scale Up

Scaling up, to meet growing demands, can be tricky especially in a tight labor market. Finding labor with the necessary skills, onboarding, and training can be time consuming and expensive. You might consider rapidly adding resources in locations where those resources are most needed by merging or acquiring a local business.

In the right circumstances, growing your resources through merger or acquisition can be the answer to meeting a host of opportunities. Consulting and service companies often add to their ranks by buying or merging with competitors or strategic partners with a strong customer base. Not only do they get a new set of potential customers, but they also get skilled resources the customers already trust.

Discount Equipment Acquisition

Adding necessary equipment can be one of the more expensive aspects of rapid growth for your business. For struggling businesses, the equipment may be the most valuable asset on the books. Getting access to the equipment you need through a merger or acquisition often comes with skilled resources who know the equipment. Additionally, you may get the added bonus of new customers as well.

Keep in mind that the used equipment comes with some risk. Find out if a merger or acquisition impacts warranties. If the equipment is new enough to have a warranty, the transition of ownership sometimes voids those agreements. Make sure your attorney reviews all contracts so that you know where you stand.

Supply Chain Flexibility

Sometimes, the answer to your supply chain problems is to own more of the chain. If you cannot get the materials, you need to produce your product because the resources are limited then owning the resources is one way to solve the problem.

For example, a fracking company sporadically needed a lot of sand. Because of the nature of the business, the need for sand was hard to predict. The sand was not easy to store. It needed to be purchased without notice. When they needed sand, they needed it in huge quantities and the need was urgent. They were often delayed waiting for suppliers who gave priority to buyers that were more consistent.

The company solved the problem by purchasing a sandlot. It seemed easy enough; when the fracking company needed the sand, they could get it. When they did not need the sand, they had plenty of buyers for the remainder, which they sold at a discount. The fracking company had never intended to be in the sand business. However, it was the most expedient way to meet a pressing need.

Due Diligence

Before agreeing to merge or acquire another business carefully investigate your target. Understanding why the business is for sale may tell you a bit about the value. You want to know as much as you can about why the owner is choosing to sell and what the true value of the company is today.

A detailed operational assessment audit may reveal information you might miss during negotiations. It pays to understand not just the company financials, but also details about how the other functions important to success are carried out as well. The information you need may be different depending on the business and industry you are targeting. Free checklists are available on the Internet. Take the responsibility to do your research making sure you are getting the value you deserve out of your investment.

Information you should know includes but may not be limited to:

Pro Forma

As you consider an expansion, it is important to understand the difference between pro forma financial reports and those created following generally accepted accounting principles sometimes referred to as Generally Accepted Accounting Principles (GAAP). Pro forma reports often leave out one-time expenses such as formation fees, restructuring costs, and cash real estate purchases. Pro forma reports sometimes help determine a more accurate view of the future by excluding costs that are not likely to recur. However, it pays to view or create pro forma reports with great care including notes about what has been removed so that reviewers agree that the reports are reliable.