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The Theory of Constraints (TOC) is a powerful methodology for improving the performance of small to mid-sized companies. TOC focuses on the most critical limiting factors, or constraints, within business processes. This article will define TOC, explain how to apply it, explore the benefits of the approach, and conclude with a brief practical example. 

TOC Defined 

TOC, developed by Dr. Eliyahu Goldratt, posits that every company has at least one constraint, or bottleneck, that limits its performance relative to its goal. The primary objective of TOC is to identify and alleviate this constraint to improve overall company performance. This approach is particularly beneficial for small to mid-sized enterprises (SMEs), which often face significant constraints due to limited resources. 

Theory of Constraints (TOC): Fact from Fiction, Michael Mkpadi 

5 Steps to Apply TOC

Identify the Constraint

The first step is to pinpoint the most critical constraint in the business process. This could be a physical constraint, such as a bottleneck in production, or a policy constraint, such as inefficient procedures or lack of market demand. Identifying the constraint involves analyzing a company’s holistic workflow processes and determining where delays or inefficiencies occur most frequently.  In most cases, this takes place during a constructive discussion with multiple functional areas represented.

Exploit the Constraint

Once identified, the next step is to make quick improvements to the constraint using existing resources. This might involve streamlining processes, reallocating tasks, or optimizing the use of the constrained resource to maximize its throughput without incurring additional costs.  Lean and Six Sigma tools may be utilized in this step to eliminate waste at the constraint and control the required process changes.

Subordinate Other Processes

Align all other processes to support the needs of the constraint. This means adjusting other parts of the system to ensure they do not hinder the performance of the constraint. For example, if a particular machine is the constraint, ensure that upstream and downstream processes are synchronized to avoid overloading or underutilizing the machine.  This can be the most difficult step to apply due to conflicting needs of different processes.  Holistic measurements need to be applied. 

Elevate the Constraint

If the constraint remains after exploiting and subordinating, consider additional actions to eliminate it. This might involve investing in new equipment, hiring additional staff, or changing operational policies or procedures. The goal is to increase the capacity or efficiency of the constraint until it is no longer the limiting factor.

Repeat the Process

TOC is a continuous improvement cycle. Once a constraint is resolved, the next constraint should be identified and addressed. This ensures ongoing improvement and adaptation to changing business conditions. 

Safety Culture, Theory of Constraints 

The Benefits of TOC  

Increased Throughput 

By focusing on the constraint, businesses can increase their output without proportionally increasing costs. This leads to opportunities for higher sales and profitability. 

Reduced Operating Expenses 

TOC helps in identifying and eliminating inefficiencies, which can reduce operating expenses. This is particularly crucial for SMEs operating on tight budgets. 

Proper Inventory Levels 

Improving the flow of products through the system reduces the need for excess inventory, freeing up capital and reducing storage costs.  TOC can also identify opportunities for increasing availability of fast-moving inventory to avoid stockouts.   

Enhanced Competitive Position 

By improving speed and quality, SMEs can enhance their competitive position in the market, providing better service and faster delivery times to customers. 

Case Study 

TOC in a Manufacturing Facility 

A practical example of TOC in action can be seen in a manufacturing setting. Consider a small manufacturing firm with multiple production stages. By identifying a bottleneck at a specific machine (e.g., a drilling machine with lower capacity than others), the firm can focus on optimizing its use. This might involve scheduling maintenance during off-peak hours, training operators to work more efficiently, or even investing in a second machine if necessary.  

Once this bottleneck is addressed, the firm can then turn its attention to the next constraint, ensuring continuous improvement.  This approach has also been applied to distribution, field service, engineering, project-based companies such as Construction, and other company types. 

In summary, applying TOC to small and mid-sized companies involves a structured approach to identifying and improving constraints, leading to significant improvements in effectiveness and efficiency, overall cost reduction, and enhanced business performance. 

In the wonderful world of supply chains, there is a phenomenon to watch out for called the Bullwhip Effect. If you have been in business for several years, you likely have encountered it once or twice. It’s that funky time when a small consumer demand causes ripples at the retail end, and when it gets to your suppliers and manufacturers, it’s a full-blown demand hurricane! It’s almost like a flick of a bullwhip’s handle causing an epic crack, hence the name. The phenomenon leads to inventory chaos and resource management headaches. In this article, we will learn more about the Bullwhip Effect and how to prevent it.  

So, let’s start by defining the Bullwhip Effect more clearly. In simple terms, it means upstream demand amplification. It’s where small fluctuations in consumer demand lead to large fluctuations in inventory levels. These fluctuations cause imbalances as you move up the supply chain. It’s basically when retailers, wholesalers, and manufacturers in your supply chain overreact to changes in customer demand. When this happens, it leads to excessive inventory because the retailer may have ordered more products than they needed in response to the perceived fluctuations in demand. Now, the wholesalers must carry excess inventory, and the pattern continues up the supply chain.  

The Bullwhip Effect also creates supply chain inefficiencies. The manufacturer might increase production to meet the inflated demand signals, only to experience a distinct drop in the actual demand. Costs increase throughout the supply chain due to inefficiency. It costs money to carry the goods and store them, and leads to waste as the product could become obsolete or unsellable. This is especially true for perishable items. 

Let’s look at an example of a fictional store that sells umbrellas. The store experienced a sudden increase in umbrella sales due to an unexpected rainstorm. Your friend saw the spike, and in response, they ordered a large quantity of umbrellas from the wholesaler to ensure they didn’t run out of stock. By the time the order reached the wholesaler, the rainstorm had already passed, and the demand for the umbrella returned to its average level.  

Seeing the large order, the wholesaler assumed that there would be a sustained increase in demand and decided to order more umbrellas from the manufacturer. Now that the manufacturer received this large order, they increased production of the umbrella accordingly. The problem is that the increased production comes just as demand returns to normal. Now, the manufacturer has all the extra umbrellas in their inventory. All of this came from the store’s exaggerated response to a short-term change in their demand. It is the Bullwhip Effect in action. Each step in the supply chain amplified the demand fluctuation, leading to inefficient allocation of resources and ultimately wasted time and increased costs. 

How do we prevent the Bullwhip Effect? Preventing the Bullwhip Effect in the supply chain involves implementing strategies and practices that improve communication, coordination, and ease demand forecasting among supply chain partners. Sharing information with retailers, wholesalers, and manufacturers about inventory levels, sales, and customer feedback can help all parties better understand the actual demand.  

In the umbrella example, all the store owner had to do was communicate with the wholesaler and describe the situation to them. More than likely, the wholesaler would have marked it as a short-term demand spike and stopped the whip from cracking then and there. Analyzing past sales collaboratively with your suppliers can promote this kind of communication and strengthen your forecasting beyond what’s right in front of you.  

Another handy trick is to reduce the lead times. The shorter the lead time, the more you must think about decisions when demand spikes. If the store owner could order 100 new umbrellas on same-day delivery, they likely wouldn’t have overreacted as much. A group order could have also been helpful in avoiding the Bullwhip Effect. The store owner could have combined multiple orders from the wholesaler and filled a more significant, consistent production to minimize disruptions caused by smaller erratic orders. Add a slight wait time until the orders stop coming in and place them all simultaneously.  

 Some industries are more affected by the Bullwhip Effect than others. Fashion, electronics, and seasonal goods are the most volatile industries. You never know when the winds of change will hit those markets. For business owners in these industries, do more research to learn how successful companies in your specific industry handle the Bullwhip Effect. Prioritize communicating openly with your suppliers when a demand spike hits. Use technology to your advantage, and if you have historical demand data on your product, use it collaboratively with your supply chain. Implementing these suggestions will help you avoid the pitfalls of the Bullwhip Effect. 

In this digital age, there are new technological developments almost daily. AI has grown to immense proportions already, and it will only grow exponentially in the future. One important technology in this era is blockchain. Blockchain is a decentralized, secure digital ledger where everything is publicly recorded and tamper-proof. As an example, the cryptocurrency Bitcoin, which uses blockchain as a ledger, has swept the nation in recent years.  

Some people have found different uses for the blockchain phenomenon. One of those uses is decentralized autonomous organizations, or DAOs. These are organizations whose decision-making authority is decentralized and self-governing through blockchain technology. This ledger ensures transparency in these DAOs, and those involved can confidently depend on the accuracy and transparency of every transaction within any single block of information in the blockchain. Pretty neat, right? Let’s look at how blockchain can help you with your supply chain in your business.  

Transparency and Traceability 

Transparency and traceability of actions leading to the final product is essential in any multistep business process. Logistics companies especially need to know when and where items are in the process. Even if there is a system in place to track items, some of those items can be accidentally or intentionally manipulated to cover up mistakes made by any party in the supply chain.  

Blockchain is decentralized and records everything publicly. If someone wanted to change a scan, they could not. Each product is assigned a unique digital signature or identifier recorded on the blockchain. The origin of a product would be easy to identify, and counterfeiting goods would be nearly impossible. Blockchain holds all transactions as a part of the blockchain, making fraud very difficult. This control over your supply chain would increase accuracy and authenticity and prevent tampering. 

Efficient Documentation 

An administrative benefit of using blockchain is efficient documentation. Supply chains usually involve numerous documents and paperwork, leading to delays and errors. Blockchain provides digital documentation and intelligent contracts, automating processes and reducing paperwork from all parties. If any parties need a document, it would be publicly available on the blockchain. With the blockchain method, everyone sees everything, and transparency is forced and recorded. Because blockchain is tamper-proof, it facilitates precision in timing. 

Real-time updates are impeccable with blockchain due to its decentralized nature. It allows multiple parties access to real-time, updated information. Everyone in the chain has access to the exact information, materials, or products incoming. This increases coordination, allows for quick decision-making, and improves overall efficiency.  

Blockchain is also great for supplier verification. We have all ordered something and received either the wrong product altogether or a product from a sub-par provider due to outsourcing labor. The blockchain would have where the product came from in its ledger because of the unique identifier. You could adjust, cancel, or order weeks before the product hits your warehouse or customer, improving your reliability and communication from the beginning of the supply chain to the end. If there were ever any malpractices in the supply chain, the documentation would be ever-present and able to be used to pinpoint pain areas. Bottlenecks in the process would be easy to identify as well. Risk management and mitigation also become much easier by having a clear view of the entire process. 

Conclusion 

If you want to invest in yourself and your suppliers to build a more robust supply chain for your bottom line, this could be the solution for you. Keep in mind that while supply chain blockchain is increasing in popularity, it’s still a newer use of the technology and will come with a learning curve. You may need a specialist to accurately implement this technology and to train and educate your suppliers on how the process works.                 

The world is moving towards this technology, and many big players are already using it. Soon, the rest of the world will follow suit as it becomes more widely available. Blockchain Oracle, a third-party service, for example, is an entity that connects blockchains to external systems. It allows the user to create smart contracts. Successfully implementing blockchain for your supply chain will lead to increased profitability because of the accuracy and strong trust between you and your suppliers.  

Understanding Business Development 

What is business development?  

Business development, or Biz Dev, is often defined differently depending on who you ask, leading to some confusion. In essence, Biz Dev involves the acquisition and maintenance of clients to enhance both client and company value by driving revenue growth through various channels. It is the cornerstone that sets everything in motion in any business, from startups to well-established multi-generational companies. 

The Necessity of Business Development 

Is Biz Dev necessary?  

Absolutely. For companies of any size, from startups to billion-dollar enterprises, Biz Dev is crucial to remain relevant and achieve growth. Phil Knight, the founder of Nike, famously said, “Even if you’re on the right track, if you just sit there, you will get run over.” This highlights the importance of continually advancing your business through strategic integrations and innovations. 

Key Elements for Success in Business Development 

What is necessary to be successful in Biz Dev?  

Success in Biz Dev starts with a clear understanding of your company’s identity and offerings. Trust from clients depends heavily on a strong foundational culture. Essential to effective Biz Dev are long-term relationships (LTRs), which help sustain business growth. These relationships, however, can be double-edged swords; while they can lead to referrals and a steady income, they also present risks like potential over-reliance on certain clients. 

Another crucial element is the efficient management of leads. Qualifying leads not only saves time but also increases the efficiency of business development efforts in the long run. Targeting the right prospects where they are most receptive turns Biz Dev activities from a chore into an exciting opportunity. 

Business Development Strategies: Depth vs. Breadth 

Biz Dev Philosophy: Grow tall or grow wide. Is one better than the other?  

In Biz Dev, there is a debate between focusing on deepening current markets or broadening to new ones. Growing “tall” involves exploring new markets or demographics, while growing “wide” might focus on expanding existing client relationships. Effective growth strategies require considering both the financial viability and the ability to maintain high-quality service. 

The Importance of Networking and Follow-Up 

Always be asking, “Who do you know…?”  

Continuous networking and follow-up are paramount in Biz Dev. Understanding who the key decision-makers and gatekeepers are can significantly expedite business processes. Never underestimate the power of respectful interactions with gatekeepers, as they often hold crucial insights into potential business opportunities. Remember, a professional demeanor lays the groundwork for future successes, turning today’s “no” into tomorrow’s “yes.” 

Accountability in Business Development 

Should there be accountability with Biz Dev?  

Accountability is critical in Biz Dev. Setting Key Performance Indicators (KPIs), such as conversion rates, helps measure the effectiveness of business development activities. For instance, after identifying and nurturing leads, the expectation is for a significant number of these to convert into actual business, reflecting the effort and resources invested. 

Clarity and Performance in Business Development 

How do you get clarity in Biz Dev performance?  

To maintain clarity and performance in Biz Dev, daily behavioral commitments aligned with conversion goals are recommended. Regular short meetings, or huddles, help keep teams focused and responsive. Moreover, setting SMART goals—specific, measurable, attainable, relevant, and time-bound—provides a clear roadmap for daily activities and long-term objectives. 

Conclusion: The Essential Role of Business Development 

In summary, business development is a vital function within any company, crucial for securing its future and legacy. Without it, businesses risk stagnation and losing their competitive edge in an ever-evolving market landscape. 

Building healthy relationships with your suppliers is crucial for business. It is especially important for businesses that rely heavily on a steady supply of raw materials or products to operate efficiently and meet customer demands. In this article, we will discuss why and how to improve supplier relationships.  

The Importance of Supplier Relationships 

Understanding and improving supplier relationships is critical for long-term business success.  We will start by discussing the importance of supplier relationships for context. Strong supplier relationships ensure a consistent and reliable supply of raw materials, reducing the risk of production delays or shortages. Good relationships can lead to cost savings through effective negotiations.  

Strengthen Relationships Over Time 

Focus on strengthening supplier relationships over time. Pay your suppliers on time and collaborate with them to develop strategies to make your partnership more efficient. Work together to effectively negotiate bulk purchasing and other cost-saving strategies. Remember that having good relationships with your suppliers can help maintain or improve the quality of materials and products you receive. When suppliers care about you and your company, they will provide better service. Making a connection with your supplier based on mutual respect is key to ensuring their emotional investment in your company.   

Positive Relationships Ensure Quality 

Quality assurance is essential for good business. When your suppliers care about your business, they will work to ensure you are receiving quality products. They will also be motivated to efficiently correct any supply problems or quality issues you encounter. Further, suppliers who are invested in your success will often provide insights into industry trends and innovative solutions that benefit you and your business.   

Supplier Selection Guidelines

Before selecting suppliers with which to work, you must determine the criteria the supplier needs to meet. These criteria could include cost, quality, reliability, and ethical considerations. Be sure that you spend time evaluating each potential supplier. Do your research, gather references, and assess the potential suppliers against your unique criteria.  

Communication is key during the supplier selection process. Speak to potential suppliers plainly about your needs. Actively build the relationship by setting clear expectations up front, including expectations about quality, standards, delivery schedules, and pricing. Do not assume that a supplier’s expectations will line up with yours. Communicate directly with them to ensure they understand what you need and how you need it.  

Regular Communication 

Once you have selected a supplier, maintain regular, open communication with them to discuss performance, address concerns, and share updates. When you have supplier calls or meetings, foster collaboration by involving your supplier in product development and improvement processes. Remember that suppliers often have valuable insights to share. Provide your suppliers with constructive feedback and encourage them to do the same to promote continuous improvement.  

This type of open communication builds trust between you and suppliers. Reliability and consistency in your interactions are also key in building trust. When a problem arises with a supplier, employ conflict resolution tactics ready to ensure a prompt and fair resolution.  

Communicate and Track KPIs 

Define and track key performance indicators (KPIs) for on-time delivery, quality compliance, and cost-effectiveness. Practice creating scorecards to assess and rank supplier performance. Audit and assess supplier performance to identify areas for improvement. Have a way to gather feedback from your suppliers continuously and use it to drive improvements in the relationship and processes. 

Supply Chain Technology 

Using technology is a great way to help build a stronger relationship with your suppliers. Supply chain management software, if utilized correctly, streamlines communication and allows you to track orders and manage inventory. With supply chain management software, you can leverage data analytics to forecast demand, optimize inventory levels, and identify areas of improvement for both you and your suppliers. In addition, E-procurement systems automate and simplify procurement processes.  

Implement Contracts 

Put comprehensive legal contracts into place with each supplier. Your contract should outline all terms and conditions, including dispute resolution mechanisms. Spend time going over contracts with your suppliers to ensure agreement on both sides. Be wary of contracts that are too binding and unable to adapt to the changes in the market. Global events can happen, and you should be able to prepare for and navigate through disruptions caused by them. National disasters and geopolitical changes happen often. You do not want to be caught without the supplies you need. 

Backup Suppliers 

Strong relationships are great, but they cannot resolve all issues. Emergencies or natural disasters can slow or halt your supply. Consider working with multiple suppliers for critical materials or products to reduce reliance on a single source. Being able to call on multiple suppliers is invaluable when supply chain issues arise. Make sure to evaluate the potential risk associated with each supplier and their geographical location. If a natural disaster happened, would it impact all your suppliers? Take questions like this into consideration when choosing backup suppliers. Emergency plans or contingency plans for supply chain disruptions, including a clear process for switching to backup suppliers, can save your company in a challenging time.  

Supplier Relationship for Success

Strengthening supplier relationships is a multifaced effort that involves clear communication, collaboration, risk management, and continuous improvement. Positive supplier relationships help ensure a steady supply and create a mutually beneficial relationship. When you and your supplier have a relationship based on mutual trust and respect, it can lead to cost savings, innovation, and long-term success for your business.    

What are Strategic Objectives? Why are they important? How do you create and communicate them? Strategic objectives are what you want to happen, but they are often not the most pressing or urgent priorities. They are leaders’ ideas of what they would like to happen in various functional areas over the following months and years. These can address Business Development, People, Operations, or Financials. What would you like the organization to accomplish? Where do you see the organization? Where do you see yourself? When clarified, these are all types of objectives that form the basis for current-day activities and priorities. By defining and keeping our strategic objectives visible, we are reminding ourselves why we are up to our necks in alligators in the first place!

The development of strategic objectives starts with the leadership’s mission. Why are we in business? What value do we bring to the market, or are we creating a new market?

How do we measure up to the status quo and the competition? What makes our offerings superior or unique? This idea is typically a founding premise that drives the organization forward.

Our mission must be clear and concise to be useful. Because the organization must understand and embrace it as it grows. However, it is important to note that an organization may pivot along the way. If it does, it needs to redefine its new mission and communicate the reasons and strategies for the pivot. Imagine you are traveling to a destination in several vehicles when, suddenly, the ‘leader’ decides to veer off the path. What is she doing? Where is he going? Why has our route or destination changed? You have been there and know what that is like. There is usually a good reason, but it can be stressful until you hear the explanation. The same goes for your company mission; we must communicate, reiterate, and let everyone know if we are changing something as core as our mission.

Like our mission, our vision is where we see the organization’s future. Taking the caravan example above, what if the leader just said, ‘Follow me!’ and took off? How would the organization react? How efficient would it be to get everyone going in the same direction?

Who might stay behind due to the uncertainty of the outcome? A vision explains the destination, reasons, and measures of success so we know, ‘Are we there yet?’

Measures are another component of our strategic objectives. If our stated objective is to ‘grow our sales revenue,’ how will we know how we are progressing or if it is realistic? Knowing when we reach our objectives is critical to our success.

By identifying a target measure, we can judge our progress and assess our methods towards achieving it.

This practice leads to continually improving our methods and tactics to reach the objective.

Defining our Mission, Vision, and Measures is critical to defining our Strategic Objectives.

Some organizations would also add ‘Values’ to these foundational ideas. What are we willing to do to achieve our objectives? How do we want to operate our enterprise? Who do we want to attract as clients and customers?

Spending some focused effort to identify these pieces will ensure that our resulting objectives are consistent with what we are trying to accomplish, where we are going, how we measure our success, and how we conduct ourselves along the way.

Now, the work of identifying our Strategic Objectives can begin. The importance of identifying, clarifying, and communicating these strategic objectives allows an organization to get beyond its day-to-day activities and results by defining a destination. We have all been busy with the seemingly urgent activities of operating an enterprise. Strategic objectives add important activities and actions to our to-do list.

Establishing visible strategic objectives takes our eyes off the ‘now’ and allows leaders to focus on ‘tomorrow.’ We must communicate these objectives to the organization to have a voice in what is in front of us today. Strategic, by its very nature, means ‘long term.’ Today’s activity can obscure the long-term view of where we are trying to go.

Periodic review and discussion keep these strategic objectives part of our daily focus and activities.

Breaking down these long-term strategic objectives into bite-sized activities helps us take steps toward the future. Typically, strategic objectives are in several action steps toward a result. We can see progress toward our objectives by defining the activities necessary to work toward the end objective. As we define a destination or vision of what we are working to achieve, we also need to identify the route. What can we do or start doing to achieve an objective now to work towards the desired outcome? What do we need to accomplish to achieve a target objective before we get there? Are there interim steps we can take that move in the direction we are going? Think of it as a cross-country road trip. We map our routes, plan our stops, and prepare our vehicles. Do we take a side trip to see the world’s largest ball of string, Wall Drug, or the Corn Palace? We need to make planned progress to arrive at our destination in time.

Assigning these objectives to a ‘Champion’ becomes part of our accountability framework.

During holiday feasts hosted at our house, the Chef often says, ‘Somebody, please get the ‘blank’ out of the refrigerator.’ If I am around and not working on the last task assigned, I will often look at one of our grown children standing around and say, “Please get ‘blank’ out of the refrigerator.” The lesson in this is that if we don’t assign ‘someone’ to be responsible and accountable for achieving an objective or completing an action, we will stand around and look at each other, wondering why we did not get our objectives completed months down the road.

Every action or activity step should have an achievement or completion time frame. Studies have repeatedly shown that many of our ‘goals’ or ‘resolutions’ are seldom achieved. The ones with some common characteristics: Written down and communicated to someone to keep them accountable, contain a measurable progress or result and a ‘when’ they’ll achieve it.

SMART objectives are Specific, Measurable, Attainable, Relevant, and Time-bound goals. Using the SMART acronym for strategic objectives is critical to making them happen.

It is also valid for assigning accountability for seeing that they are progressing and taking necessary steps to achieve these overarching strategies.

In summary, Strategic Objectives drive us toward the future we define. It must be consistent with our mission, vision, values, and measures of success. An excellent strategic objective is a stretch goal. It is complex and challenging. It takes commitment, accountability, and clear evidence of accomplishment. Good strategic objectives help us pick our heads up and look into our future during everyday busyness. While we must handle urgent matters, we don’t have to have strategic objectives. That is unless we want to get somewhere other than where we are today.

First, let’s start with the question, “What does it mean to you to scale your company?”

Scaling could take on different meanings depending on whom you ask and their goals, among other factors. You may hear responses like, “I think scaling is growing the company’s revenue faster.”

As you can imagine, this could mean taking a yearly revenue from $1.4 million to $1.8 million.

To some, that is not truly “scaling your company.”

This critical question clarifies what “scaling the company” truly means. Scaling your company is about growing revenue by at least 2X YOY. For example, your company could generate $1.4 million in annual revenue. Scaling is now going to $2.8 million the following year. This shows why defining what scaling means to you is critical!

Scaling your company takes on a life of its own.

Let’s look at how to scale your company. Think of your business as having two sides. One is predictability; the other is scalability. Let’s start with one who thinks scalability is the right way to go. In most cases, owners have put their life’s savings into starting the company of their dreams. It puts instant pressure on scaling the company. Many owners put so much time, energy, and money into scaling the company from day one. As you can imagine, the challenge is the company not generating revenue and running out of funds within the first two to three years. Without sufficient revenue coming in, the company is now at risk for survival. It may be wise to put about 10% of your mind into scaling the company and the remainder into predictability. Predictability offers the opportunity to scale the company in the future.

Predictability is generating revenue by working in the business short term by making sales and building a support system as the company matures.

One challenge of scaling a company is thinking your product or service will scale by itself. In many cases, the best product or service doesn’t always win. If you research the numerous products or services introduced to the market, many of them have never hit the ground running. Their platform wasn’t practical for scaling or marketing the product or service.

You could have a great product or service idea that flops because it doesn’t have the scalability and marketing support behind it. The product alone won’t take your company to scalability.

A second challenge to scalability is personality.

Personality alone won’t scale your company, either. You can have an extraordinary personality and have the respect of many in the industry and community you serve and never scale your company. The challenge with personality driving scalability is that everything depends on you. What happens when you are no longer involved in the company? What happens when the company gets to a size where you can’t be involved in all the business decisions and customer inquiries to the point that you feel like you are losing control and stress takes over? It is the monster of having a personality that drives your company. The more your company grows, the more it sucks all your energy. I would say that’s not conducive to a good quality of life!

It is why having a great system is one key component to scaling your company. This system should produce results with your great product or service.

However, a great system alone won’t scale your company without a driver. Someone on the leadership team must understand how to drive the system you have in place.

I’m a sports fan and relate a lot of growing companies to sports teams. Greg Popovich, the coach of the San Antonio Spurs NBA team, is a driver and big thinker.

His product is his players and all his support staff. The Spurs haven’t always had the #1 draft picks coming out of college. Indeed, they had good players who just happened to be great game students. What made the Spurs a dynasty in the 80s- early 90s was the system Popovich built and drove day in and day out. Let’s look at the Chicago Bulls. You know the story there. Yes, Phil Jackson is a driver who had arguably coached the best player of all time, but the triangle offense drove the Bulls to be recognized as one of the most successful and recognizable sports dynasties of all time.

Bill Belichick of the New England Patriots NFL football team is another great example of a driver who works within a system. Unless you are a Patriot fan or live in the part of the country, you would be hard-pressed to name 10 of the starting 22-man roster.

Now, ask yourself the following question.

Does Popovich, Jackson, or Belichick have the best personalities within the ranks of professional coaches? I would say not. So, this proves that neither personality nor product alone will scale your company. On the contrary, this proves the system these teams operated with and having the correct driver far outweighs having the best product or service and personality.

Another challenge with scaling a company is celebrating too long. Guard against one huge sale or gain a new vendor that makes your financial goals that year. Drivers expect these things to happen. Therefore, they don’t stay in the “celebration world” too long. They are constantly thinking about how to win another championship the following season.

Drivers never settle. They think multiple titles and legacy, i.e., SCALING THE COMPANY!

Earlier, I referenced “working in the business” in the early stages of a company. Once you get your system in place and have a driver mentality or a driver in the leadership ranks for company support, it’s time to “work on the business.” Often having both simultaneously, this is a timing issue, but scaling is at your fingertips when you do. “Working on the business” is now where you should live!

Finally, let’s discuss leverage and its impact on scaling your company. This is the final piece. #1, don’t try to be a CEO if you’re a good CFO or fantastic COO. You don’t have all the answers! Build a team around you to complement your skill set. Ask yourself how to leverage the right partnerships, vendors, executive team around you, and time. Without understanding how to use leverage, scaling your company becomes more difficult.

Key questions:

Are you spending more time on scalability or predictability?

Are you more product, personality, or system minded?

How do you now scale your company based on where your company is?

What are you going to change knowing what you know now?

Organizations often struggle to successfully implement annual goals that are both useful and meaningful to everyone. Frequently, a company might attempt to create a banner that says something like “2 Million Widgets 20XX” or “Zero Defects,” which employees walk by daily. If you inquire about whether or not an organization is approaching those goals, it is rare for an employee to provide an answer. Therefore, this article strives to develop a high-level framework that can provide a starting point for any organization to establish and implement goals that everyone will understand.

There are, at minimum, four activities that all businesses are accountable for:

1. Cost- This includes both sales and manufacturing GP and net profit, although an organization may choose to define sales as a separate entity.
2. Quality- Quality refers to an organization’s “conformance to customer requirements.” In other words, the total amount of returns, reworks, refunds, etc. that an organization received (‘customer’ can also be defined as an internal next process).
3. Service- A company’s ‘service’ concerns whether or not an organization is meeting the customer’s expectation for delivering on time (‘customer’ can once again be defined as an internal next process as well as an external customer)
4. Safety- Safety can be established as the number of recordables, close calls, etc.

An organization knows how these metrics performed based on the previous year’s measurements. This comparison provides an essential guide for improvement in the upcoming year, which can be broken down into six steps:

STEP 1: Begin the new year by starting at the end. What does the company hope to accomplish by the end of the year? Moreover, it is also crucial to consider the previous year’s achievements. For example, if a company’s revenue was $3.5MM in sales last year, and they want to have a 10% increase, then the company-wide goal is $3.85MM for the upcoming year. However, an organization should also take into consideration any potential sales or large accounts that may come to fruition and adjust accordingly. 

STEP 2: Identify where the sales will come from internally. How many different departments/products make up the key metrics? What was the percent of revenue derived from the previous year?

STEP 3: Each department breaks down the critical metrics that will constitute their individual goals, but in compliance with the overall company goals. Ideally, an organization will understand their performance from last year and derive an improvement metric based on its historical performance.

STEP 4: Further organize these metrics into smaller, more manageable buckets to measure on a short-interval basis (hourly, daily, weekly, monthly, etc.).

STEP 5: Once management is in agreeance and has officially taken ownership, extend to the employees in a simple, logical, and easy to understand format. By doing so, employees can then measure based on an hourly/daily basis.

STEP 6: Develop a reporting process that allows management to see, both daily and weekly, whether or not a company is meeting their goals. This process should also allow management to identify, on a short-interval basis, any variances, and implement steps to prevent a recurrence.

Here’s an example using Acme manufacturing:

Acme manufacturing secured $3.5MM in sales for 2018. They have three different products/divisions that make up the sales. Here’s the breakdown by line:

The company-wide sales (cost) goal is $3.85MM. Additionally, in returns/rework they want a 25% decrease, a 30% decrease in late deliveries, and zero recordables. If we assume that the product mix will stay the same, here are the goals for 2019:

Unfortunately, just putting out an annual number isn’t useful, especially without a plan and more short-term goals to help keep a company on track. However, now that this information is available, and assuming the work remains steady (not seasonal like a lawn chair manufacturer- they would need to breakdown month by month), here would be the monthly goals:

Break it down even further to weekly goals, as seen below:

If a company measures these on a day to week basis, then they can ensure that they hit their annual goals. However, the sales are still a dollar value and, being so, could result in a non-tangible item that employees do not understand. If a company can break that down into individual widgets, then all the key metrics begin to make sense, as identified below (assume line one sells for an average of $250 a piece, line two for $200, and line three for $100):

Thus, a vast, incongruent goal has been broken down into smaller buckets in a way that all employees are capable of understanding. Now, everyone can take part in the process. Likewise, these can be further broken down into hourly expectations for each line. This breakdown identifies, on a short-interval basis, whether a company is on track and can adjust accordingly. By assigning hourly expectations to individual employees, a company has developed a workforce that understands their specific role and contribution to the organization. They fully understand whether they had a “good day” or “bad day” at work and should now be a part of the problem identification process. 

The sales process is the same: the company has a history (hopefully) of the number of calls, visits, presentations, samples, etc. that equate into a sale. If a company understands how many cold calls it takes on average (or the number of calls turned into a deal), and they wish to increase by a specific amount, then they can determine the increase in calls required to obtain its result — the same for the number of mailings, brochures, sales visits, etc.

The next step would be for management to review the metrics on a short-interval basis, to measure previously recorded numbers against these goals (plan, actual, variance), act to prevent a recurrence, and to catch up. 

Remember, this is a high-level approach and does not take into consideration any change in product mix, process improvements, capital equipment purchases, etc. These changes also require further consideration. Regardless, the process itself remains the same. Once a company has taken ownership over this approach, then it will allow for clarity throughout the organization.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

A business plan is a document that spells out the direction the business will take and the actions that will execute the plan.

Creating a business plan is not an arduous effort, the challenge for an SMB/SME owner is to allow the process of the formulation to work as a true creative action.  That may require doing the planning in a different setting than the home office or the business office.

The critical work in putting together a solid business plan is to review the framework of the business model thoroughly with potential investors and other stakeholders so that there are no surprises in the middle of the process. Examples include: is the business a lead or a sub in its business model flow, are the critical roles in the business team formation substantial or do they need additional outside competence to execute the business, etc.   

Some steps are relatively generic when creating a business plan:  Gathering the business team should consist of the key stakeholders in the company, owner, key staff, not necessarily bankers and investors. Drafting and Outline of the business plan, creating the format of the business plan (see Appendix A below). 

Creating the material for each of the segments of the business plan: 

• • Describe the Business Model:

• • Who is the business team: What are their backgrounds and competencies? This information is most of the time required by investors.    

• • • • What are the ownership and the legal formations of the business? And why was it formed in that fashion?   
    • • SWOT – Strength-Weaknesses-Opportunities-Threats  Why is the business going to succeed – Additional analysis for proof of concept; 
    • • Contingency plans for identified challenges, e.g., if growth is more significant than capacity what are the options? 
    • Additional Opportunities

• • Sources of Revenue and the operational costs of providing the products/services:  E.g., personnel costs, contractor vs. full-time employees, how many exempt, how many hourly.  

• • Marketing Plan Overview: What segments will be addressed, what geography.  

• • Operational Plan overview: What will be produced and what will be bought,  where manufactured.   

• • Capital investments needed and how funding will be achieved  

• • Personnel Resources  

• • Future plans for the business: E.g., scaling the facility, move to a larger facility 

• • Attachments: See Appendix A  

• • • Introduction  
  • Executive Summary  

Reviewing the draft business plan with an outside ‘board’:  This does not have to be a formal board,  participants can be senior family members, trusted advisors in the community,  business leaders that have an interest in the success of the company.  The purpose of this review is to get other pairs of eyes and brains to test the business plan from a qualitative perspective.    

The benefits of creating a stable and sound business plan are that the company has a documented way of going forward which can be adjusted as challenges and opportunities change.  It is also a powerful tool to use for financial and operational targets to be measured in budgeting and project planning.   

Appendix A:  

Following is a structure that has the most critical parts for a business plan format:  

1. 1. Introduction 
   2. Executive Summary. The executive summary provides a one-page overview of the business plan.  
   3. What the business is – The Business Model
   4. Who is the business team – What background and capabilities do they bring
   5. What are the ownership and the legal formation of the business
   6. Why is the business going to succeed – Additional analysis for proof of concept;
   7. SWOT – Strength-Weaknesses-Opportunities-Threats
   8. Contingency plans for identified challenges
   9. Additional Opportunities
   10. Sources of Revenue and the operational costs of providing the products/services
   11. Marketing Plan Overview
   12. Operational Plan overview
   13. Capital investments needed and how funding will be achieved
   14. Personnel Resources
   15. Future plans for the business.  

Attachments:  

1. 1. 1. 1. Preliminary Profit & Loss Proforma 
      1. Preliminary Budget

1.  Funding sources:
   1. 1. Loans
   1. 1. LOC
   1. 1. Grants
   1. Owner investment 

While creating a business plan may seem overwhelming, it is critical for the growth and development of a small business in order to operate and obtain loans.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

A business plan outline is an initial overview of what goes into the business plan.

An outline is created as the first draft and is likely a result of a “napkin” discussion or some other non-formal gathering of ideas. There are several methods to do this initial draft; one practical approach is to do a whiteboard capture of the business team’s ideas and thoughts and to write these down in an electronic format so the business plan outline can be formalized into an actual business plan formatted structure.

Other methods include mind mapping, brainstorming, benchmarking, key stakeholder survey, roundtable/round robin dialogue and such.

Before creating a business plan outline, gather information on the following points:

• Focus of the business
• The business team
• Business goals
• Financials
• Why the business should exist
• Analysis of potential success
• Key competitive threats
• Industry trends
• Risk avoidance and challenge management

After gathering your information, organize it into a business plan outline like the one below:

1. Introduction
2. Summary
3. What the business is
4. Who is the business team
5. What is the ownership and the legal formation of the business
6. Why is the business going to succeed – Additional thoughts for proof of concept;
   1. Strength-Weaknesses-Opportunities-Threats
   2. Contingency plans
   3. Additional Opportunities
7. Sources of Revenue and the operational costs of providing the products/services
8. Marketing Plan Overview
9. Operational Plan overview
10. Capital investments needed and how to achieve funding
11. Personnel Resources
12. Future plans for the business.

This list is fairly comprehensive and can be shortened for the first draft. It is essential to make the exercise of business planning a fun and productive activity and not another chore for the management team or the owner.
When working on your business plan format, do not expect to follow the above step sequentially. Business planning is not a linear process meaning it is necessary to initiate many thought processes simultaneously.
Although gathering and organizing the information for your business plan outline may seem daunting, once you get started it can be a fun and enlightening process. Not to mention the benefits that it will bring to your business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

A business plan format is a structured description of what goes into the business plan.

The business plan should present what the business will focus on, who will be on the business team, business goals, financials, reasons why the business should exist, some analysis why the business will be successful and also plans as to how to avoid risks and manage challenges that the business will face.

There are a multitude of variations on how to format a business plan; the challenge is making it easy to read and find information. Especially for banks and potential investors.
If a bank analyst can’t find specific financial information, then the business plan will likely end up the bottom of the work stack.

Following is a structure that has the most critical parts of a business plan format:

1. Introduction

   

2. Executive Summary
   The executive summary provides a one-page overview of the business plan
3. What the business is – The Business Model
4. Who is the business team – What background and capabilities do they bring
5. What is the ownership and the legal formation of the business
6. Why will the business succeed – Additional analysis for proof of concept:
   • SWOT – Strength-Weaknesses-Opportunities-Threats
   • Contingency plans for identified challenges
   • Additional Opportunities
7. Sources of Revenue and the operational costs of providing the products/services
8. Marketing Plan Overview
9. Operational Plan Overview
10. Capital investments needed and plan for achieving it
11. Personnel Resources
12. Future plans for the business
13. Attachments:
    •  Preliminary Profit & Loss Pro Forma
    • Preliminary Budget
    • Funding sources:
      • Loans
    • Regular Bank loans
    • Regulatory by state agencies
      • LOC
      • Grants
    • Public
    • Private
      • Owner investment

This list is fairly comprehensive, so the first drafts may not require all of the above to be considered complete. What is most important is to make the exercise of formatting a business plan fun and productive and not another chore for the management team or the owner.
When creating your business plan, you do not need to follow this format sequentially. Business planning is not a linear process. Meaning many thought processes need to be initiated in parallel. Putting together a business plan format may seem daunting, but the benefits are worth the effort.

Cogent Analytics has experience in creating business plan formats for a multitude of various types of SMB/SME’s.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

When first meeting my clients, I always work with them on visualizing the future they want to achieve. I’ve had some interesting responses ranging from being able to spend more time pursuing personal endeavors to “I’d like my husband to treat my employees and children better.” Another client had a vision to reduce the stress of negotiating a few large contracts every year. I have yet to meet the client that said I want to grow revenue by 10% a year while maintaining 20% net profit margins.

I had a client about two years ago that got herself into a pretty deep hole. Her spending habits far exceeded the businesses ability to generate profits. When I first met her, it was the opinion of my associate that the firm should file for bankruptcy. Accounts payable exceeded last year’s net profits, she had expensive loans requiring weekly payments and a large customer of hers had declared bankruptcy. At first glance, it did appear hopeless, and that bankruptcy was the best option.

Her vision was to be relieved of the constant anxiety of managing to pay the bills. She wanted to retire, have the company provide a good living for her family and herself. She had worked hard for over ten years and was devastated when considering losing it all. So, we put a plan together to achieve her dream.

I worked with this client for about six months. We established a cash management program and began catching up on accounts payables. We substantially shortened the order-to-paid cycle-time and generated approximately $600,000 in cash, instituted a sales program that resulted in obtaining a huge contract, and doubled the revenue per employee by reducing employees and establishing a bonus program.

The point I’m making here is you need a plan to achieve your dreams. You had one when you started your company, and you have probably achieved your original dream. You have run your original plan to fruition. What you most likely haven’t done is refine your vision or establish new goals along with a plan to achieve them.

It’s going to be harder this time around. There are more people involved, more employees, more clients and skills required that you didn’t need when starting out. You probably provide an exceptional product or service and built your business on this foundation. To get to the next level, you need to implement processes and lead employees to continue to provide the exceptional services you provided. Leading and motivating people is not the skill set that got your business off the ground. It’s likely not a skill set you planned to acquire when you started your company. It needs to be in your plan to going forward.

Here’s the catch 22, you’re under stress because what you were doing that worked well and created the successes you have enjoyed is not working as well now. You need to acquire new skills and to develop new habits to reach your new goals, and while it’s your stress levels that are encouraging you to change, they are also making change more difficult.

According to Shana Lebowitz:
“In one experiment, scientists found that stress hormones inhibit activity in the areas of the brain involving goal-directed behavior — but not in areas of the brain involved in habitual behavior. In other words, when you’re under stress, you’re likely to fall back into old patterns instead of changing your behavior to achieve specific goals.”

You need a vision, a plan, and the discipline to stick with the plan to achieve your vision.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: