Howdy, Nevada. Last month, I was set to discuss the deeper “business value” discussion we founders should have more often than we do. I got hijacked after the first line—by myself. This time, I’ll get to the point, I swear.
When working in a founder silo, we don’t have anyone with whom we can have that chat, and we certainly don’t look in the mirror nearly enough with true objectivity. It’s really scary to see the truth.
As we build organizations, we obviously and fundamentally need to create customer “value.” It’s pretty simple, but if we don’t do it repeatedly and consistently, week in and week out, we’re out of business. Done. We need to keep our eye on the prize, tighten our belts and pay close attention to every aspect of our business. We are often so busy chasing customers and payments that we lose sight of our respective operations and how they affect the business—and, most importantly, the bottom line.
I was asked to launch a new MBA-only course last fall at the University of Nevada, Reno. The topic was to be “value.” I sat down in July—and realized what I’d gotten myself in to. Holy mackerel! I need to create a 16-week course around this?! I’m such a dumbass for saying “yes” to this. These students have had enough of academia, with at least six years of theory—and, often, years in the job world. A severe case of writer’s block set in.
“In theory, theory and practice are the same. In practice, they are not,” said Albert Einstein. I agree. I’m big on practicum for our future leaders.
So in this class, we began looking at what I termed “value components.” We analyzed leadership one week, and how it can positively or negatively affect a company’s value. We also looked at operations and how they can affect organizational value. We looked at human resources, IT and security, sales, marketing, legal and logistics. I asked each student to analyze a company, list the value components in order of importance, and justify their answer.
The No. 1 value for Patagonia, according to a student, was “culture,” with “quality” second. Amazon had “logistics” as its top priority. Coca-Cola had “brand.” It was really interesting to see how varied and diverse the companies are. The students’ observations are subjective, to a point, but they illustrate some fantastic areas of analysis for every founder or CEO.
What are we founders doing when looking into that aforementioned mirror? Are we seeing the truth? We need to take each component of our business and honestly break it down—isolate it. Is each one adding its own value to the org? How? Is it detracting from overall value? How? Are we being as efficient as we can in each component of our company—leadership, sales, marketing, operations, HR, accounting, finance, logistics and so on? If you own a delivery company, are you maximizing your route structure? Think of the UPS’ “No left turns” mantra, saving millions of dollars yearly in gas and time.
When you think about efficiency, ask yourself: Did HR hire the right salesperson? Is the marketing team promoting the correct message and growing the footprint of the company? Are we getting every dollar out of our accounting? Do we have optimum financing, whether reinvestment or lines of credit? Is it helping the company during ebbs and tides?
If you own a restaurant, do you know the top five or 10 meals you sell each day? Do you know which dishes make the most revenue per plate? Those two figures are usually not the same. It’d be great to know exactly how to increase efficiencies and limit waste. It would help you order supplies and maximize operations—only storing and cooking the foods customers really want and buy.
If you are an Uber driver, can you find efficiencies in your one-person operation? The solutions may include choosing the times and routes that create the most frequency and/or the highest pricing, and knowing how to exploit those demand curves. If you are selling clothes on eBay, are you packing and shipping in the most efficient manner?
We can all benefit from taking time to work “on” our companies, instead of “in” them. Breaking down each component of the organization and analyzing it closely can help you create efficiencies that likely result in bottom-line revenue. I’ve had founders tell me that this exercise produced an unforeseen 20 percent revenue increase. That’s real money being left on the table by many of us business owners every month.
There are many different ways to look at and create value efficiencies. Perhaps departments analyze themselves or each other. Let’s find the best way for your organization to honestly and openly put each department or component into focus, and be sure we have the right people doing the right jobs for the right price—the ones who add true value. Redundant or repeatable tasks need to be automated. Difficult customers and vendors need to be eliminated. If you can fire your worst customer and your worst vendor, and replace them with profitable customers and hungry partners or vendors, that’s rather cathartic.