The Importance of Procedures & Systems for Small Business - By Untap Strategy.
Business is tricky, particularly small business. There's a lot of competition because the products and services being offered are, on the surface, very similar - think of all the café's, accountants, personal trainers, and light-industrial workshops out there. In fact, 98% of all businesses in Australia are classified as small businesses, and in America, this figure is above 99%.
So how do these businesses compete?
Broadly speaking, there are two ways for businesses in saturated markets to compete: either by being better (ie. offering more value at a given price), or being cheaper (offering the same value for a lower price). There are two challenges here:
Small businesses may not be prepared for growth.
If a small business has the best product or service, the market will find out fairly quickly, and the business will be swamped with new customers. This is a good thing if the business is prepared.
Low-cost providers have thin profit margins.
If a small business has the cheapest product or service, it will also get some interest from price-sensitive customers. However, the business's margins will be very thin, which results in limited growth because the business cannot reinvest in itself as rapidly.
Any business that doesn't have the best or the cheapest product or service within its niche will not survive long-term, as it will not receive the quantity of customers or be able to justify the margins required to survive.
But wait - I've just said that it's hard to be the best, it's hard to be the cheapest, and that you'll go out of business if you're anything else! Is it even worth being in business? Well, of course it is. The better question is, how does a business get prepared for growth, or lower its cost base so that its margins allow sufficient reinvestment?
The answer to both questions, which you might have gathered from the title, is having excellent processes and procedures. Excellent procedures allow a business to transfer knowledge to other members of the business in a consistent way, meaning that if the procedure is followed, the outcome will almost certainly be the same every time. What does this mean for a small business?
Shared Knowledge
The knowledge of how to deliver quality is now out of the owner's head and in the hands and minds of everyone in the business.
Clear steps to follow
The people in the business have clear steps to follow to deliver the outcome, meaning everything becomes more efficient. This reduces cost and improves quality.
Focus & invest in growth
The owner can devote more time to growing the business and can be certain that the business can manage further growth. Also, lower costs mean higher margins, which can be used for further growth.
Increased business value
The business is more attractive to investors and buyers, as it is now based on systems and processes and no longer reliant on individuals the specific people in the business.
It's pretty clear that implementing strong processes and procedures benefits a small business, regardless of whether it wants to grow or not. But if you're a small business owner, how do you know what to proceduralise first? The first step is getting your main processes down on paper, step by step, so it's clear how your business does what it does.
Once you've done this, the best areas to target are where:
It takes a lot of time to perform the activity
The output of the activity isn't consistent
It’s not part of your team’s core capabilities
A stakeholder (customer, supplier, partner, or staff group) is not satisfied with the outcome
For example, marketing can be an area where all four of the above challenges can be present. Poorly managed and structured marketing campaigns can take a lot of time, with inconsistent output and sub-optimal results. This can lead to wasted time, money, and a negative impact to your brand..
Jason Conway - Untap Strategy
"POORLY MANAGED AND STRUCTURED MARKETING CAMPAIGNS CAN TAKE A LOT OF TIME, WITH INCONSISTENT OUTPUT AND SUB-OPTIMAL RESULTS. THIS CAN LEAD TO WASTED TIME, MONEY, AND A NEGATIVE IMPACT TO YOUR BRAND"
Understanding whether a procedure is needed, and whether your team has the capability to create and execute them, are both critical to ensuring that your business operates as efficiently as possible.
In the above example, you may not have marketing expertise within the business. In this case, you’ll need to outline what marketing activities you need to do, and then engage an expert to perform the work (and potentially write the processes for you!)
There are some situations where it's not worth proceduralisation, but these are few and far between as the business grows in size - the more times an activity is performed, the more valuable the procedures become.
If you're a business owner that's looking to increase margins or become slicker with your business operations, take an hour to map your processes and identify areas that are worth proceduralising. It'll be the highest-value thing you do this week.
Who Wrote This?
We're very grateful to Jason Conway who is the guest author of this amazing blog and this equally amazing E-book! He is the Managing Director of Untap Strategy, a boutique consulting firm that provides services for small business owners and start-ups in Australia and New Zealand.
Untap works with small businesses to identify opportunities to boost their bottom line, whether via reducing costs or increasing revenues.
Jason has a Bachelor of Commerce and Master of Chemical Engineering and has worked as a process engineer and business adviser at a major oil and gas operator. He has advised small businesses and volunteering organisations on business strategy, risk management, and process improvement.