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This is the inaugural post for our “Small Business Book Club” series, where we will share the lessons and tools from business development books that our executive team here at EPW Small Business Law finds beneficial and that may apply to your business as well. Reading a few books together every year helps to strengthen the management team and brings new ideas and frameworks for business development. Below is an overview of the first book we worked through together, Scaling Up: How a Few Companies Make It…and Why the Rest Don’t by Verne Harnish.
Verne Harnish’s book Scaling Up, written along with the team at Gazelles — a company with the mission of “Growing Leaders – Growing Companies” — divides the topic of growing a business into four categories: people, strategy, execution, and cash. According to the author the key to scaling up is the right people, a differentiated strategy, flawless execution, and a good cash cushion. The secondary title of the book is “Mastering the Rockefeller Habits 2.0.” Mr. Harnish created the “Rockefeller Habits” based on the leadership and management principles used by famous businessman John D. Rockefeller.
Thumbing through, the book “breathes well” with an engaging and friendly format, but it is far from a light read — it is quite dense and more like a textbook than a regular book. Material is presented in small steps that point to many worksheets and supplemental book recommendations. Many of the case studies in Scaling Up are about much larger companies than ours, but the lessons and tools are still relevant. We broke the book down into bite-sized pieces and discussed the content chapter-by-chapter in our weekly management meetings. Following are some brief highlights only — a comprehensive review could easily be a big paper for business school!
Here are free online growth tools, many of which are referenced below. Each of the four sections of the book — people, strategy, execution, and cash — is divided into three chapters, as highlighted below. In each of the sections below, we have highlighted quotes that bring forth some simple lessons that apply to a wide spectrum of businesses.
- The Leaders — this chapter presents three brief tools to help clarify and envision relationships, roles, and accountabilities:
- The One-Page Personal Plan
- The Functional Accountability Chart
- The Process Accountability Chart
- The Team — how to attract and hire the right people.
- The Managers — five management practices designed to keep people engaged and productive.
Once a team has learned more about themselves and their roles, mapped their processes, and identified areas for improvement, one of the best ways to organize and execute regular activities is through checklists, according to Scaling Up. At EPW, we find them essential for tracking client work as well as other operations. In The Checklist Manifesto: How to Get Things Right, Dr. Atul Gawande shares how surgeries are much more efficient and successful when people use a simple surgery checklist. The same is true for business operations. Here is our blog post on the book: Making Checklists Sexy? Book Review: “The Checklist Manifesto” by Atul Gawande.
One task, one person: “If more than one person is accountable, then no one is accountable, and that’s when things fall through the cracks.”
Responsibilities matter more than titles: “Jim Collins, in his book How the Mighty Fall, And Why Some Companies Never Give In, shares a key insight he’s discovered when working with executive teams. When he initially asks them to introduce themselves, he finds that executives with good companies tend to share their titles, whereas executives at strong and great companies share what their accountabilities are in a very measurable fashion, e.g., ‘I am accountable for driving revenue in the company.’”
On hiring: “Another central element is the list of candidate competencies that align with your culture and strategy. As experienced leaders discover, it’s more important to hire for this kind of fit than for specific skills, so long as a person has the capacity to learn and grow…”
- The Core — People + Strategy = the Core of a business, or its essential culture in the form of Values, Purpose, & Competencies.
- The 7 Strata of Strategy — this is a framework for excelling within your industry.
- The One-Page Strategic Plan — this includes a variation on the traditional SWOT (strengths, weaknesses, opportunities, and threats) analysis, the SWT (strengths, weaknesses, and trends). While replacing threats with trends may be useful, we found that it is still important to define opportunities, so we took a hybrid approach.
The major emphasis in this section is on developing a clear and “differentiated” strategy – one that any other company in your industry would be challenged to replicate. The authors suggests also that it is crucial to be willing to risk alienating a large segment of potential clients in favor of honing in on “the needs/wants of a small but fanatical group of customers.” If you review our “About the Company” page on our website, you can review our Core Values and Core Purpose that come from this work. Recommending the book Uncommon Service (stay tuned for a future Small Business Book Club post), the authors of Scaling Up indicate that Uncommon Service helps to elucidate ways to “Focus on the 7% of the market that is fanatical about you.”
Your business has a fundamental personality: “Think of your company as a child. If it is less than 5 years old, its Values are still being formed. The Values you listed when you started it may take a few years to take shape fully. Years later, these will be baked in, just as someone’s personality at age 50 is a more hardened version of who he or she was at age 5. Our behaviours, aspirations, knowledge, vocations, and interests may change, but not our foundational personality.”
This section is structured around the 10 Rockefeller Habits, that manifest in three categories:
- Priorities — The executive team is healthy and aligned and everyone is focused on the #1 thing that needs to be accomplished each quarter to move the company forward. Also, reiterating previous sections of the book, individuals are each responsible for their designated goals, core values and purpose are front-and-center, and all employees are aware of and on-board with key elements of the company’s strategy.
- Data — In companies where more than one or many employees provide customer service, employees will actively collect information about obstacles and opportunities in customer service, or for a small or solo business, the company’s principal will collect this data. This data is treated as importantly and collected as regularly as financial data. All employees can quantify their success in a given time frame — weekly or, in our case, at EPW, we track and discuss these results monthly. Finally, the company’s plans and performance are visible to everyone. At EPW, as a virtual team with employees in three different locations, we use Slack to organize our key goals and measurement tools.
- Meeting Rhythm — meetings, with a regularity that makes sense for the team, keep everyone on track.
The authors recommend identifying a quarterly theme to focus the team. We have adopted this practice at EPW and are finding it clarifying and motivating to bring the entire team together on one overall project. Ask the question “What is the single most important thing going on in the business in the next 90 days that we want everyone to be aligned on?”
Keep priorities simple! “Individuals or organizations with too many priorities have no priorities and risk spinning their wheels and accomplishing nothing of significance.”
Talk through your challenges: “Two things have been crucial to humans’ survival. One is pattern recognition, the most important cognitive skill connected to extreme success in any field. The other is hearing. You can hear prey long before you can see, touch, or taste it (or it tastes you!). Hearing stories, information, and even numbers connects more deeply to our pattern-recognition capabilities than staring at Excel spreadsheets. On the flip-side, brain-wave scans show that we need to talk out our problems. When we speak, the prefrontal cortex of our brain — the source of executive and cognitive power — lights up like a Christmas tree.”
- The Cash — ways to improve your cash conversion cycle, including adjusting billing cycles.
- The Accounting — optimizing the “underappreciated accounting function” of your business, so that it is a helpful tool and not a mundane task.
- The Power of One — a case study about the “7 financial levers that every business leader can control to scale up cash.” The 7 levers, with descriptions excerpted directly from the book, are as follows:
- Price: You can increase the price of your goods and services.
- Volume: You can sell more units at the same price.
- Cost of goods sold (COGS)/direct costs: You can reduce the price you pay for your raw materials and direct labor.
- Operating expenses: You can reduce your operating costs.
- Accounts receivable: You can collect from your debtors faster.
- Inventory/work in progress: You can reduce the amount of stock you have on hand.
- Accounts payable: You can slow down the payment of creditors.
Here are the two one-page tools used in this section. Also, we discovered an important book recommendation in this chapter: Greg Crabtree’s Simple Numbers. Stay tuned for a future Small Business Book Club spotlight of this book, which helps to take the mystery out of small business finance.
Beware of recurring overhead charges: “At Catapult Systems, Goodner (a company executive) finds cost savings by sitting down with an accounts payable employee every six months to scrutinize what the company is paying for goods and services. Understanding the expenses, one-time charges, and recurring charges leads to savings opportunities that add up….“Recurring charges are the ones that really kill you,” says Goodner.
Tax advice: “Know how much you owe in taxes throughout the year to avoid the annual tax day surprise.”
The importance of core capital: “Meeting your core capital target means having two months of operating expenses in cash, after you have set aside money to pay your taxes and assuming that you have nothing drawn on your line of credit.”
Scaling Up is a terrific resource that we will refer to in years to come, and the authors point to many other useful books to supplement their work. While there is no guarantee that following all the recommendations in the book will grow your business, the book itself represents a comprehensive checklist of items to get in order to create the foundations for success.
Once these foundations are in place, they may point to other areas, e.g. a more robust marketing strategy, that may need improvement. This is the kind of book that you can look to at different stages and glean more tips, or look back at one of the tools in a new, more informed light as your business progresses. We recommend it for your own small business book club.
Here’s to more efficiencies and growth in our small business and yours!