So far in Double Your Profit in a Year (DP365), we have discussed checking if your business can grow, planning to grow and now we look at executing the profit growth strategy.
If you are thinking “how do I do this” it probably looks like a huge impenetrable forest of issues that has likely caused many before you to give up at this point or adopt a timid “we’ll dip our toe in the water” approach. That means you won’t get very far along the route to the double your profit destination we have in mind. This article will start to turn that forest into steps that you can execute until they become habit and comparatively easy. This is a Yellow Belt (beginner) degree of difficulty.
A Step or Ramp Approach
If you later follow our recommendation to do a reverse engineered Business Plan (see Business Plan article) that started with your destination and worked backwards to where you are now, you will get a reasonable idea of how much you need to sell, and therefore produce. This leads to estimates of the staff, capital and other resources you need.
Small Business; Little Steps
If you are a small business, you have clearer limits on what you can do than a larger business.
With limited staff, you are likely wearing many hats. There is a limit to how much you can do in a day without destroying your quality of life.
Other resources, like money, might be in more limited supply as well.
Many changes are quite “lumpy”. Adding another person in the early days may be literally doubling your staff and the associated costs and supervisory effort can seem very daunting.
The best way for you to consider growing your profit is to think of the plan as a series of steps. You focus all your energy, resources and attention on the next step. Get it implemented and settled down into a routine that you, or preferably, someone else can implement reliably.
That frees you up for the next step; and so on.
All that is going to take you a while but, due to the “flywheel” effect discussed below, things will speed up over time and become easier.
Rather than an impenetrable forest that is rather daunting, you only have to look as far as the next step which is much easier.
Think of it as driving a car across country at night. You know where your destination is and your GPS will make sure you get there no matter what detours you have to take. But, at any point in time on that trip, you can only see a couple of hundred metres ahead by the light from your headlights. The light from your headlights is the same as the steps to executing your plan that we are recommending here.
Larger Business; Ramping Up
If you are a larger business, you will be closer to having specialist staff managing each of the functional elements of the business; production, sales, distribution, accounting, HR and IT etc.
Because you already have a number of staff and other resources, adding another person is not nearly as big an undertaking as it is for your smaller sibling.
Your progress can be thought of more as a ramp than a staircase; and we know less energy is required going up a ramp than a staircase.
Because of your size, you might find a different set of problems to do with motivating and directing a larger group of people.
Jim Collins in his "Good to Great" series of books, refers to the "Flywheel Effect". He uses the analogy of a massive Flywheel that is sitting stationary. We could use this to represent our existing business. Let us assume that its profit is not growing and therefore the Profit Flywheel is stationary.
By judicious application of force and plenty of lubrication on the shaft of the Flywheel we can gradually get it to spin. The most effort is required in these early stages but once the Flywheel begins to spin it can be made to spin faster and faster without doubling the amount of effort each time. And so it is with the DP365 Profit Flywheel!
Like any undertaking, there will be setbacks and other unexpected events. One of the main functions of a flywheel is to smooth out variation in the load it is attached to and provide enough momentum to get the process through the tough spot without losing much momentum.
We will walk you through the Profit Flywheel in a separate groups of articles under the general banner of Profit Flywheel
Below is an example from Jim Collins of a flywheel describing Amazon's business strategy.
There are likely 4 Primary Subsystems that we need to progress in unison to get our Flywheel spinning:
- Dream It: think up the products and methods of obtaining the goal. (innovation and planning)
- Sell It: set up sales for the products that you have dreamed up. (sales & marketing)
- Make/Get It: either manufacture yourself or buy in from a wholesaler the products that you have decided to sell and which your sales team have orders for.
- Ship It: distribute the materials that you have produced to sales orders.
Each of these 4 elements or subsystems of your business need to move along in unison and be ready to lend their shoulders to spinning up the Flywheel.
You may have noticed that we left out any mention of support services such as accounting, HR and IT in the primary systems discussion above. This was intentional. These are support services and contribute little directly to profit - which is the DP365 goal. In fact, they decrease profit by consuming money to provide the service. We refer to them as Secondary Support Subsystems.
In our series of articles about the Theory of Constraints (see TOC articles) we talk about the overwhelming impact that the (usually) one constraint in your business will have on the overall productivity of your business.
We talked about this in our Double Your Profit in 100 Days (DP100) strategy and again we make the same point in our DP365 strategy here.
In a factory, the single constraint is likely (and ideally) to be fixed. You do not want your constraint moving around all over the place because then you must find it the next time.
In DP365, your Top Down Business Plan will identify all the various steps that need to be done and a due date by which they need to be done to keep the profit "train" rolling along.
Because there are several separate and subordinate systems that contribute to your overall profit goal (e.g. distribution, sales, marketing, accounting, HR) each of these systems is likely to have their own constraints. For example, the constraint in your Sales Subsystem is the one thing that governs increasing your sales. They will need to be carefully managed like any other constraint for that subordinate system to perform at its best.
It is pointless to focus on some element of a particular subordinate business system that is not the constraint as that subordinate system will not improve its productivity while the constraint is unattended. For example, there is no point in spending effort on getting more sales leads if the constraint is that you don’t have enough sales people to contact the leads that you already have.
These subordinate system constraints also need to be factored into the overall Business Plan.
We can think of our DP365 destination as the end in a work flow. We begin with what we have now and we have several different subordinate systems or branches (e.g. marketing, sales, production, distribution etc) operating in parallel and converging on the ultimate DP365 destination.
Each of these subordinate branches needs to be optimised in the light of the whole business to avoid wasteful over-production of their particular service. Because it is impossible to foretell the impact of uncertain events, we will inevitably have variation in the output from each of these subordinate branches, even when they are well managed.
As mentioned above, a flywheel starts out stationary. By exerting force on it, it gradually speeds up until it has reached its operating speed.
We take the same approach with the Profit Savvy Profit Flywheel.
It starts out slow while you become more familiar with the growth concepts covered. Then it gradually speeds up as you speed up and have more knowledge and experience behind you. Eventually you are a smooth managerial machine executing your growth process.
Pictorially, we could show this as a nautilus seashell which starts out small and gets bigger as the shell ages.
So Much to Do, So Little Time
If there is one thing very manager of a smaller business unit will agree on it is probably that there is a great deal to do in what little time is available.
When it is your business and money at risk, this ramps up your stress levels as well.
So we need ways to manage all this activity.
Time Management Tools
By the time you get to this point in Profit Savvy, you may well be familiar with our several time management tools and already know how they can save you time and keep you focused on the main issues. If not, we encourage you to read up on these techniques. See Time Management article
Perfection is the Enemy of Speed
The 80/20 Rule (see The Amazing 80/20 Rule tool) teaches us that the last 20% of an activity required to get it operating perfectly will take 80% of the resources.
Therefore, for fastest, and cheapest, progress we should not spend a lot of time perfecting things.
Not only will this save time, it also recognizes that you may have to change direction when something you experiment with on the road to better profit doesn’t work out the way you hoped/expected. Spending a lot of resources on the first pass would then be wasted.
It is much better to move forward quickly and minimally and later come along behind and perfect systems once it seems likely that they will, in fact, be needed.
Agile / Scum / Kanban
Trying to get things done when faced with many time consuming distractions and multiple people in a team is a universal problem. The software industry in particular has developed various quite similar techniques to help overcome this problem and get their software to market much quicker and cheaper. For an introduction to this, read our Agile article
Here is your first piece of homework in this article.
From the above, we suggest there is probably one subsystem in your business that is acting as a brake (constraint) on the business. Until that is found and properly managed your profitability will not improve; no matter what you do in other parts of it.
What is your constraint subsystem?
Each of the 4 subsystems will almost certainly have its own constraint.
What is the main constraint in each of the following;
- Dream It: (Innovation)
- Sell It: (Sales & Marketing)
- Make/Get It:
- Ship It:
Now you have an idea where to start work on your Profit Flywheel.
This has been a Menu of Menu's. It is a very high level discussion on how you might set and achieve the DP365 target.
Inevitably, there will be lots of unexpected turbulence along the route from where you are now to the DP365 goal, but the advantage of having a clear-cut destination, and the confidence at a high level that you can get there, supported by the evidence in your Business Plan means that you can probably take a lot of this turbulence in your stride.
Once your Flywheel reaches a decent speed, its sheer m