A guest blog from Rob Ward of Cosmapec
One pressing matter for most start-ups or young firms is the transition from micro, to small, and small to medium. One typical scenario that consumes every start-up business, the difficulty of balancing out the multiple demands of growing sales, whilst servicing existing ones is covered in many articles and blogs, and basically means ‘get more hired help’. We won’t be covering that ground here, but once you have more hired help, where to go from there, and what will constrain you? The answer lies in something written by Ronald Coase, in his 1937 paper The Nature of the Firm. So how does this apply to you?
Theory of firms
The theory of firms starts out from the question of why do firms exist, when individuals could trade each other’s products and services to get things done. In a restaurant, for example, chefs could buy from food-traders, sell their meals to the waiters and then the waiters would sell these on to the diners. The problem is that every transaction in this process comes with a cost of both time and money. An invoice to be prepared, a receipt issued, and cash exchanged, and these transactions multiply enormously as business grows.
Firms, on the other hand, can cut down the transaction points significantly, and thus employees spend their time adding value, or as economists say, being more productive. To do that however, we need to move from craftsmen-style work into a process-based system. At this point, we run straight into the walls that many entrepreneurs were desperately trying to escape from when they started out on their own in the first place: The suffocating corporate processes and procedures that make life a misery for employees in large corporations.
Keep processes to a minimum
A process-based system doesn’t mean piles of well-intentioned corporate policies that serve only to alienate both employees and customers. What it does mean is that once you have employees you need to have processes, it is necessary and unavoidable to minimise those transaction costs. Processes mean that you have some method of making sure your sales people don’t sell twice the capacity of the goods and services team, or the opposite, such that goods pile up in warehouses. This process is called Sales and Operations Planning (S&OP).
Anyone who has been involved in a large company’s S&OP process, will now be heading screaming for the door; it doesn’t have to be like that. If you are Proctor and Gamble, things are complicated, if you’re a small business they aren’t. So the S&OP process might be as simple as reviewing the business plan once a quarter and a weekly meeting to report inventory, hours billed, sales made and expected, and the capability to meet them. It is not onerous, but it is necessary, especially when as a start-up you had this information conveniently between your own two ears, but now the necessary information resides between several different pairs of ears, each with their own viewpoint on what constitutes a successful business outcome.
Join up the dots
Process-thinking is joining up the dots in your new organisation, and making sure the dots, the people, are doing the right thing, at the right time and in the right order. It doesn’t mean lengthy procedures, or a huge administrative burden, it just means that you are well organised enough to make sure that when a sale is made, the service or product is provided and the invoice gets issued. That when you buy supplies someone checks they have arrived in good condition before the invoice gets paid. Because that someone is now someone other than you, and you need to know that they are keeping the customers happy and the finances sound.
Particularly useful tools for this is are checklists. Used by occupations as diverse as airline pilots and surgeons, checklists ensure the necessary processes and procedures are followed. To stay with the restaurant analogy, the start of day checklist could include checking refrigerator temperatures, use by dates of the foodstuff in the kitchen, start-up cleaning, an inventory checks of the food and other ingredients and placing the day’s food orders. Essentially, they break down the process into tasks, and then add the tasks as time and date specific actions against the people responsible for them. It does require discipline and attention to detail, but after all, shouldn’t your customer be entitled to expect this?
Both Hixsons and Cosmapec have extensive experience in developing checklists for business processes, so let us know if we can help.