SPEAKER_01 0:16

Okay, last week was our 200th episode. So welcome to our 201st episode. But over the last 14 weeks, we've been talking about the VERT flywheel pillar, specifically the first pillar in that acronym being value. Of course, VERT stands for Value Engine Reach and Team. And so for here, we're transitioning into talking about Teams. So obviously, value is really around earning your customers, your target customers, willingness to pay to be able to deliver the product and value at your desired price and margin. But engine, sorry, is what actually delivers on that promise consistently at volume and maintains or maybe even expands your profit margin without every single decision coming back to you, being the owner or founder of the business. So that's the big mindset that we're going to mindset shift that we're going to sort of present is that if you have a business that relies you on you as the founder, it probably is an engine problem. And so we're going to talk about a few things today why talented people don't scale without systems. And Michael Gerber, who wrote EMyth, which is a very popular book. I think it was written back in the 80s, which is even before Mina was born, but it still stands the test of time. We're going to talk about, you know, the founder is the hero, so it's being a business that's single point sensitive on just one individual. Not ideal, might might uh be great for the ego potentially. That wanes after a while, I can certainly uh assure you. So you don't want a business that's single point sensitive on really one, any individual, let alone the founder. And what a what a system actually is, because people talk about business systems, but you know, what are the key and core components of that? And also we want to make it really clear that really every core process in your business should have a standard operating procedure. One best way of doing things, which doesn't mean that we do things exactly the way we did them last year or exactly the way we've done them for the last 20 years. We need to interrogate that standard operating procedure, but there really should be one way of doing it. And then finally, we want to talk about how do you actually measure whether your engine is working. So, Mina, let's start with why people, throwing people at the problem isn't necessarily the answer and that really people don't scale. And this is very much in Michael Gerber's emyth space that you know if you're relying on people, people are hard to manage, systems aren't. So let's start there.

SPEAKER_00 2:37

And I think that people equation actually comes first to the owner because to Stuart's point before, if you run if you've got a business that's single point sensitive, I would argue you do not have a business. People get into business for the sake of financial freedom and the ability to actually build wealth. And they might be able to do that as a single point sensitive person, but by not having financial freedom doesn't give you enough value or reward for the work that you're actually doing. And from my perspective, I feel like a lot of businesses or a lot of business owners actually start with the same mistake. They start in an occupation or an industry where they're actually quite good at it. They're skilled operators and they're excellent at the work, but they're not excellent at business. And you know, Stuart already mentioned Michael Gerber and he wrote the book that was actually published in '95, Stuart, not the 80s. So it wasn't well and truly born, the e-myth. And he argued that small businesses are started by what is called the technician. So that's someone who's really good at the technical work, but that you know, that could be, for example, you know, they're really good at giving haircuts or doing a tax return or a renovation or they could be a really good builder and who assumes the expertise alone, but that's not enough to actually run a business. He argues the point that the business also actually needs an entrepreneur, someone who actually sets the direction and the manager who builds the order and process that actually makes that direction repeatable. So without those roles, the technician just ends up doing more of the technical work at a bigger scale with more stress. And the saying working in the business rather than on the business really holds true in those examples because they're just stuck in the business doing the actual work because there's a bottleneck there. There's the bottleneck in that technician or the owner just doing it all and being the solution to every problem that the business faces. So his other useful idea is actually designing your business as if you're actually going to franchise it. So if you're going to franchise it, what you'd have to do is actually document every single system, every single process. And that would allow you to sort of to be shifted away from your business because people actually have a discipline to actually look at what's actually the right way and what success looks like in their role and what the fallback procedure is if something actually fails. So it gives someone the ability to run the business without you. And that's not because you're looking to franchise the business, it's more so just replacing yourself as that technician or owner or that bottleneck. That's the shift of this what this series is all about. Not doing more, but doing better. Building something that doesn't need you to do it all. So, sure, what does that actually cost a business when that shift doesn't happen?

SPEAKER_01 5:02

Well, this segment is an easy sale because I think most people listening would realize the cost of being single point sensitive. If they're the sole point of call for every problem that occurs in their business or for anything that's outside of scope or really just can't take a holiday, that they probably realize what the issue is. Now, in the early days, a a business needs strong leadership. They need an entrepreneur, they need someone to come in and design product systems, processes, all those sorts of things. But it doesn't necessarily mean that all those processes need to live in one person's head, and that's really the biggest mistake. So, yes, I could be a business with one person in it. I'm the only employee, I'm the founder. It doesn't forgive you, mean that you don't need to start building systems. In fact, I would start saying that from day one, your job is to make yourself redundant, to really build systems behind you and then move to the next role, move to the next part of your business, build and document systems all the way through rather than what tends to happen is, you know, the the entrepreneurs kind of finding their feet, they're building a business, they're not really sure the business is going to work, they've got to problem solve, you know, they don't really have a clear idea what the product looks like right from day one. And that's natural. You've got to iterate and you've got to build these things out. And then they get some success, and before they know it, you know, they've built some, acquired some people and put a team around them, but they're this the single point sensitive part, and everything sort of comes back to them. So AMP did some research earlier this year, and really the findings weren't surprising, they're actually kind of scary. So 90% of owners are preoccupied with work outside of business hours, and one in three are thinking of work constantly. So it's something I'd never admit to my wife, and luckily she doesn't listen to this podcast. One in four business owners say that they don't have time for a holiday. That's terrible. I mean, Mina's not one of those people, he's constantly on holidays. 50% are reluctant to take time off work because they're worried about the impact of business. These all come back to engine problems. One in five aren't planning effectively for the future. I think, as a general rule, most business owners, like 95% of business owners, don't think about succession planning until it's probably too late where their timeline, their goals are driving the process, not necessarily what's right for the business. And the research goes on, I probably don't need to talk about it. Worrying about money is a big issue, the sacrifice on personal time. You know, if you've got a young family, that can be quite considerable. And, you know, I don't think anyone that has grown adult children that might be spending more time with grandchildren ever reflects back and thinks, oh gee, I should have spent more time at work when my kids were younger. Before we started this series on the Verp flywheel, Mena and I actually spoke about this back in episode 186, and we called it the holiday test. And that's really the test. Would you feel confident booking a holiday at relatively short notice, let's say in four weeks' time, let's say the holidays for more than two weeks, say for two to four weeks, you know, would you feel confident that your business could survive that short notice and that reasonably long absence without necessarily a lot of communication with you? I'm not saying necessarily one or two phone calls or emails is a problem, particularly if it's such short notice, something like that. But if you can't actually relax, you know, if you if you can't be confident that your business is going to be okay, your clients and customers are going to be looked after, your PL isn't going to suffer because of your absence, then you probably have an engine problem. So, Mina, we're talking about systems and we're using that word, you know, almost interchangeably to explain lots of different sit situations. Let's really talk about what does a system look like? Because I think we need to break it down so that people really understand where they need to, you know, what they need to achieve.

SPEAKER_00 8:50

As a business owner, you often say our systems need to improve or we need better systems. But from my perspective, that's actually quite vague in its approach. It's quite general. It doesn't give you an actual indication of what actually needs to be done and what a system actually should comprise of. And it's one of those sayings that it needs to be actually held to its choice, it needs to be concrete in its approach, it needs to be able to be replicated across the business, and anyone who picks up that system or process or SOP or whatever it is needs to be able to follow it and know what they're doing. So it's not on one person that knows exactly what's in that SOP and how to operate it. So I thought it would be easier just to break a system the system down into really five parts. And the first is what we call the trigger. So this is the specific event that it starts with. So it could be, for example, a new lead to your business. If you're in a service-based business, for example, how is that? How do you approach that? What does that sales representative, for example, need to do with that new lead? It could be an order. How do we fulfill that order? You know, what do we do if there's a problem with that order or a complaint, even? How do we deal with complaints? As we saw I mentioned in uh a couple of podcasts ago. The second one is a defined import. So this is really relies on the informational materials you need before you actually begin. So think of it like an introduction to the system or the SOP. So it gives a clear understanding as to the person actually using it, what they actually got to do with this, why we've got this system or process in place, and how to actually execute it. The next part, I should say, is the steps involved. So this is a sequence anyone competent could actually follow. And it really needs to be sort of done to a laymen's expectations. So, you know, a really step-by-step guide. I find personally in our business, what we tend to do is actually dot points or or numbered dot points for the for team member to actually go through one by one so that nothing gets missed. And a person who's done it can actually do it a hundred times over because they know exactly what the process is. And then what that then does is the fourth is a consistent output. It's the same result within a defined tolerance regardless of who runs it. It outlines who what actually success looks like in that particular process or that particular system. And then finally, it has to be kept alive over time. A lot of what a lot of businesses do or where they fail is they document the system or process and then they archive it, it's in a library somewhere and it's never revisited. As we always say, you're either either growing or you're dying. That same goes with your systems and processes. Unless it's reviewed, unless it's updated and actually followed, then it's always going to fail because there's always going to be something new, something new that comes up that needs to be tweaked or written. I know in our business, what we do is that every every SOP, for example, has an owner. So an owner in in being one of the staff members, they're the ones responsible to constantly update the SOP to ensure that it's actually current and accurate. An example I'd like to sort of use is the World Health Organization's surgical safety checklist. And it's a clean example of what actually a well-designed system does. And it was piloted initially across eight hospitals from 07 to 08, and it gave surgical teams a really short standard sequence of checks before any surgery or operation. And major complications actually fell from 11% to 7%, and inpatient deaths actually fell from 1.5% to 0.8%. Now it might not sound huge, but when you're dealing with people's lives, it's actually a massive, massive thing. So it was actually launched here in Australia in August 09 and it had a huge impact on the way we deliver or surgeons actually delivered their service. I don't really want to call it a service, but it really is. So when it what a checklist actually does, it doesn't actually rely on the most experienced surgeon in the room to remember everything. It gives every person on the team the same trigger, the same steps, and the same expected outputs every single time. And that's what a system is meant to do for your business. Take results currently, take a result that currently depends on one skilled person's memory and judgment. So in this case will be the surgeon, but make it repeatable by anyone who follows that step. So whether you're a junior surgeon or a surgeon that's got 40 years under his about getting the same output. So, Stuart, once you've defined a system like that, how do you actually get people to run it the same way?

SPEAKER_01 12:59

The answer is you've got to separate a process into two different parts. There's going to be a mechanical part of a process and one that requires judgment, and that bit's going to require the training. So the mechanical bit is the easy bit potentially, and Ray Croc built McDonald's exactly on this principle. So his operating manual was 385 pages that specified things that most businesses owners wouldn't even really think about. That beef patties weighed 1.6 ounces, that they were 3.8, 3.875 inches across, that the bun was engineered to be, you know, brown at a specific rate when it was toasted. You know, it was very, very specific. But the point was never really the burger, and nor was it making necessarily the best burger in town. The point was really that if a customer walks into a McDonald's in Melbourne, Sydney, Helsinki, no matter where you are, the product is going to be the same. And remember to build trust, one of the core elements was reliability that I could rely on and know exactly what I'm going to get. And that's still true to today at McDonald's. So for all the parts in your process that are mechanical, you've got to choose one way of doing things, the best way to do things, and be really specific using checklists and very codified scripts or anything that really makes any judgment outside of those mechanical processes removes any of that judgment. So that everything is done exactly the same time, every single time without discretion. Of course, in some processes and in some businesses, and certainly ours, is a perfect example. There's going to be judgment calls. And so that requires the training. So rather than writing a script or coming up with a checklist, I mean you still might have a checklist with judgment calls to make sure people are considering all the factors, but you really need to build out the training with your team members and hiring the right team members that might come with that training or experience. But the big misnomery is that, for example, I can't build a system around, you know, advising a client about buying a business. You know, every single business is different. The purchase price might be different, the industry might be different, the client might have different financial capabilities or different experiences. It's so, so varied. And it goes to Mina's point about talking about surgeons and surgery. That would be exactly the same as well. But you can still build a system and a training process around it by using decision trees, checklists, and training materials to really train around those judgment calls. And look, there's going to be escalation points, you know, where a judgment call can't be made by that particular operator that needs to be escalated to someone maybe with more experience or even a team or even a company board or something like that. So there will be judgment calls that might occur. But what you want to try and do is not systemize every single last thing in your business. Well, that'd be ideal, but it's not possible in every single business. But really, what you want to identify is or systemize is 99% of them. And if you do 99% of them, being a business being single point sensitive or so reliant on one person that is you, the founder, the owner of the business, greatly reduces. And before you know it, you can join MENAR on those very long holidays in Europe. Now, over the coming weeks, we're gonna record more podcasts to really sort of take you through episodes, take you through a process on how do you actually go about doing this in a business. So don't worry if you feel a little bit confused today's episode's really about just setting the scene. So you really understand when we talk about systems and when we talk about a business engine, you can sort of visualize it to some degree in your head. But Mina, once we've gone through a process and we've standardized the mechanical steps and we've trained for the judgmental calls, how do you actually know whether the system is working?

SPEAKER_00 16:38

We always say in our business that you can't manage what you can't see. And the fact is that most business owners can't actually see their own engine. And what most business owners actually end up doing, and I gotta admit, I did this in my early stages of business too, is sometimes just throw more people at the problem and you just trust the fact that people are gonna do the right thing and you're gonna you've hired experienced people and they're gonna know how to problem solve and you know deal with the problems. But the problem is if you don't have the right systems and processes as that what we mentioned earlier, then you can't manage it. You can't see what's going on, and you only find out about issues later on in the piece when it's too late. And I probably want to I know we use McDonald's as an example earlier, but Domino's is also a really good uh example around how they built their entire tracking system around the whole idea of managing. Well, I I don't know how many stores they've got, but they've got a lot of stores as you can anticipate. But they can build an entire tracking system across their whole network, and they can actually visually see every single order in their different stages, where whether it be whether the order is placed, when the order is made, when it's boxed, and out for delivery. And it has followed that for more than two and a half billion orders. So talk about visibility on a massive scale that that they've done that to to the nth degree. And that tracker wasn't built for the customer's entertainment, although the customer actually you know benefits from it because they can actually see you know when how their order is tracking, you know, when it's actually made, when they can go pick it up, or when it's going to be delivered. But it was built because the owners of Domino's, albeit listed now, or the management of dominoes, can actually measure how long each stage takes, and you can find out exactly where an order slows down and fix that stage specifically. So if they've got a problem at a particular franchise or outlet, they can address that problem there and then. Your business actually needs that same visibility in its own core processes. So even without a customer facing tracker, there needs to be items that are worth watching, and it's really just four numbers that are worth watching. And the first one is cycle time. So how long does the process actually take from trigger to output? The second one is the error rate. How often does the output fail to meet that standard the first time? And then the third one is around rework. How much time and cost goes into fixing that that something that should have been right the first time? And I I recall examples with this where you I did a lot of work with one of our manufacturing clients because they were having a lot of warranty claims with one of their products. And what ended up happening is although they were getting sometimes reimbursed from their insurer for these works, their premiums ended up going through the roof. So what ended up happening is their margins on the product that they were uh actually delivering was actually in a negative margin. If we hadn't caught that on earlier on, then they would have actually gone gone bust, really. So it's really important to try to measure these numbers. It's very easy to get caught up in the fact that numbers are still coming through the door, the bank account's increasing, or you can pay your suppliers, your staff. But if you're not measuring these numbers, then you've got you could have been a lot of trouble. And finally, the onboarding speed. So how long does it take a new person to run this process or standard unsupervised? Now we always say that there's always a massive cost in hiring, and that cost, whether it whether it be recruitment cost or otherwise, I would argue that the probably in most businesses the largest cost is actually getting that person up to speed to actually do the work themselves. Whereas if you've got those SOPs documented, as we mentioned, they should be up and running within weeks, if not earlier. So if you're not tracking those four numbers for your core business, you don't actually know whether your engine is working. You're going on how busy everyone feels, how the bank account looks, which and that's really a poor proxy for whether the business is actually running well. So, sure, what should someone actually do with all of this?

SPEAKER_01 20:16

Keep listening to our podcast, obviously, Mina, because over the next few weeks we'll be working through, you know, how do you go about fixing your system, making it as robust as possible. And also, Mina and I are working on some downloadable tools. So we'll share that with you over the coming weeks. We're going to create a website that you can kind of log into, and as we move through the Vert fly wheel pillars, we'll be able to give you some actual tools that you can use to sort of put to work. And there's a lot of things that we can share with you. Of course, we've we we practice exactly what we preach, as we often uh refer to in the episodes. So I guess in terms of reflecting on today's episode, there's really four questions that you need to really think about. The first one is Mina talked about being a technician, manager, and entrepreneur and the three roles in a business. The honest question is, are you still a technician? Are you working in the business rather than on it? And are you a key technician inside that business? The second question is the holiday test, as we've talked about previously. So if you could you take a week off and you're gonna not ever be bothered by a customer or a team member within your business? Or as I said just earlier, you know, if you took a holiday at uh late notice, at short notice, I should say, and it was, you know, you're away for two to four weeks, is your business gonna blow up? Is your PL gonna suffer? You know, the same sort of test. The the third question is start thinking about the core processes in your business. You know, what's the trigger point? You know, what what creates the process beginning? What are the outputs? What are the steps? What is the value delivered? So, really thinking and focusing and thinking about your business as a set of systems that are or processes all put together to produce one output. And again, there to deliver a product or service, there could it could involve and it almost certainly will involve a lot of different processes, but what are the core parts? And then as Mina just spoke about, think about what are the measures you know that might be you might need to really start to focus on and and capture. As Mina says, you can't you can't manage what you don't measure. So we want to be able to capture some of these things like cycle times, error rates, rework, onboarding speed. We've spoken about last week, we spoke about you know delivering customer value as soon as possible and then turning that customer into an advocate as well. So this all comes back to it's all integrated, and as you will find, the Vert flywheel they they magnify each element, pillar magnifies each other. So if you get the value right and you get the engine right and you've got your reach strategy right in your team, it's a multi give has a multiplier effect. So, really, that sort of sets the scene for everything that we want to cover over the coming weeks with regard to engine, and this is this is really one part of the Virtfly wheel that I identify with the most because I think it is so powerful and it is relatively easy to fix, and I think most business people don't fix it. So, next week we're gonna talk about mapping the whole journey before you fix any part of it because just like it is with value, you want to pick the part in your business that is causing the greatest problem. And I think that does a couple of things. Of course, it moves the dial in terms of improves your business, but it also builds your confidence around building out systems and processes. And once you start doing it, you'll realize how simple it actually is, and particularly with AI tools these days, which we'll talk about. You know, it really does make it a lot easier than what it was in the past. Okay, we look forward to sharing episode 202 with you next week. Until then, bye for now.