Step 3 is about systems.
Where do systems come in?
The systems come in to control the information flow that I explored in step 2 (read here).
Now we need to design the systems and processes for the business that guarantee, as best as possible, consistent results and the consistent achievement of the KPIs that we’ve derived in the scoring section.
When we think about the strategy, this is the systems, the processes and the standard operating procedures that are used at each level in your business. This applies to each position and each role in order to make sure that whoever is sat in that seat or whoever is wearing that hat gets the very best results.
What process do they need to follow to get the desired outcome?
We have the structure
We have the scorecard
We know what success and failure looks like
We’ve built the systems to make sure that information strategically is passed down through the company, and the information operationally is passed back up through the management, exec director and board level team. This means they can constantly evolve and refine that strategy, and we have the systems that control all of that process.
The next step we need to look at is savings.
Notice we’re still not talking about growing revenue.
Where can we make savings in two areas of the business to increase gross and net profitability?
That’s the big question.
To control costs, we need to look the following questions;
What is the cost of goods sold?
What is it costing us to deliver on our products and services?
And how can we do that more efficiently?
How can we do that at less cost?
Then we make cost savings.
The other thing we need to look at is our overhead costs and our administrative expenses (the costs that would exist in the business whether we were delivering to any clients or not)
How can we bring our overheads down?
How can we minimize the overhead expenditure?
When we control our cost of goods sold, we increase our gross profitability.
When we control our overhead or administrative expenses, we increase our net profitability.
Once we’ve got this foundation in place, the first thing that we do then is we look at how can we grow our net profitability and how can we grow our net profitability?
We want a business worth growing.
We don’t want to grow a business with poor profitability or profitability that is less than it could perhaps be.
We want to make sure that we’re operating a maximal potential before we then scale that model.
The model has to work before we grow the model, growing a model that’s filled with holes will end up with a business filled with problems.
When you grow a business that’s full of holes, the profit pisses right out the bottom.
That’s exactly the experience that we had.