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Fix This Next: The Fourth Level, Impact

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A few nuggets from the chapter and then we will dive into the 5 core needs of level four – Impact.

Mike says, “The impact you want to make is important, but you can’t pull it off until you have all of the base levels humming.”  This is true and I do see clients jumping to this level to soon.  You need to shore up Sales, Profit and Order before you can truly have an impact on the community.

This is not to say that your offerings shouldn’t have an impact – just that the focus of the 4 level is stewardship.  I love that word stewardship.  For me, it’s about taking care of what you have been given.  In this case, you’ve been given your clients… so take care of them.

Transformation Orientation – Does your business benefit clients beyond the transaction?  Mike gives an example in the book of a coffee bean company.  They had a lot of reviews on the coffee’s taste, but really want to transform the coffee drinker’s experience.  They put motivational sayings in every bag and started getting reviews and shares on how people were feeling when they drank their morning cup of Joe.  Now that’s transformation.

That got me thinking – how do I want my clients to feel when they get off their monthly phone call with my team?  This is a work in progress but here’s what I’ve come up with so far:  Encouraged, strong, capable, knowledgeable, they have clarity and they have a plan to move forward.  I will be developing these thoughts in the months to come.

What do you want your customers to experience?  How are you transforming their lives?

Mission Motivation – Is your team motivated by the mission or by their individual roles?  Mike tells a story about the Navy seals and then he says these words.  “If you want your team to help you make an impact on the world, you need to give them something to believe in – a song to sing.  That song is your company’s mission.” 

Fix This Next: Impact and Legacy

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I have to say I absolutely loved chapter 6 of Mike Michalowicz’s book – Fix This Next.  He called it a “musical bridge.”  He makes a point to say that once we have shored up the first 3 levels: Sales, Profit and Order; we are going to transition to the last 2 levels of Impact and Legacy.

There are many business owners that rush into the impact level without having a firm foundation.  In my clarifying moment calls with clients, I have had to point out that their charitable contributions, sponsorships and even picking up the tab at restaurant for a group of colleagues can have a detrimental affect on their business if they don’t have revenue (sales/profit) to support those activities.

Please do not misunderstand me, I believe in being generous.  I believe in what comes around goes around.  I believe in the giver’s gain philosophy.  I also believe that when we give it should not be putting us into debt.  If you already have debt and no particular plan to pay it back, maybe it is time to put a pause on the generosity.  Let’s get a firm foundation underneath you.  There is a season for everything in life – This would be a season for financial healing. 

Mike points out that there are people that give, and give, and give in a self-sacrificing way.  They confuse sacrifice with success.  I can’t say it better than Mike so I’m going to quote him.  “They are “giving ‘til it hurts,” and that hurt puts them right out of business.”.

I have given and I have received generosity.  I have to say it gives me ultimate pleasure to be able to give. As a matter a fact, my husband and I have given to food organization all over our country to support the millions out of work and in food lines.  It gives me great joy to be able to do it.  However, I am not ignoring my first 3 levels.  Give yourself the gift of a firm foundation.  If you do it in the right order, then the stress is not there when you need to pay your bills. 

Fix this Next: The Third Level, Order and Redundancy

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I’ll begin with two quotes from the book that really resonated with me.  “You are not a business owner if the business owns you.” And “Stop doing for your business, and start designing your business to run without you, permanently.” That is the goal – isn’t it.  To have a business that is working smoothly without you.  It allows you to have the lifestyle you want.

Minimized Wasted Effort – Do you have a bottleneck in your business?  You know that place where the work stops flowing smoothly.  A time where part of your team is busy, and part are waiting around for the work to come to them.  Bottlenecks happen all the time.  For me, that’s around our Quality Control processes.  It’s an important aspect of our process because we want to make sure all financials are complete and accurate, but boy can we get jammed up.

Role Alignment – Are you people’s roles matched to their talents and is it what the company needs done.  Another question to ask yourself is – if one of my team members left would we be able to continue doing business as we always have?

These are things I asked myself last year and realized that if our key team members leave, we would feel the impact for months.  We are still in process, but we got busy documenting and cross training.  This helped solve the bottleneck in our QC process.  Now we have a couple people that can jump in and make sure financials are correct.

Outcome Delegation – Have you given people permission to solve problems?  This can be a huge bottleneck if all your people come to you to solve a problem.  There are several ways to delegate problem solving.  A couple of my personal favorites are:  Putting guidelines out for your team to follow.  For example, if you have a collection problem, you can give a team member permission to create payment arrangements with the client inside 60 days.  Another way to help your team learn to make decisions is have them tell you what they would do, then tell them what you would do.  This helps them to see your thought process rather than just your answer.

Linchpin Redundancy – Can your business run without your key employee?  Do you have one team member that seems to hold things together and when they are gone the impact is felt like lighten bolts?  It is great that you have that one person you can always depend on; however, even they deserve a vacation.  Take time to train other people on pieces of there job.  Maybe even decision their job to manage other people doing that same work.  That can free them up to do other valuable things.

Mastery Reputation – Are you known for being the best at something?  Many companies, including mine, have made the mistake of doing all things for everyone.  Some of my offerings are a direct result of request from clients.  However, when I look at the profitability of those offerings, they are often the things I’m losing money on.

Look at what you do.  Are you able to streamline it?  Are you able to scale your services?  Can you easily find people to work for you?  Maybe it’s time to limit your offers to a select few that you can be known throughout the community as “the best”.

Once again, I hope I’ve intrigued you enough to read the book and think about doing the assessment. 

Fix this Next: The Second Level, Profit

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I have heard this more than once in my life – I have reinvested my profits back into the business. Mike said it another way that I have been pondering.  A reinvestment of “profits” is an expense. Period.  I’ve decided that even though we may show a profit on the Profit and Loss statement, he is right.  If that cash is used for expenses, then it’s not really a profit.  It’s all in how you define profit.  There is the General Accepted Accounting Principles that say Income-expenses=profit.  There is also the Profit First way which says Income – Profit= expenses.  I had never really thought about it quite like this – if you do not take the profit as a dividend, then it’s not really a profit.

The five core needs of the profit level in the hierarchy are:

Debt Eradication – leveraging credit is not wrong; however, spending on credit cards or lines of credit without the thought of how you will pay it back is not wise.  I know this is hard to hear, but I really have to say I agree with this statement.  When you can’t pay your bills, you can’t afford your bills.  There are only 2 ways out of this – Cut costs and increase margins.  Notice I didn’t say increase sales.

A few other tidbits that Mike says … Cut the fat not the muscle.  No one is asking that you sacrifice your business or that you don’t put food on your table.  However, the kind of food on your table…

Adjust the business and your lifestyle so that no new debt accumulates.  We want cash to accumulate to pay off the debt.

And finally – you must make it a game that gives you joy.  In order to stay on the path of eradicating debt… it must give you pleasure.

Margin Health – You can’t have a discussion on profit unless you address margins.  I know many of my insurance agents don’t have the ability to choose the price of their products; however, you do have a lot of say in the COST to sell your product.

I recently did an exercise with my CEO group.  We are all accountants, so it’s easy to compare apples to apples.  We are all in different stages of our businesses, but when we compared our margins – WOW – it was amazing to see our percentages were all about the same.  That gave me great comfort that I’m heading in the right direction.

Transaction Frequency – The key nugget I got in this section… you need to seek ways to do more business more often with your customers without diluting the quality of work.  We can not be all things to all clients.  To get ahead faster, put together an avatar of your ideal client.  Learn the demographics and what they want and then start to sell to them.  Is it better to have 200 clients paying you $50 a month or 50 clients paying you $200 a month?

Profitable Leverage – I love this.  “Debt can be a valuable tool when it is used to amplify clear profit opportunities.”  If debt is used to run the business operations or to purchase cost of goods sold, then it is probably not profitable leverage.  It’s all about knowing when you will receive a return on your investment.  Think buying a building or equipment.  Think favorable terms on your Cost of Good Sold where you will get paid before you have to pay your vendor.

Cash Reserve –  I think this is one of he hardest to accomplish.  The temptation is always to “reinvest” cash back into your business.  Take it from me, it is not smart to be without a reserve.  A reserve can help you through a rough patch….hum say like a pandemic.  I’m just thinking out loud here.

There you have it.  The Profit level of the Business hierarchy of needs.  I hope you have found a tidbit or two that will help you make the next decision in your business.

Fix This Next: The First Level, Sales

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The bottom level of the BHN (Business Hierarchy of needs) is Sales.  Businesses can not exist without sales.  I know that start-ups can exist on Venture Capitalist; however, eventually even that will dry up if we don’t start to generate sales.

Level 1 – Sales – Core needs are: Lifestyle Congruence, Prospect Attraction, Client Conversion, Delivering on Commitment and Collection on Commitments.

Lifestyle Congruence – Have you taken the time to really understand how much you need your business to pay you?  I’m not talking your dream income or the “I can get by with this” income. I’m talking a middle of the road, I’m comfortable and not stressed over money income.  Life has taken me down several paths and the answer to this question has changed over the 15 years I’ve been in business.  The answer for this question for me is,  I need the business to be supporting me and my husband when he retires in 10 years.  We want to prolong taking from his retirement funds until I’m retired.  This gives me a clear goal of what I need my business to do in the next 10 years.  This is a measurable goal.

Prospecting Attraction – If you have been in business for any length of time, you have learned that not everyone is your ideal client.  We can not be everything to everyone and we do not get the same pleasure out of serving the wrong kind of client like we do when serving the right client for us.  When I started working with this concept, I backed into it.  I found it easier to list out what I didn’t want in a client.  I was then able to create a picture of my ideal client.  For instants, I do not know enough about restaurants to do their bookkeeping.  I know their margins are small and that they need someone that can help them understand their Cost of Goods Sold.  If the books are wrong, they can really be hurt.   I, therefore, do not serve restaurants.

 

Client Conversion –   You may be converting sales but are they your ideal customers.  This isn’t about selling to everyone rather it’s about selling to the right customer.  How many of your ideal customers are you converting?  That might be an entirely different number and should be the number you are tracking.  There were two nuggets of information I gleamed from this section of the book.  Customers don’t buy features; they buy benefits.  Are you rewarding your sales team for closing clients or rewarding them for longevity and quality of clients?  I read this shortly after having chatting with a business owner that is finally delegating sales.  She and I were brainstorming on how to pay the person.  We were going back and forth about a commission structure.  When I read this, I remember thinking… yes… this is what we were missing.  We need to reward the right sale not just any sale. 

Delivering on Commitment – There is a fine balance between the sales team and the delivery team – even if that’s the same person.  We’ve been told not to stop selling.  We always need to have a full pipeline; however, if you can not deliver on your promises it will not matter if you have a full pipeline.  Your reputation will be in the dirt.  I loved the example in the book on how a dog walking service had a reputation for being late.  They redefined what “on-time” was and within a few months their customers were happy.  It’s all about how you set the expectations.  For me, I must check in frequently with my team of bookkeepers.  They help me to set the timelines for projects that we take on.  In this way, I don’t over promise something we can not deliver.

Collection on Commitments – Sales and delivery on commitment are all great but the sales cycle does end until you’ve been paid.  This is an area that I’ve seen some of the successful business owners fail at.  I’ve worked with Law Firms that bill out $300-500 an hour – sounds impressive until you see their accounts receivable report and find they have a collection process.  Get creative here and don’t be afraid of merchant service fees.  It may be a cost to you but having the cash in hand when you need it is a beautiful thing my friends.

There you have it.  The five core needs of the first level in the hierarchy.  Do any one of these needs resonate with you?  Which one do you need to fix next?

I’d love to hear your creative ideas on how you solve these issues in your business.

Fix This Next: The Business Hierarchy of Needs

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Many of you have heard Maslow’s Hierarchy of Needs.  It is a triangle with 5 levels to it: Physiological, Safety, Belongingness, Esteem and finally Self Actualization.  I used to think that you had to achieve one at a time – climbing the different levels.  I now know that you are really at stages at each level; however, you can not truly realize the higher levels if you have not mastered the lower levels.

Mike Michalowicz has brilliantly created a Business Hierarchy of needs.  Again with 5 levels:  Sales, Profit, Order, Impact and Legacy.  Within each level there are 5 core needs. Being truthful where you are with these needs will help determine what we need to “Fix” next.

I love that Mike take a moment to clarify that although he has a book called Profit First (in which we have already gone through together), he was not referring to the fact that it should always come first in the order of how we manage the business.  Rather he is referring to setting aside our profit prior to paying any expenses out of the business.  Instead of Income – expense = profit, he contents that it should be Sales – profit = expenses.  If the concept is brand new to you, reach out to me and we can talk about it.

Level 1 – Sales – Core needs are: Lifestyle Congruence, Prospect Attraction, Client Conversion, Delivering on Commitment and Collection on Commitments.

Level 2 – Profit – Core needs are: Debt Eradication, Healthy Margin, Transaction Frequency, Profit Leverage and Cash reserves.

Level 3 – Order – Core needs are:  Minimize Wasted Effort, Role Alignment, Outcome Delegation, Linchpin redundancy and Master Reputation.

Level 4 – Impact – Core needs are:  Transformation Orientation, Mission Motivation, Dream Alignment, Feedback Integrity, Complementary Network.

Level 5 – Legacy – Core Needs are: Community Continuance, Intentional Leadership Turn, Heart-based Promoters, Quarterly Dynamics, and Ongoing Adaptation.

I hope that you are intrigued as much as I am, and you will go with me for the ride of learning about this Business Hierarchy of needs.

I look forward to your thoughts and comments.

Stay healthy, be safe and know that we are thinking about each of you.