March 20, 2023

You’re the Boss Blog: How a Dashboard Can Set You Free

Creating Value

Are you getting the most out of your business?

Creating value in a business often starts with a change in the behavior of the owner. See if this sounds like you:

  • You are involved in most if not every decision in your company.
  • You are afraid to let go because mistakes might get made.
  • It’s easier for you to make the decision because you can do it more quickly.
  • You find it hard to trust that your employees know what to do.
  • If you’re not involved in every decision, you fear you will lose touch with what’s going on in your business.

If more than two of these statements describe you, you may want to consider changing your relationship with your business. If you choose to approve everything, you limit what you and your business can accomplish. Ultimately, when you’re involved in every aspect of your business, your business has to stay small.

The alternative isn’t just turning over decisions to employees; it’s about letting others help you make your business successful.

I’ve seen too many businesses where the owner tries to become a passive owner but struggles with how to stay current with what’s going on. It happened to me. Years ago, when my food vending business opened its second branch, I was no longer in the warehouse with all our vending route drivers every day. At first, I just told people what I wanted. But that didn’t work very well. And when a mistake was made I would yell at the person who made the mistake. That was an even worse idea. Finally, I realized that I needed to create a reporting system that would provide me with critical information. That was crucial to keeping me focused on solving problems and not blaming others.

But doing this required two cultural changes and one technical change. The first cultural change was learning to trust the decision-making power of supervisors and managers. The second was allowing mistakes to be made. I just had to find a way to make sure the mistakes were learning opportunities and not the kinds of mistakes that could put me out of business.

The technical change I needed was a system that gave me critical information on a daily, weekly and monthly basis: a dashboard. We put together a report that showed what our daily cash receipts were, whether each route was hitting its targets or falling short, what the productivity of each route was and how much waste was coming off each route. All of these were critical numbers for us. Tracking them allowed me to stay in touch and gave me an early-warning system for when I needed to re-engage in an area I had delegated.

In many respects a well-designed dashboard is an exception report. It allows you to focus on aspects in your business that need your attention but only when they need your attention. Different businesses will have different numbers to track. It’s important that every owner figure out which numbers to follow. Here’s a hint: don’t look to your profit-and-loss statement for clues; your key numbers aren’t there. For some it’s what their daily cash position is. For others it might be production per hour from manufacturing workers. And, for still others it might be a pipeline report of where the company is on future orders.

Before I installed a dashboard I delegated responsibility but didn’t have an inspection and reporting process as part of my business process. This method of management isn’t really delegation; it’s abdication. My dashboard allowed me to start transitioning from being a screamer to a coach who could have intelligent conversations with managers about critical areas of our company.

For me, building a dashboard came out of crisis. I needed one page with critical information that was sent to me daily. As we moved out of crisis, I realized I also needed a dashboard that showed trends. As our success improved, our dashboard changed. It continues to be a key component of tracking success and pressure points in my businesses.

I found that figuring out what to track was a trial-and-error process, and I think that’s the case for most business owners. Have you figured out what to track in your business?

Josh Patrick is a founder and Principal at Stage 2 Planning Partners where he works with private business owners on wealth management issues.

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You’re the Boss Blog: Are You Involved in Every Decision at Your Company?

Creating Value

Are you getting the most out of your business?

Does every problem still come across your desk? Are you spending too much time in the weeds and not enough thinking about the big picture? Are you feeling burned out? For many business owners I know, the answers to these questions are a resounding “yes.”

One of the best ways I know to create value in a business is for the owner to become operationally irrelevant. That doesn’t mean leaving the business. It means changing your relationship to your business. Instead of being involved in every decision, you build a team and find a way to trust your senior employees to take care of their individual areas of responsibility.

I use the term passive owner to describe owners who have removed themselves from the day-to-day operation. Instead of solving problems all day, they have moved on to working on strategic issues. You know a business has a passive owner when it can run for weeks and or even months without the direct intervention of the owner, because there are managers in the company who are competent and have been given the authority and responsibility to keep things running smoothly. Here’s a fun way to think about it: Several years ago, Norm Brodsky wrote a column for Inc. magazine in which he argued that the more vacation time he took, the more he increased the value of his company.

Passive ownership is hard to achieve. At first, we don’t believe it’s possible. If we get to the point where do believe it’s possible, we often have to change not only our behavior but the culture of the company. Worse, we’re busy — so busy in fact, that we often don’t have time to stop and take a look around. We’re forced to deal with emergency after emergency after emergency. Before we know it, another day has passed and we’re still in the same place.

To take the first step toward passive ownership, we have to be able to get past living as if everything is a crisis. When we’re constantly in crisis mode, everything is late and we’re always under tremendous pressure. At least, that’s how it was for me. I thought I had to be involved in every decision. I lived as if everything was an emergency. I drove my staff crazy and, frankly, my company wasn’t a very satisfying place to be — neither for my employees nor for me.

In the early ’80s I ran across a book by Stephen Covey called “Seven Habits of Highly Effective People.” The book talks about four stages that people occupy. They are:

  1. Urgent and important (where I was living).
  2. Important, but not urgent (where I needed to be).
  3. Not important, but urgent (I delegated, but not effectively. The project seemed to always land back on my desk).
  4. Not important and not urgent (where I hid behind useless activities and was completely unproductive).

I realized that I would have to move out of stages 1 and 3 and spend more time in stage 2 if I were ever going to be successful. It wasn’t easy, but I found one thing that I thought was a crisis and successfully delegated it to someone else. Then, I did it again. Over the course of a couple of years, I managed to get some time to work on important but not urgent activities. And that’s when life started to change.

Passive ownership requires the owner to build a team of effective managers, to have a reporting system that shares critical company information and to have systems in place that let front-line employees know what to do and how to act. This might sound easy, but it often takes several years of taking small steps before you even get close passive ownership.

For my company, the result was that we went from providing inconsistent service to being tactically excellent. We developed systems, and we stopped acting as if everything was a crisis. We had systems in place to keep crises from happening in the first place but could plan for things that were likely to go wrong.

Building trust between my managers and me was a real challenge. My issue was that I had a very difficult time understanding what was happening when one of my managers made a mistake. At some level, I didn’t fully understand that it wasn’t on purpose. This is where I ran into W. Edwards Deming and his books on quality management. One of his rules was that you don’t blame the person — you blame the system. This was a really difficult rule for me to embrace. But as we put more and better systems in place, the mistakes got smaller and more manageable. This took time and the willingness to change.

There’s a reason a lot of owners have a habit of micromanaging. In the early years, if I hadn’t been obsessive about being involved in every aspect of the business, the business might well have failed. It was only as the business became more successful that I had the option of learning to back off. But I know I waited longer than I should have.

Take a moment and ask yourself whether you are constantly feeling the pressure. If you answered yes to the questions at the beginning of this post, you might want to think about ways to make at least some of these issues go away.

Josh Patrick is a founder and Principal at Stage 2 Planning Partners where he works with private business owners on wealth management issues.

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You’re the Boss: The Price of Bad Pricing

Thinking Entrepreneur

An owner’s dispatches from the front lines.

If there is an aspect of running a small business that doesn’t get enough attention, I think it’s pricing. Unfortunately, there’s a good reason for that: pricing is hard to do and easy to ignore. But that’s especially dangerous right now when there’s a good chance your own expenses are changing.

With most management decisions, your goals are pretty straight forward. Most of the time, you simply want to be the best at whatever you do. You want to have the best staff, the best service, the best marketing. But pricing is more complicated. You may say you want to offer the best price. But what does that mean? The lowest price for the customer? The price that will provide the best value for the customer? The price that will result in the highest profit for your company? The price that will result in the most sales for your company?

It can get even more complicated. To figure out the relationship between the price you charge and the profitability that results, you have to do some cost accounting. For instance, if you are manufacturing a product, you have to take into consideration reject rates, machine maintenance, insurance, rent, utilities and inventory carrying costs, just to name a few expenses. Maybe you own an auto parts store that specializes in carrying parts for older cars. You pride yourself on having the alternator for almost every car built since 1960. Surely that would suggest that you could charge a premium. But how much? What is the carrying cost of your huge inventory?

Even figuring out that inventory cost is not simple. If you finance the inventory with borrowed funds, is the carrying cost the interest you are charged? Or do you have to consider the other things you might have done with that money? What if you are at your borrowing limit and you could have spent the borrowed funds on something more profitable? What about the fact that some of those parts are never going to sell? That is called obsolete inventory, which will probably be calculated when you — or your descendants — sell your inventory during a liquidation sale, for pennies on the dollar.

Every business has costs that are related to making a sale, whether those costs are charge card transaction fees or packaging costs. They all need to be figured in, as well. There are also fixed costs that can be connected to the activity of selling a particular product. Maybe you could reduce overhead by getting rid of a particular product or service. But business does not operate in a vacuum. Your competition is vying for the same customers. Winning market share is a common goal, but at what cost? This is where an understanding of price elasticity becomes important. The higher the price, the less you will sell. Usually! I have seen and heard numerous examples of sales going up when the price of a product — a bottle of wine, say — is increased. Some products and services are clearly more elastic than others, meaning that price changes have a greater impact on sales. (Here is a small-business guide with some examples of how other business owners have handled their pricing.)

From my experience, many business owners do not do an analysis to calculate the effect a price increase might have on their bottom lines — again, for good reason. It is very difficult if not impossible to do. It’s more like guessing, perhaps an educated guess. I cannot tell you how to do it, but I can tell you what not to do. Do not rely on just your salespeople! Most will tell you that the sky will fall if you raise prices. They will tell you that customers are already complaining.

Salespeople mean well, but their job is to sell more product. It is the boss’s job to make sure the company makes money. That requires doing a break-even analysis on any potential price increases. If the company is not making money anyway, you may not have a lot to lose. Suppose you have a 35 percent gross margin, but that margin does not leave enough money to cover the overhead and provide a profit. If you increase prices 2 percent, you would have to lose more than 5 percent of your sales to lose money on the change. If you lose only 2 percent of sales, you will have about the same revenue but your cost of goods sold will fall 2 percent, as well. That might allow you to start making money. It will also mean that you will have less work to do because you will have fewer transactions. Obviously some industries are more price-sensitive than others, but it is worth doing the math, especially if you are in a low margin business.

Here’s the math: if you sell 100 widgets a week at $100 apiece and they cost you $65 apiece, you have a gross profit of $35 a widget or $3,500 a week. But because your fixed expenses have been rising and these are really good widgets, you decide you can charge $102 and still provide a good value to your customer. If you now sell only 95 widgets a week, you will have a gross profit of 95 x $37, or $3,515. But if you manage to sell 98, you will make $3,626. The point is that sales have to fall quite a bit for you not to come out ahead.

There is one other factor to consider. Price can be a very effective way to control volume. How are some lawyers and house painters able to charge double what other people charge? They have more customers than they can personally handle, so it is profitable for them to charge more and lose some business — rather than lose business by being overwhelmed.

Pricing is as important as any business decision, but frequently it is treated as if it were no decision at all. Business owners just keep doing whatever they have always done, for better or worse. They do this because they fear they will — as they’ve been told a thousand times — price themselves out of the market.

No one ever warns them not to underprice themselves out of business. But I think that happens far more often.

Jay Goltz owns five small businesses in Chicago.

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