Business Systems and Processes^.

The Systems Thinker Blog

The Theory of Constraints for Small Business—Eliminate Bottlenecks!

15 Jun 2011

Every small-business owner should be acquainted with the profound yet simple principles contained in the Theory of Constraints.

This business improvement methodology is based on the premise that: “Every real system, such as a business, must have within it at least one constraint [limitation or restriction]. If this were not the case then the system could produce unlimited amounts of whatever it was striving for, profit in the case of a business. . .” (Dr. Eli Goldratt, “The Goal”).

In other words, every business or system has something preventing it from reaching its full potential—a weakness that limits its performance and output. This weakest point or constraint determines the maximum capacity of the entire system.

The flowchart below illustrates an example of a basic business process with six steps. It could be found in a production process, an office routine, or in providing a service.

You can see above that Step 4 is the slowest step, limiting the capacity of the system to 14 units per hour. It is also a bottleneck where work piles up from the steps preceding it.

Bottlenecks in business systems and processes are among the most damaging physical constraints and a barrier to achieving maximum results.

A bottleneck is any step whose capacity is equal to or less than the demand placed upon it; it can’t keep up with the inputs. A non-bottleneck is any step whose capacity is greater than the demand placed upon it.

You can only improve the results or throughput of a process by elevating the performance of the weakest step—the bottleneck. Improving other steps will not increase the system output.

Constraints are Everywhere

The Theory of Constraints applies to both service-based and product-based companies—in the office, the store, or on the production line. A constraint or weak link might include low customer demand, slow sales-lead follow-up, limited equipment or manufacturing capacity, order fulfillment bottlenecks, and so forth. Constraints are also the consequence of poorly designed business systems, untrained or an insufficient number of workers, adverse company policies, and even managers that are not Systems Thinkers.

A few years ago, I was the smallest investor in the smallest oil refinery in the country. Constraints in pump capacity, pipe diameter, and other physical components limited production to 3500 barrels of finished product per day. By upgrading the physical limitations—a significant cost—the capacity of the plant could have been much greater. However, it was even a challenge for the refinery to sustain its maximum throughput because of other constraints that frequently arose. For example, the plant had to slow and sometimes shut down when insufficient sales caused storage tanks to fill to capacity, or when empty railroad cars didn’t show up on time. Being without a backup generator was a constraint when severe weather caused power outages. Constraints causing downtime in this operation typically reduced profit by hundreds of thousands of dollars per month—an ongoing disappointment to investors.

Your organization is also filled with constraints that limit throughput, AND POTENTIAL PROFIT!

Elevating Constraints

Physical constraints are usually easy to spot. Just ask your employees what bottlenecks are slowing things down, and they’ll give you an immediate response. However, bottlenecks are not always easy to resolve.

Here are the five focus-steps from the Theory of Constraints that will help you elevate a constraint and improve the throughput of a system, and your entire business.

Identify the constraints of the system. Look for work-in-process such as inventory or in-baskets accumulating in front of a task. That task is a bottleneck. Piled up work-in-process represents the inefficiency or waste of that constraint.
Maximize the efficiency of the constraint. Utilize people, equipment, and schedules so that the constraint is working at 100% of its capacity. For example, add a night shift, work during lunch or Saturdays, change a schedule, or improve operator skills—whatever it takes to get the maximum use of the system constraint.
Subordinate everything else to the constraint. Pace all other related tasks and processes to the capacity of the constraint—the weakest step. Do not let preceding processes over-produce causing a build-up of work-in-process.
Elevate the constraint. Make the task a non-constraint by reducing the load or demand on it. The constraint is the most expensive step in a system or process because it restricts the throughput of the entire system. Ensure that the constraint is creating output committed for use or sale today, and not for inventory. Inspect items approaching the constraint to ensure only good-quality inputs are utilizing its limited capacity. Find alternatives to reduce demand on the constraint. For example, buy another piece of equipment or move some of the workload to another system. By doing these things, you elevate the task to a non-constraint.
Look for a new constraint. When a task is elevated—no longer the weakest point of the system—look for the new constraint that has taken its place. Another task or step will now be the slowest part of the process. Thus, by always focusing efforts on the weak links and bottlenecks of your business, you get the maximum benefit from your improvement efforts. The most frequent constraint of many small businesses is insufficient sales. Product demand drives all other processes. Get your sales up and keep them as steady as possible!

Bear in mind that your objective is not just to eliminate the bottleneck of a particular process, but to elevate any system—in a sequence of systems—that constrains the throughput of the business as a whole

All your core business systems and processes must work in synchronization to achieve the highest efficiency and throughput. The more you reduce the barriers or constraints to your performance, the closer you come to realize your full potential.

Theory of Constraints: Performance = Full Potential minus Constraints

While efficiency and cost-cutting are important, the best measure of real business improvement is increased throughput—higher sales revenue and the resulting profit that comes from reaching your break-even point earlier in the month.

Now go find a bottleneck today, and ELIMINATE IT!

Seven Deadly Sins of Business Systems!

Ron Carroll

31 May 2011

Developing effective business systems and processes is both an art and a science. Like any discipline, there are underlying principles that govern success. Transgressing these “laws” can have grave consequences.

Seven Deadly Sins of Business Systems

Consider these seven deadly sins that will sabotage your business systems and diminish the performance of your entire organization.

Not Customer Focused – Your target market is the only market that matters to you! The opinions, needs, and desires of your customers should be foremost in your mind as you develop your products, services, and business processes. If your operations do not deliver high quality, prompt service, good value, and a pleasurable buying experience, patrons will go elsewhere. Effective systems leave nothing to chance and enable you to deliver consistently on your promise. Enthusiastic customers will return often, and tell their friends.
No System Owner – Your organization is made up of interrelated and interdependent systems. Every important business system should have a name and an owner or team leader with the authority to solve problems, make decisions, train and supervise others, and initiate improvements. When there is no system owner, there is no one accountable for results, and performance suffers. Elevate the right person to be the system owner by giving them full responsibility. Enlist their knowledge, talents, energy, and resources to improve the system and raise the bar on performance standards.
Inadequate System Components – Missing or poor-quality system components—the physical objects required to make a system work—cause many small-business systems to sputter. Workers lack the critical tools to get the job done properly and efficiently. Components include such things as policies, job descriptions, checklists, scripts, forms, flow charts, reports, databases, brochures, equipment, software, supplies, tools, and even the right people. Business owners often fail to notice the missing components, do not realize their potential benefit or are not willing to spend the time or money to acquire them. Whatever the reason, inadequate components cost business owners dearly in customer satisfaction, quality, efficiency, and bottom-line profit.
No Measurement or Feedback – When your core business system or processes are not measured, and there is not a steady stream of performance feedback to team members, there is no learning and growth. Measurement and feedback drive all process improvements. Thomas S. Monson, business and religious leader has observed, “When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.” Learn to manage by the numbers. Establish process measurements that let you know every day how you stand in relation to your company goals. Strive to better your best!
Ignoring Constraints – Constraints are the physical and non-physical barriers that prevent your company from reaching its full potential. Simply put, constraints reduce the output of your business and raise costs. They include such things as inadequate sales, process bottlenecks, excessive mistakes, waste and rework, delay, downtime and inefficiency, clutter, unnecessary movement, complexity, and more. Constraints can also be found in company policies, employee attitudes, poor training, faulty assumptions, procrastination or indecision, and so forth. Low-quality and slow-speed are what make business processes—and the resulting products and services—expensive (see Cost Reduction: Better, Faster, Cheaper). By removing constraints, you will elevate system performance and the output of the entire business.
Blaming People – Low productivity and lack-luster work performance happen when people are put into poorly designed and dysfunctional business systems. First, get the RIGHT people into the RIGHT systems. When problems do occur, look at improving the system before finding fault with people. Blaming people usually takes attention from the true cause of the problem—a flawed procedure or system component. It is the owner/leader’s job to create an environment for employees to perform at their best. If you need to blame a person, start with yourself. Then go fix the system.
Systems are Not in Writing – Undocumented policies and procedures are the sign of a low-grade business—one characterized by inconsistency, frustrated customers and employees, “seat-of-the-pants” solutions, and crisis management. Rudimentary systems are often invented by workers and change on impulse. Word-of-mouth training perpetuates variation and inconsistencies. Systems and processes evolve in unexpected ways as people come and go from the company. By putting systems in writing you let people know, “This is how we do it here.” Michael Gerber, business author, said, “If it’s not in writing, it’s not a system!” (E-Myth Revisited)

Become a Systems Thinker

Your greatest challenge to creating a culture of excellence will likely come from managers or employees who have not learned the importance of developing effective business systems (see four stages of learning) or do not have the will to implement them. The deadliest sin of all is when the business owner, managers, and employees are not Systems Thinkers!

There is a right way and a wrong way to build a business. Transgressing the laws that create loyal customers, happy employees, and financial success are sins not easily forgiven or forgotten. I need to do a little repenting. How about you?

Your Inventory Management System – the Elephant in the Room!

Ron Carroll

18 May 2011

Recently, I was at lunch with a client that unprofitably manufactures children’s toys. Our attention focused on the company’s inventory management. They had fallen victim to the same problem experienced by many business owners who sell from large inventories.

I purposely startled the client by saying, “As much as you love creating and selling your wonderful line of children’s toys (insert your product line here), you are actually in the business of inventory management. How well you do it will largely determine the financial results of your company.

Inventory management is the elephant in the room for many companies!

Inventory Management - The Elephant in the Room

The Right Way

Effective inventory management requires constant attention, detailed data, discipline, and good judgment. Your goal should be to buy the right products, for the right price, in the right quantity, at the right time, from the right vendor. Get these five things RIGHT and you will see a big improvement in cash flow and profit.

The RIGHT Product – Know your customers and carry products they want, not what you like or think will sell. Don’t let emotions drive your buying patterns, and don’t be lazy by purchasing a general mix of styles or models suggested by the vendor. Test every unique product (SKU) to learn the preferences of your target market. There are warehouses all over the world filled with slow-moving and obsolete inventory—a terrible waste that you can avid. While some variety or completeness of a product line may be necessary, stay lean and stock-up with best sellers.
The RIGHT Price – Work for your customers and become a strong negotiator. Shop around to find the best prices and terms—your lowest overall cost. Let vendors compete for your business if you can. Use detailed purchase orders to avoid costly mistakes. Remember that inbound freight is part of the cost. Take trade discounts when possible; they are pure profit. While buying and selling, always strive to maintain your expected profit margin, and increase it if possible.
The RIGHT Quantity – Purchase in smaller quantities (even if it means a higher cost), and TEST-TEST-TEST before you commit to larger amounts. Products have a life-cycle so be careful to watch trends and spot the downturns. Lean inventory levels and frequent turnover reduce operational costs and improve cash flow and profit, as long as you don’t run out of product and lose sales. Inventory buildup for any reason can be a risky strategy, so be cautious!
The RIGHT Time – The longer you can delay purchasing and still satisfy customer demand, the better your cash flow and the lower your carrying costs. Know your vendor’s fluctuating lead times—the number of days from your order to their ship date. Short lead times give you a significant financial advantage—fewer products gathering dust on shelves and more working capital.
The RIGHT Vendor – Establish a good relationship with reliable vendors. Allow vendors to compete for your business, but leverage your buying power with one or two. Make sure your vendors have good systems and processes and supply consistently high-quality products. They should stay competitively priced and able to ship as promised. Vendors are among your most important business partners. Pick the best and be among their best customers (pay on time and help them keep their costs down).

The Downside of Inventory

The only real virtue of inventory is that it allows you to fill customer needs quickly. Many companies today have discovered drop-shipping to avoid inventory altogether. However, if you are a manufacturer, or traditional brick-and-mortar distributor or retailer, inventory is a necessary evil.

Keep in mind that inventory comes with a carrying cost of rent, utilities, insurance, and labor to manage, count, and handle. Inventory ties up money and can keep you cash-poor, even if your company is profitable. Furthermore, bad things happen when products sit around. Merchandise becomes outdated and damaged. Quality problems go undiscovered and accumulate. Shrinkage is inevitable. Be smart! Be lean!

Good inventory management is a skill that takes time to learn. Nowadays, technology combined with disciplined oversight is essential to getting the job done RIGHT.

Remember: The velocity that products move in and out of inventory is a key to success.

Master your inventory management system—the elephant in the room—and you are well on your way to controlling your financial future!

Your First Business Improvement Workshop

Ron Carroll

10 May 2011

Business improvement workshops are an excellent way of focusing attention on the specific areas of your organization that are preventing you from achieving your full potential. These muscle meetings are the foundation for creating a remarkable company.

Highly-productive workshops are among your most important business systems. Below is a workshop procedure that will give you outstanding results.

Assign a workshop leader. This can be the CEO, department manager, or a team leader. Others may be invited to lead a specific workshop discussion.
Set a schedule for weekly meetings. Attendance is a non-negotiable requirement of every person’s job description. The workshop can be held at a company, department, or team level, depending on the size of your organization. Keep groups under twenty people.
Begin the meeting by providing brief training on a relevant business improvement principle. You can include topics from the Box Theory™ eCourse, the System Thinker’s Blog, or other good books and articles. This is also a great time to review your company’s mission, values, strategy or goals. Consider inviting team members to take turns presenting this five-minute instruction.
In your initial workshop, ask one of the following questions. Give people a few minutes to think and write their answers. What are the things preventing us from being a great company? What frequent frustrations or complaints do our customers or employees have? What challenges are we facing? What are the consequences of not changing, improving, or solving these problems? What specific things could we do to improve some aspect of our company, department, or team?
List the unique responses on a whiteboard. Go around the room and ask everyone to name their top three choices. Put three tally marks by each person’s first choice, two for their second choice, and one by their third choice. From this count, you can determine the highest priorities and topics for future workshops. If you are a company of Systems Thinkers, write next to each response the name of the business system or process that needs to be created or improved.
At successive improvement workshops, write the selected topic and/or problem on the whiteboard. Discuss your current condition or results, and what new outcome is desired of the improved process. Spend time planning, working out better procedures, and refining the company policies—the three Ps. As appropriate, focus on the six key system elements—process, components, people, quality, speed, and measurement.
Following the workshop, the leader or a designated person should write up the new policies and procedures. Give the document a title such as “Customer Service Responses,” “Hiring Procedure,” or “Quality Control Checklist.” Copy everyone for review.
At the next workshop, take a few minutes after the brief training to evaluate the previous draft document. Ask for feedback and make any adjustments or refinements. The leader should delegate assignments and set a date to have the new policies or procedures implemented.
Put a final copy in a procedure binder (physical or digital), which is a training manual for new people. Each document is one or two pages. At the end of a year, you will have 50-100 pages of policies and procedures. As you refine your business systems, replace the old documents with new ones. Assign someone to keep the binder updated.
Remind people of the date, time, and topic of the next workshop. Make any assignments necessary for them to prepare. Compliment everyone on a job well done. Be sure to recognize the accomplishments of the group as improved systems or processes come online and begin to pay off. Celebrate victories… Do I hear pizza party?

Preserve Your Best Practices

Imagine if you planned and implemented policies and procedures for every step of your core business systems such as sales, customer service, hiring, employee training, and so forth. When new people join the company, they get the collective wisdom and “best practices” that have been developed over time by experienced people. When top people leave, your high-performance systems remain intact.

Collaborative workshops are easy to do and draw the best ideas out of people. They unite them on the vision of the organization and get everyone moving together with aligned goals.

In a year, you will be a different organization, with dramatic improvements in all areas of your operation. One hour a week is all it takes to grow a remarkable business! Don’t put it off!

At the next workshop, take a few minutes after the instruction period to evaluate the previous draft document. Ask for feedback and make any adjustments or refinements. The leader should delegate assignments and set a date to have the new policies or procedures implemented.

1. At the next workshop, take a few minutes after the instruction period to evaluate the previous draft document. Ask for feedback and make any adjustments or refinements. The leader should delegate assignments and set a date to have the new policies or procedures implemented.

Power-Lift Your Business Meetings!

Ron Carroll

4 May 2011

Are your business meetings weak and powerless, or do you hold muscle meetings that build strength, fitness, and endurance into your organization?

Power-lift your business meetings

In an on-line Microsoft Office survey, 38,000 respondents in 200 countries cited unclear objectives, lack of team communication, and ineffective meetings as the top time wasters. The results showed that workers spend an average of 5.6 hours each week in meetings; seventy percent of respondents feel they are unproductive.

Meetings are among your most important business systems and the best place to start building a high-performance, results-driven, culture of excellence. Every meeting you hold should have a payoff!

Muscle Meetings

The best way to power-lift your organization is by holding regular highly-productive workshop-style meetings. These meetings have the specific purpose of improving every aspect of your business. In each workshop, you will focus all the relevant people on fixing or elevating just one part of your operation—one business system or process.

Together, you will brainstorm ideas for improving the business systems that are holding your company back. For example, you might develop or refine procedures to become more customer-centered, or seek to remove waste and rework from your operation. You will also define policies that employees are trained to follow.

Constant attention to the three P’s—planning, process, and policies—will reduce fat and develop hard muscle for the heavy lifting it takes to grow a successful organization.

Learn, Improve and Grow Together

In these muscle meetings, your engaged staff will not only help you see problems and challenges more clearly but will usually know how to fix them. Your role is not to solve every problem single-handedly, but to guide the discussion and offer your experience and good judgment along the way. Keep in mind that when you invite open dialog, your people may point out the brutal facts about your company’s flaws, weakness, and “unconscious incompetence.” Welcome their constructive comments.

Remember: people like to be asked their opinion. They want to add value to the organization and be recognized for their contribution. A business system built by those vested in its success will have far greater buy-in and results. You can take that to the bank! (see “Rules of Engagement”)

Work On the Business

Michael Gerber, the author of “E-Myth Revisited,” said that most entrepreneurs work in the business and not so much on the business. Time spent every week in collaborative meetings working on the business to improve processes and policies will do more to get your company in shape than anything else you can do.

The Box Theory™ methodology focuses on six qualities of each business system—process, components, people and policies, quality, speed, and measurement. Every system can be evaluated and improved by drilling down on any of these six elements.

Schedule at least one hour per week to work specifically on the critical areas of your core business systems and processes. Like regular exercise, fifty-two improvement meetings a year will make your company fit and attractive to both customers and employees.

Now, go plan your first muscle meeting today!

Frequent Feedback Is Your Key to Employee Motivation!

Ron Carroll

20 Apr 2011

Did you know that in a three-hour football game, the ball is only in play about 11 minutes? That’s less than the time it takes to boil an egg. During the other 174 minutes of a typical television broadcast, the fans are waiting around for the next snap of the ball! (Wall Street Journal study)

However, as fans, we stay motivated because of the abundance of informational feedback we receive between plays. Our attention is held by replays and game statistics flashed on the television screen. We hear color commentary from announcers, see highlights of other games going on, and learn about the personal lives of players and coaches.

When the ball is in play, we are glued to the action. We get visual feedback from yard markers that indicate our team’s forward progress. We know exactly how far it is for a first down and how many yards to the goal line. The scoreboard constantly reminds us of how our team is performing compared to the rival team. We cheer and boo to make sure the players, coaches and referees get feedback about their performance.

Players and fans receive non-stop feedback throughout the game!

System Feedback Feedback

Feedback Boosts Performance

Here are three simple things you can do to apply the principle of feedback to the business systems and processes in your operation:

Team members should always know how they are performing in relation to the goal.
System feedback and scorekeeping should be simple and self-administered. Employees should not have to depend on a supervisor to tell them how well they are doing.
To improve performance, increase the frequency of the feedback.

Good employees love to get feedback, whether it comes in the form of vital information, numbers, and statistics, praise, encouragement, recognition, financial incentives, or even high-fives. Positive feedback is far more effective over time than negative. If you find yourself giving negative feedback often, you likely need to improve the business system or get the right people in the job assignments.

Feedback motivates, and is an essential part of high-performance business systems and processes!

Apply this Powerful Principle

Take a close look at your core systems and processes. Do people frequently learn how they are performing in relation to the goal? Do they know when they’ve had an exceptional day or an off-day? Do they continually strive to improve the system and themselves—to better their best? Do you reward employees for a job well done?

Remember: to improve performance, increase the frequency of feedback.

Do You Have the Courage of Accountability?

Ron Carroll

13 Apr 2011

“The ultimate distinction setting a ‘Results Rule!’ culture apart from all others is personal and organizational accountability” (Randy Pennington, Results Rule!, 157).

Some business owners and managers use the principle of accountability as a big stick to achieve results. In our highly competitive world—whether in sports or business—top leaders are often fired for not meeting goals or expectations. Although a tough approach may be necessary at times, there is a better way.

Ownership Is Stewardship

While “accountability” often elicits fear from employees, “ownership” of a business system, task, or result can be highly motivating. When the right person is given the opportunity to take ownership of a system, showcase their skills, and exert personal influence to make a difference, they will raise the bar on performance. You can count on it!

System Ownership

I happened to be visiting a large home-decorating retail customer when the owner was meeting with his management team to discuss the problem of getting reports on time. He asked me to sit in. To my surprise, the business owner began the discussion by saying, “Let’s ask Ron why this system isn’t working.” I was on the hot seat.

My first question to the group was, “Who is the owner of the system?” Everyone looked at each other. The business owner finally broke the awkward silence by saying, “Everyone knows their responsibility, so we didn’t feel a need to assign a leader.” As diplomatically as I could, I responded, “I think that may be the problem.” And it was. A person was immediately assigned responsibility for the process, and the reports were never late again.

Lack of ownership by a single person is a common cause for the breakdown of business systems!

The Leader’s Role

In Box Theory™ methodology and software, there is never a business system without a designated owner! When transferring ownership of a system or process, keep the following in mind:

Clearly communicate the core purpose and expectations.
Provide the necessary knowledge and skills.
Define the system and the boundaries for individual action.
Give people trust and freedom to fail in honest pursuit of objectives.
Provide frequent feedback regarding results.
Celebrate success.

Extraordinary Results

A documentary of a few years ago about Pixar Animation Studios illustrates the power of ownership. Several talented animators—one after another—were given the opportunity to direct a full-length film. From each animator-turned-director came such blockbuster and academy award winning hits as “Toy Story,” “A Bug’s Life,” “Monsters, Inc.,” “Finding Nemo,” “The Incredibles,” “Cars,” “Ratatouille,” “Wall-E,” and “Up.”

The result of allowing talented animators to step into the role of film director was nothing short of amazing. It would be like each offensive lineman of a football team becoming the quarterback for a game—and each winning the MVP award!

Ownership and accountability are important secrets to developing a culture of excellence.

Do all your business systems have an owner? If not, now is a good time to honor and elevate the right people!

How Would Others Grade Your Business Systems—”D” or “A”?

Ron Carroll

6 Apr 2011

Your entire business is made up of systems of one kind or another. That’s how you get things done. However, the quality of your business systems and processes will determine whether your customers love you, whether your employees enjoy and excel at their work, and whether your business rewards you with a generous profit.

So, how might others see your company? Go ahead and grade your business systems using the criteria below.

Low-Grade Business Systems (Sorry, but these will only earn you a “D”)

Undocumented processes, word-of-mouth training (“If it’s not in writing, it’s not a system!” Michael Gerber, E-Myth Revisited)
Rudimentary systems invented by workers on the fly
Frequent changes to procedures as people come and go
Crisis management, “seat-of-the-pants” solutions
Tradition—“It’s the way we’ve always done it”
Excessive employee discretion—“the enemy of order, standardization and quality” (Theodore Levitt, Marketing For Business Growth, 56)
Frequent frustration, lost customers, employee turnover
High defects, returns, rework and wasted time
How others may see you: disorganized, unreliable, unstable

Medium-Grade Business Systems (Score yourself a “C” or a “B”)

Some documented processes with policies, procedures, forms, checklists, etc.
“Common sense” and “trial-and-error” solutions to problems
Software programs (business systems in a box)
Attention to quality control, inspection, audit, approval
Fewer than 3% defects, defect removal process, waste management
Normally smooth-running business operations
How others may see you: organized, credible, professional

High-Grade Business Systems (This is what it takes for an “A” on your core systems)

Ongoing and updated documentation on how work is done (including handling of details and exceptions)
Knowledge and implementation of best practices
Focus on exceeding customer expectations—the WOW! factor
System ownership, accountability, and reporting
Standards of performance, measurement, and feedback
High-performance results (high-quality + high-speed = low cost)
Prevention of mistakes, defects, and delays
Continuous learning, improvement, and innovation
Results-driven culture of excellence
Maximized profitability and growth
“Franchise prototype” (Michael Gerber, E-Myth Revisited)
How others may see you: exceptional, industry leader, the envy of competitors

Culture of Excellence

What kind of business systems and processes do you want from your doctor, accountant, auto mechanic, or home-improvement contractor? You want high-performance systems, right? Well, that’s what your customers want from YOU!

When you focus attention on creating effective business systems, you will build a culture of excellence and enjoy the resulting financial payoff. There is no other way!

One in Ten Are Ready to Buy from You—Do You Know Who They Are?

Ron Carroll

16 Mar 2011

It is a brutal fact of business life that most people don’t want to buy your product or service, at least not right now. However, don’t be discouraged. This knowledge could be used to improve the odds of your success. Let’s take a look.

Is Knowledge Power?

Marketing guru Chet Holmes declared, “Twenty years of research has shown me that there is always a very small percentage of folks ‘buying now’—three percent.”

To an audience of twelve hundred executives, Chet asked, “How many are in the market to buy a car right now?” Roughly, thirty people raised their hands. “How about office equipment?” Thirty different hands went up. “Home improvements?” Again, about thirty hands. Approximately three percent of potential buyers at any given time are ready to buy. “That percentage drives all commerce.”

Chet’s research also showed that 7% of the population are open to the idea of buying because they are dissatisfied with their current item or provider and are not opposed to considering a change. Of the ninety-percent that are left, approximately one-third are not thinking about the product or service, though not opposed or against. Another third don’t think they would be interested. The last third know they are definitely not interested because they are happy with what they have or don’t need the product at all (see The Ultimate Sales Machine, 62-63).

These facts are interesting—but of little value—unless you incorporate this knowledge into a working business system.

Knowledge Plus Action Equals Power

The Application of Knowledge

A few years ago, I created a lead-generation system for my accounting practice. I wanted to find those one-in-ten companies (3%+7%) that might be in the market for my services. First, I acquired a list of several thousand businesses in my community. I wrote a telemarketing script and had a person make phone calls for two hours Monday through Friday.

The telemarketer asked the business owner or a receptionist/secretary this question: “HAVE YOU THOUGHT ABOUT CHANGING ACCOUNTANTS? The caller sought a yes or no answer and noted the level of interest from strongest to weakest. We recorded their response as follows:

Y3 – Yes, definitely thinking about it
Y2 – Yes, somewhat thinking about it
Y1 – Yes, secretary thinking about it
N3 – No, but should think about it
N2 – No, but might want to think about it
N1 – Not interested

Based upon the response, we developed a follow-up script to pursue the 10% hot leads and quickly passed over the low-interest responses. However, we also knew that in our industry there is often a growing dissatisfaction with accountants (especially those that lack good business systems). A company that isn’t thinking about changing accountants today may be at a higher level of interest in six months or a year.

This gold-mining system paid off. About three percent of prospects were anxious to meet with us immediately, and an additional seven percent wanted to know more. By the way, don’t underestimate what the secretary thinks. Many have influence and will help you get an audience with the decision-maker.

The Secret Component of the System

Our question, “HAVE YOU THOUGHT ABOUT CHANGING ACCOUNTANTS,” worked because it is low-key, non-threatening, and gets to the point quickly. You may want to try it in your business. For example:

Have you thought about outsourcing your computer services?
Have you thought about getting a new copy machine?
Have you thought about installing new countertops?
Have you thought about improving SEO for your website?

A great question like this is also effective with up-selling or cross-selling. “Have you thought about adding a humidifier to your new heating unit?” “Have you thought about the advantages of upgrading to granite countertops?

This system worked for me. Some variation of it might work for you. By the way, “Have you thought about creating better business systems and processes?”

Repetition—The Boring Road to Riches!

Ron Carroll

9 Mar 2011

Recently, I awoke from a vivid dream. I was standing in line at a Krispy Kreme donut factory and feeling the most pleasant sensation as I watched those hypnotizing pastries pass under the frosting falls and down the conveyor belt toward the finish line. It was heaven.

System Repetition

However, before you jump to any conclusions, you should know that my dream-state was not focused on the melt-in-your-mouth donuts. Instead, I was mesmerized by the manufacturing system that produced six perfect donuts every second of every minute of every hour. (Even when I dream, I’m a Systems Thinker.)

I marveled at the power of this repetitive process to consistently earn money for the business owner. Those little donuts could just as well have been quarters—the profit on a donut—coming off the end of the conveyor belt.

Wouldn’t you like a company where you could open the door every morning, flip a switch and everything would start humming along, making you money? You may not have an automated factory; however, it is possible to create business systems and processes—marketing, hiring, training, customer service, order fulfillment, and so forth—that work consistently every day to accomplish your business and financial objectives.

Repetition Generates Profit

Being innovative gets me excited. I love to create and try new things. Innovation also attracts customers and creates a buzz in the marketplace. However, the daily repetition of effective business systems and processes is what generates profit. I REPEAT: THE DAILY REPETITION OF EFFECTIVE BUSINESS SYSTEMS AND PROCESSES IS WHAT GENERATES PROFIT!

Those boring and repetitive routines will make your business remarkable. People will see your company as being organized, consistent, predictable, standardized, reliable, orderly, disciplined, and trustworthy. Repetition increases employee productivity and quality while lowering costs. It engenders confidence in customers and keeps them coming back for more.

Nature is Our Best Example

Ralph Waldo Emerson said, “Nature is an endless combination and repetition of a very few laws (American Poet, Lecturer, and Essayist, 1803-1882). Like Nature, a business is a unique organism that operates best when there is a harmonious interaction of its vital systems. Repetition is the steady heartbeat of a prosperous organization.

You can only leverage the profit-generating power of repetition by implementing effective operational systems and processes that consistently produce your version of “melt-in-your-mouth donuts.” There is no other way!

The ultimate reward for creating a systematized business is the opportunity to hire someone who can run it for you, replicate it in other markets, or sell it for top dollar.

Just like Krispy Kreme, repetition is a key ingredient for you to enjoy the sweet smell of success!

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