What’s more important a good process or a good sale? I’d wager 9 times out of 10, a good sale is worth more than any process. There are a few exceptions:
When you are at maximum capacity and cannot fulfill the demand you have.
When your price is too low to support delivery.
At all other times, it’s better to focus on getting more sales than on improving your processes. This is probably sacrilege in the SMBTwit world and all apologies to @joshschultz but as someone who coaches entrepreneurs with sub $1m businesses, I’ve seen process getting out of control.
Some owners at this level are focusing on documenting and then improving processes for hiring, delivery, AP/AR, etc. On the surface it sounds great. Why not prepare yourself for growth and get ahead of the game? The problem is the owner only has so much capacity. If it is devoted to something that might create value 12 months in the future, they are missing out on creating value today.
I was reminded of this listening to a podcast with Mike Michalowitz on his latest book Fix This Next. The book’s insight is to adapt Maslow’s hierarchy of needs into a business hierarchy of needs. At the base of the hierarchy are sales. There’s no business without a customer and there is no customer without a sale. Second on the list is profit. We all know we can sell without making money so once you have some sales coming in you need to focus on turning some of those sales into actual profits. Only at the third stage do you focus on what Mike calls “order” or processes.
I’m seeing small companies focus on order too early in their cycle. Most of the time this is driven by advice from books or entrepreneurs with larger businesses. I wouldn’t move to order until sales and profit are spinning about as fast as you can get them. Only under the pressure of increasing sales will you create efficient processes. Without that pressure, it’s too easy to build complex processes to serve every conceivable situation. I’ve called these processes, “Castles Made of Sand,” in honor of Jimi Hendrix. Processes made without this pressure will crumble at first contact with real growth1.
Of course once that flywheel of sales is turning, process documentation and improvement becomes paramount. There was a time in the early growth of my company when, “process over heroics,” became my mantra. We had to reinvent every solution to a problem and as we grew the problems grew. It took a good 2 years to build the processes to make us stable and stop the heroics. But I don’t think there was any other way to do it. We never would have known what processes to focus on and what result we wanted to get from them without the growth happening first.
That process building effort was successful and stabilized the company but then another thing happened a few years after the initial process push: sales slowed. There was a sales process and lots of other processes but they weren’t working to grow the company. Even at a small company size we had become too process focused and it took some entrepreneurial instinct to figure out how to smash a lot of the process we were using while leaving what was working alone. Accounts receivable was fine but marketing and sales needed to be blown up along with compensation and performance management.
What was needed wasn’t process improvement but ruthless elimination and rebuilding. Rocky Balboa had gotten soft working out in front of adoring crowds. We needed to get rid of the fancy stuff and start pushing barrels uphill and punching frozen meat.2 We stopped a lot of the inwardly focused stuff (meetings and reporting) and got our best people spending as much time as possible in front of clients. The mantra at the point was, “Forget process. Be heroic!”
Then sales kicked in again. Then it got overwhelming dealing with demand and then we worked on improving our processes again.
The point I’m trying to convey is that there is always a push and pull between creating process and ruthless eliminating it. Companies with an engaged and empowered entrepreneur tend to navigate this push and pull-however chaotically. Those companies with “professional management” are more of a crap shoot. It requires entrepreneurial heroics to identify what isn’t working and then destroy it. It requires courage to tell people what they are doing isn’t valuable anymore and then show them how to create value again.
This is the skill I think sets entrepreneurs apart. There’s a certain intellectual and moral flexibility you need to create and then smash what you have created in order to rebuild it again.
That’s it for this week.
Alan
Thank you Mike Tyson and General Von Moltke.
I grew up outside of Philly. This is how we think.
I love this. Too often we are trying to apply grand systems to small problems where instead commitment to winning is the key ingredient. The obstacle to success in business I see most often is a teams' willingness to allow for an answer to be "and that's why we won't be able to deliver ____". The biggest lesson your team can learn from you is that obstacles are there to be overcome, not to create an excuse to give up.
Great post. Honestly it is validating. I struggle with process, but mostly due to my commitment to sales. Feels good to hear I might be getting something right. Someone asked me the other day how I “get it all done” and nothing describes that better than your “heroics” mentality. I’m constantly pulling my business and everyone in it across the finish line. However, the first thing I said when I answered the question was “sales always comes first, because without sales there is no business”. Good start to my Sunday haha!