What Exactly is the Next Level?
Many of my consulting projects focus on “taking business to the next level.” This is an inane bit of business jargon that ironically does a great job of representing the work I do.
Company makeovers have become a mainstay of my consulting practice, but not all makeovers are created equal. Out of necessity, I have developed my own lingo to describe what stage a company is running at. While this isn’t a scorecard (hmm, maybe it could be?), it has become a great tool for keeping management focused on the goals and tasks that matter most right now.
Ignorance may be bliss, but not understanding where your company is in its progress can lead to critical failures.
For instance, there is no point in adding a new line of business when no one knows what the current lines are contributing! Even mature companies need to go back and tweak entry-level skills from time to time.
Below are the four basic business levels I measure.
Whatever level you aspire to next, it is vital that we circle back and complete the current stage before moving on.
Beta – Proof of Concept
This is where the accidental entrepreneurs often find themselves for far too long. These are the folks with a great idea, who are in the right place, at the right time:
- The product or service shows promise, and someone is already willing to pay for it.
- There are at least key persons in place.
- The basic processes are in place to sell, deliver, get paid, and pay others.
1.0 – Business Fundamentals: P&L, Pricing, Work Flow
Being in business a long time does not equate to a full grasp of the fundamentals. A carpenter could spend years swinging a hammer and not realize there are dozens of hammer types, weights, and densities to choose from.
The basic criteria of 1.0 skills is to reduce surprises by establishing a baseline of normalcy. In warehouse operations this might mean organized shelves with assigned locations for materials. A standard price sheet and consistent proposal structure help normalize sales. Finance and record-keeping standards help keep sales and operations in line,
There are key 1.0 skills to master:
- Having a well-thought out P&L means we can evaluate results, spot trends, and at least tolerate some structure and discipline. It is an indicator that we embrace the relative importance of revenue to cost of goods sold to overhead. In other words, we clearly understand the mechanics of profit.
- Proper pricing indicates that the business has evaluated its market: customers, competition, and its own value proposition. A 1.0 company treats pricing as a policy: Changes are not made without management oversight with an eye towards intentional results.
- Basic business processes are defined, documented, and followed consistently. This includes at least some sort of an organization chart, defined operational processes with clear process owners, and methodologies for problem resolution (if not actual avoidance).
A characteristic of 1.0 companies is that they tend to treat their specific type of business as unique. In other words, they struggle to see how the same business best practices that work for other types of businesses actually apply to theirs.
2.0 – Intentional Outcomes: Budgeting, Planning, Strategy
If 1.0 reduces surprises, then 2.0 skills help steer toward planned results. These business skills often push owners and managers out of their comfort zones.
The overall benefit of 2.0 skills is to support scalable, repeatable results. This is when your small business begins to look like a more mature company, but it doesn’t mean you can’t have a unique brand, culture, or strategy.
The most difficult aspect of this transformation for most owners and managers is the discipline required to maintain 2.0 status.
Here are some of the key skills you need to develop in the 2.0 phase:
- Budgets are a crucial part of business evolution. Small businesses will typically need to master several types of budgets including: fiscal, capital purchasing, revenue forecasting, and supplies. Of course there are many sub-budgets to plan as well. The biggest benefit of this process is that it frees up brain power for more important tasks such as strategizing. Budgets also allow us to quantify progress towards goals which might indicate the need for adjustments.
- Planning is an elusive trait as it is often confused with reacting. The two sometimes look the same, but good planning improves your options when it comes time to react. Immature companies make plans when circumstances change. Mature companies create plans knowing full well that the plan will need to change. One of my business tenets is, “Make a plan so you can change it.”
- Strategy is the intentional effort to be unique or at least different. Few companies truly take the time or spend the effort or capital to develop a worthwhile strategy, but then not many actually get this far in their business progress. 2.0 companies learn that strategy and tactics are two different things. In the game of chess, moving a pawn to provoke an opposing piece is a tactic. If the goal is to force your opponent to change their plan of attack and allow yours to succeed, then it becomes strategy.
3.0 – Institutional Success: Full Control Over Business Trajectory
3.0 companies are in control of their fate, able to take advantage of ideas, innovations, and market trends, and able to turn the ship of business in any direction without losing speed. They have mastered all the skills through the 2.0 stage and can adapt, innovate, and evolve at will.
This means that introducing a new product, adopting a change in procedure, or on-boarding new personnel are everyday occurrences or are at least easy to accomplish – given how well management, the team, and resources are aligned.
- Consistent execution is the norm. When something doesn’t work, much effort is given to understanding why and applying training, support, or retooling to avoid the problem in the future.
- There’s a process for process change. Whenever the need arises, the team can introduce a change in process or procedure with little delay and total compliance. This may require coordination across multiple departments and disciplines, but success is a given.
- Executives have the time and inclination to focus on strategic options rather than day-to-day business. Financial independence is the norm. Risk management is consistent.
To be fair, very few companies achieve 3.0 status. Those that do, discover that there is a Grand Master Level 4.0 where they can apply their skills to new endeavors.