A well-run business is like a finely tuned machine. Each part of the machine has a function and when operating efficiently and in unison, the machine produces the desired result. All too often, however, there are problems. Something is broken and while the symptoms are obvious, the underlying cause can be difficult to diagnose.
This is especially true in small and midsize businesses. Owners and managers are often so busy in the day-to-day of running their business that they don't have the time to diagnose problems. The problems persist and the business fails to function properly. Surveys found that 20% of small businesses failed in their first year and 50% failed after five years.
Learning how to manage employees is part of the equation. How to define a job, encourage initiative, acknowledge an achievement, provide feedback, and facilitate communication are all elements that must be working to have a productive and engaged workforce.
In talking with successful businesses and those who are struggling, we found commonalities. There were components that, when implemented correctly, put businesses on solid footing for success. On the flip side, when businesses failed to implement these components, they struggled.
The Five Echelon
We call these components The Five Echelon. They are a foundational framework that anchor a business to a solid foundation for success and growth. The Five Echelon are Organizational Culture, People, Product, Process, and Profit. Let's dive deeper to understand why each is important.
People often spend more time at work than they do at home. They interact with their coworkers more than their spouse or their children. Yet many businesses put very little effort into designing their organizational culture. In our view, organizational culture is the bedrock of a company. Everything is built on top of this foundational layer. Get it right and other aspects of the business will be much easier to manage.
Organizational culture starts with a company's values and how those values translate into the behaviors that define the social and psychological environment of a business. It's influenced by the company's mission and beliefs which guide the way people interact. It determines the flow of information and how communication is handled both up and down the management chain. Many people think that organizational culture is all about perks and benefits. Those are certainly part of the equation as they contribute to what makes a company a great place to work. But organizational culture is much broader, it defines the soul of the company, what it stands for and how it values its employees.
In the most general terms, a company is really a collection of people, products and services. Many businesses sell similar products but what often differentiates successful businesses from unsuccessful ones are the people. They go by different names: employees, team members, staff, FTE's, etc but they are the living, breathing, the face of your business. Having the right people can make the difference between being a profitable business and one that is struggling.
Too often, we see hiring based on a job description, recruiting candidates with a certain set of skills or experience rather than hiring for fit. As a result, 46% of new hires fail within 18 months. Studies show that 89% of new employees had difficulties adopting into the workplace. By finding people that will assimilate well into your company's organizational culture, companies can avoid this common mistake.
Skills can be taught and experience is often less relevant than employers think because it rarely transfers over in the same way from a previous employer. What's more important is finding people whose values and personality match those of the company and other employees. Finding people who can assimilate successfully into your company's culture is the key.
Many small businesses are sole proprietorships and believe they don't have "people problems." However, we've found many of them are suffering because they don't have employees. Owners often take on too much work themselves by not leveraging a team. Understanding the value of your time and the art of delegating tasks to the most appropriate resources is an important aspect of any successful business.
When speaking to businesses, they often feel most confident about their product or service. There is a sense of ownership and pride in what they've created. This is understandable but in business, biases create blinders which can lead a business down a path away from success. It's important to be objective with products and understand where they fit into the marketplace. Who is the target customer? What is the competitive landscape? Is there a key differentiator that makes the product better or unique? Do customers buy the product because of that differentiator or for other reasons?
There are many questions to ask in this Echelon to get a true understanding of what a business is selling and the market opportunity. Too often, business leaders talk themselves into believing they have a better product and waste countless dollars on marketing features that don't drive sales. Only when you fully understand your target market, your Product/Market Fit and how customers are using your products, you can develop a marketing strategy to support sales growth.
Efficiency is important to any business. Resources are limited and time is often the enemy of success. For a business to be successful, it needs efficient and effective processes in place. Bottlenecks need to be uncovered and understood to keep work flowing. Communication between management and the employees, between different departments, between the company and its customers and between the company and its prospects, need to be in sync.
How many times have you heard things like "the right-hand doesn't know what the left hand is doing?" That's the kind of thing you hear when processes aren't clearly defined or understood. When employees are on the same page, working toward the same goals, they will be successful if processes are in place to facilitate the flow of work throughout the company. A collaborative environment performs 5x higher.
The larger the company, the more complex the processes tend to be. More employees provide more opportunities for things to get lost and slip through the cracks. Having defined processes that are communicated clearly help ensure that problems are quickly resolved and teams are working together. Having the right people following the right processes removes stress and confusion and allows everyone to do their jobs effectively.
With a strong organizational culture, the right people, products, and processes in place, the end result should be a profit. It's the reason companies are in business and it's important that while profit is the end result of running a successful company, it shouldn't be an afterthought. Profit needs to be at the forefront of every decision so the impacts are understood.
That's not to say that profit is always an immediate result. Sometimes businesses require an investment that delays profitability. Building out infrastructure and products takes capital and that can delay profitability. However, too many businesses look to their checkbook to see if they are in the black or the red. They don't build their businesses around the very thing they're in business for, to make money. Strategic plans need to factor in the importance of profitability into the decision making process. Profitability shouldn't be a surprise, it should be the result of careful planning and execution.
Once those profits come in, how can they be used to enhance your organizational culture? How do you invest back into your business, your employees and your community? When you establish your mission and decide what your company stands for, how do you make that actionable when you achieve success? Great businesses do more than enrich their owners. They provide a means to meaningfully impact the lives of employees, the communities the business operates in and the mission it supports.
When you build a solid foundation based on The Five Echelon, you position your business, your products and your employees for success. Every business is different but all share the need for this strong foundation.