Martin: Welcome to the business owners’ podcast where we throw aside taboos and share strategies for growing, protecting and exiting your business. My name is Martin Checketts and I represent Mills Oakley’s Private Advisory team.
Well hello everybody, we’re at episode three of season 6 of the podcast which is all about franchising and systematising your business.
Returning for the third time out of four, we’ve got out panel! We’ve got Corina Vucic, hi Corina!
Corina: Hi Martin, how you going?
Martin: Good thank you, we’ve got Ben Fletcher!
Ben: Hi, how you going?
Martin: Very good, and Greg Thomas.
Greg: Hi Martin.
Martin: So, you might recall and just a very quick intro, Corina is the director of FC Business Solutions, franchising and business operational consultants. Ben is the franchisor of Listen to your Body personal training studios and Greg is a senior lawyer at Mills Oakley.
Ok. So today we’re going to broaden it out a bit, or should I say in one sense we’re going to broaden it and we’re going to narrow it. We’re going to broaden it in the sense that it’s not going to be so much about franchising, it’s going to be about how to build really good operational systems and procedures into your business, and it’s great to speak to the franchising experts about this because of course, this is what they’ve done very, very successfully in their businesses and many times with their clients because that’s the value of a franchise. But there’s a very ready parallel I think, for any business owner who is looking to build a better business and ultimately build a sale-able business. I also say that we’re going to narrow it a bit, because I think, and with the utmost respect to the gentlemen on the panel Ben and Greg, I think we’re going to be getting some heavy insight from Corina on this one so, no pressure, Corina …
Corina: Not at all, Martin!
Martin: I’m sure you’re going to go really well, but I personally would like to get granular with you about operational systems and procedures because this is what you do, I think, incredibly well for your clients. So, let’s just talk about that generally to start with. What do you see out there in the market in terms of the quality of business systems and procedures in private business?
Corina: Thanks, Martin.
Too often small businesses run their operations in an ad-hoc manner. They run with short-sighted thinking, they’re thinking about paying tomorrow’s bills, they’re thinking about what next week looks like and they’re not thinking about their exit strategy and how they’re going to maximise their exit with the business that they’ve built.
We believe and we build systems for businesses around what we call the retail 5 P’s, and so if you are a business owner, I would expect that once you have hit your profit and you’re starting to consider that exit line, I would expect you to be stopping and health-checking, how does your business operate day-to-day, week-to-week, month-to-month. And I would expect you to start building and refining every policy procedure that makes your operation tick.
Martin: Sorry, Corina, to interrupt – just tell us what the 5 P’s are!
Corina: The 5 P’s are, the first one we work with is the premises. So, where does your business operate from? What does it look like, how does it smell? How does it sing? How does it portray itself? So anything to do with the premises.
The second one, in a very logical order to us, is also what is the product? So what is the product that you sell. Are you selling cups of coffee? Are you selling solutions to your clients or customers? Are you selling beautiful clothing or lifestyle outcomes?
The next one is that, once you’ve got the product nailed and you understand how you’re buying product, moving product, maximising product or service – it’s also then about the people. What are your people structures? Does the business operate without you? Do you have a succession plan in place for different key areas of the business? Do you have professional development plans and are you supporting your staff in their own career paths to add value to yours, and leave a legacy when they move on, or they move into their own legacy.
The next one after that is the promotional piece. Once you’ve got the premises looking shmick, once you’ve got your product knowledge and your point of difference right, once your people are singing and know how to deliver that, then you actually worry about going out into the promoting space, and selling your best wares so when the phone rings the traffic flow comes through – or somebody wants to buy something from you, you’re then promoting what’s best practice.
Once you’ve got those 4 P’s singing in your business, the profitability element, which is the last P, falls into place and your job as a business owner then is obviously to maximise top, minimise expenses and maximise the return, either re-invest or do whatever it is that keeps you happy as to why you take a risk.
So to me, if you’re going to systematise your business and you’re going to prepare yourself for sale, or you’re going to prepare yourself to wind back in your own business and perhaps have a different lifestyle, then build your systems according to those 5 P’s, have them documented, keep them alive and that’s the equity that you’re selling.
Martin: That’s great Corina. I can only imagine a number of people listening to this will be thinking ‘well, great, I’ve got systems in my business, I’ve been running my business for 30 years and I’ve got it down-pat as an operator’, but when you drill down a bit, you find out the systems are in the business owner’s head. Tell us about some of the problems that that brings.
Corina: Absolutely. I think the first problem is that if I’m the business owner and it’s all in my head, then the pressure of running the business day-to-day, the constant support that I need to provide, certainly gets you over the edge at some stage, because if you’re holding onto that intel and you’re not imparting that intel, then at the end of the day you are tied to your business day and night – and it doesn’t matter how many self-help books you read, it doesn’t matter how many seminars you go to – you cannot go into what they call the ‘no zone’ or the down time period, because constantly you are having to provide support and impart knowledge and fix things and be in crisis mode. So, as a business owner you need to stop and understand that you need to make yourself redundant, and if you don’t make yourself redundant from the day to day operations, then ultimately your business will peak and it’ll stay at that level and it won’t go any further because you’re not actually working in the space that you should be, which is basically strategy, looking at better ways, continuous improvement – instead you’re being pulled back into day-to-day, and therefore the business will actually stifle itself. Does that help?
Martin: Well it’s just given me, well I might call it a light bulb moment, it’s bloody obvious really but I’ll say it anyway, we often talk with our clients about reducing key man dependency, it really is, it’s a very, very common problem and it’s one that can stymied their business exit process – but of course, doing that is very difficult and we say to the clients well, you should delegate more! And of course everyone knows you should delegate more, but it never happens because it’s a big and multi-faceted problem. It just kind of struck me, the systems and procedures are a really core aspect of that aren’t they? They’re a core aspect of actually giving you the confidence to delegate. Because you’re now, you’ve retained some control if you like, through the systems and procedures, and you can delegate with confidence and yeah, it just struck me that the ops manual, that aspect of it is probably one key component of unlocking this broader problem around key person dependency.
Corina: Absolutely it is, Martin. And I think the extension of that is that once you’ve got your policy or your procedures in place, the day to day systems in place, you as a business owner – to be able to delegate well and delegate with empowerment, must also invest time and energy into training those systems and procedures and training the culture that you want without you being in the middle of it. And that control factor, we forget, it’s easy to say ‘delegate these 5 things’ but the business owner rushes off and gets on with their task list – instead of saying well hold on, how am I going to delegate these 3 or 4 things to you, now let me impart some knowledge as to how and why I do them, and then run with your own system that adds value to it.
Martin: Now Corina, we often talk about documenting systems and procedures, but at a really kind of granular level, can you tell me what that means? Because again, I’ve asked the question superficially of my clients, have you got systems and procedures? Yes! And then we set up a data room and we get the thing ready for sale and there’s a crappy you know, piece of A4 paper with some systems written on it, there’s then a spreadsheet somewhere else – when you talk about documenting systems, what do you mean?
Corina: Okay first thing I think and say to myself, and my clients, is: you as a business owner need to have your own systems. So, I as an individual, to run my business effectively in my Director role, need to have the following basic components: I need to have what I call an annual calendar, as to how my business runs. That everybody in my business understands what our key events are, what our key deliverables are, and everything falls into that calendar and we run our operation according to that. I as a business owner in my systems needs to have a business plan process. I don’t care if your business plan is written on a serviette! At the end of the day, you need to have a business plan with some goals attached to it that drives you and holds you accountable to deliver. That’s part of my system as an owner of a business. I need to have, as a business owner, my marketing plan, my branding plan, my PR plan, my social media plan, that fulfils the unaided awareness that I want off the brand in my marketplace in my sector. So to me as a business owner I have to have systems documented to run the business. The next level of that, then, is the operational systems that the team delivers day-in and day-out, those systems are as simple as you know, there’s an opening routine to the way that you open a store, you open your business. There’s a closing routine that people do, you know, when you walk through any retail store between 4 and 5:30pm Monday to Wednesday, your team members in that retail store are in closing routine mode. They’re cleaning up the coat hangers, they’re putting together the right club locking, they’re doing all of that. And so therefore they need to be able to be making that happen without anybody thinking about it. Once you’ve got those systems documented, as an extension of that, then you say well humans are humans, so to initiate and make sure they’re done in a consistent manner, the extension to that is a check-list or a process. Corina, here are the 10 points that close the store today, here’s the tick-off point, here’s what you need to do, and if there’s any anomaly as a result of that, then this is how you deal with that or this is who you report it to. They are the basic systems and processes of an operation.
Martin: Thanks Corina. That all makes perfect sense. I can imagine though that some people listening – they might find that a bit overwhelming, I mean, we’ve spoken about a business plan, we’ve spoken about the marketing plan, the strategy, the operational procedures and I’m tipping that about half the people who listen to this probably don’t have any of that. If you are in that position, what would be a good place to start?
Corina: I always say to our clients, the best person that can write the policy and procedures in whatever fashion, is the team members that already work with you. They are doing it day-in and day-out. So if you don’t know where to start and you don’t have a lot of money to go and pay people to do it for you, then go and talk to your team and get them to basically document in whatever fashion you want, what is it that they do day-in and day-out in your business. And that to me is the starting ground for you.
Martin: That’s great Corina. Well now I’ll broaden it out and get some feedback from Greg and Ben. Ben, you’ve been through exactly this process in your business and again, if I can make you blush, I’ve seen the quality of the systems and processes that you have in place – but I can only imagine that didn’t happen overnight. Just tell us about how you did it in your business.
Ben: There’s probably 3 things. The first thing is the awareness of creating a good system started a long time ago. Our philosophy was that if key leaders want, ah … if something happened to a key leader in the business, the business needs to continue on, won’t get into too many details but if a plane went down and we were on it, the business has got to continue trading the next day, so, that philosophy started years and years ago. Secondly, as we built the systems, we’ve always invested a lot of time to training and testing the systems – and the third thing about the system that I think is really important to a business is that if a system doesn’t work out, and we’ve had many systems that have cost us thousands and thousands of dollars … I think we’ve got to look at the lesson from that system and to refine it to get it better because there’s always going to be systems that we’re going to upgrade but, it’s a bit of a funny thing if someone says about the systems that we run with today you know, do they take much work? I say well it’s probably cost me about a million dollars to get them to this stage! And it’s incredible the things we were doing 5 years ago, I say, did we really do that?! Things we’re doing now from touch points into the emotional side of connecting with people is critical for us and it’s just a never ending process to look at systems review and upgrade. We’ve consistently have even tried on our KPI’s we’re trialling a new system, we usually pilot our systems first – with a couple of people – a three month period, then we roll-out. It’s pretty big for us.
Martin: And that’s an important point, that it’s not just set-and-forget is it? And I can only imagine all of the ops manuals that are gathering dust in a filing cabinet in business owners offices and they don’t get updated and … it’s really interesting what you say about if the systems don’t work – I mean you can almost get emotionally attached to some of them. Particularly if you’ve spent a lot of money on developing them. Do you see that in your base, Corina?
Corina: Absolutely we do, Martin. What we also see is a lot of times that people spend a lot of money on getting the systems written up, then they put them on a shelf or put them on an online platform – very rarely do they get access – however, what’s happening day-to-day in the business operation is that there are new systems, policy and procedures being implemented because something happens, communication goes out and all of a sudden it actually contradicts what’s in the ops manual – and so often what you find is when you’re rolled in and you’re dealing … I mean the worst case we’ve had now is a manual that wasn’t touched for 28 years! Our starting point to do that job was to ask to have access to their current intranet site to have a look at all the communication and correspondence that had been sent out from the franchisor to then identify the gaps between what the ops manual had said, and what the new process had been communicated – and there’s a high risk for that, so absolutely Martin we do.
Martin: And again this is probably a question from out of the arc, but when I envisage in my head an operations manual I envisage kind of a bound book and the books on the shelf and the people would refer to it as they need to – I can only imagine in many businesses it’s not quite like that anymore.
Corina: Still is though, look – I’m going to refer back to franchise world for a minute, in many franchise systems we still do have that sort of world. Very good franchisors use that operating system as their induction program foundation – and therefore they still choose to want to have a hard copy format that they can actually utilise in those classrooms. We’ve come a little bit longer in the way so therefore there are some excellent online platforms now that enable businesses to really quite cost effectively get up their policy and procedures and then most importantly, keep them updated pretty quickly and readily. The beautiful part there is that technology has allowed us then to be able to track people accessing that information, reading it, and making sure that they are signing off on it so that if there are any stress points later down the track we can go back and talk about those.
Martin: Wow, so that’s fascinating. So it’s not just a manual it’s actually a QA system or a performance management system if you like.
Corina: I think the other thing that we see too is where they have good online platforms that extends into other parts of the business discipline – but the really lovely one is that when they can get on and talk to one another through some sort of platform you know, franchisee to franchisee or business owners to business owners, you find that they fertilise a lot of great conversation online and therefore things are kept healthy and continuous improvement occurs in this day and age.
Martin: And Greg, in terms of business exits and corporate transactions, have you got any insights or “war stories” to share with us about businesses that haven’t had these systems? They haven’t had these aspects and they’ve tried to go to the market?
Greg: Yes well, it’s a common due diligence requirement, anyone looking to buy a business to want to see the systems and the operations manuals and if they’re not there it’s pretty apparent that this business is probably not in great nick. What I would say though, is that in relation to having those systems in place in relation to franchising, it’s certainly essential but it doesn’t mean that it’ll be a successful franchise just because they’ve got systems in place. There’s a lot of other elements to make it a good franchise and a good franchisor – so often people say “let’s tick that box I’ve got an operations manual, I’ve got my systems documented”, but at the end of the day they haven’t really got other things in place that they require to make a good franchisor. They may be a good company structure, but not a good franchisor – and keeping things up to date is really important as well as you might have a franchisor who has the systems and policies for a couple of franchisees and they expand, and when they do expand they need some other procedures in place operating a 6 or 7 franchise network is a lot different to 20 or 30, and that is something is all about evolving and making sure you’re up to date with what your business is doing.
Martin: That’s such a great point Greg, and you’re right – these are the problems of growth. The system that worked for 5 isn’t going to work for 20 or 30 or 50 or whatever. I once had a deal a long time ago where there was no systems at all and as a condition precedent to completion, the buyer required the seller to put that all together at his own cost, he said well I’m just not going to buy it until you do that, and yeah – that was a very, very stressful moment in the transaction as you can well imagine! The other great comment that you made, Greg, and this will be a mind shift for many people, it certainly was for me just as you said it! It’s not about ticking the box, this is the mindset that we get into, particularly as corporate lawyers and we’re looking to bring a deal to conclusion and we’re ticking things off, just as you say, off the due diligence checklist or whatever it may be – but this is really about a process of continuous improvement isn’t it?
Greg: It is, and it’s just not a dinner party conversation where someone makes it sound so simple and easy and streamlined – it’s a lot more complicated than that.
Martin: We’re coming to the end of this episode, thank you in particular Corina for holding the floor for most of it and giving us that really in-depth insight into operational systems and procedures. Could I just ask in closing, Corina, what advice would you give to somebody who is just at the beginning of this journey, they might be feeling a bit overwhelmed, they don’t know what to do next – just close with maybe one or two tips that would help people on this journey.
Corina: Absolutely Martin, so, if you’re thinking this is overwhelming – your highest expense in your business is most probably your people and I would expect that you would have some sort of position description or job description that you have hopefully developed that holds yourself and your team member accountable to what contribution and purpose they have in the business. Start with that, because at the end of the day what they’re doing to deliver day to day for you is a procedure, a policy or an outcome.
Martin: Thank you Corina, that makes absolutely perfect sense and it will actually lead into the development of the other systems! And it will lead into your ability to better delegate, etc etc. That sounds like a wonderful place to start.
Thank you again everybody, we’ll be coming back one more time in this forum for our next episode, episode 4. We’re going to be flipping it around, we’ve already spoken from the perspective to date of the business owner or the franchisor, we’re now going to flip it around and look at this through the eyes of prospective franchisees. I know that various people out there listening might be thinking about taking up a franchisee opportunity or they might be advising people who are in that position – so we’re going to flip it around and look at it from the franchisee’s point of view! Thanks everybody!
All: Thanks Martin.