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Terminal Value

Marketing and Operations to Scale a Business

Doug Utberg

Business Growth Authority | Technology Strategy & Resourcing | Cost Optimization Expert | Business Process Architect | Financial Strategist | Founder - Terminal Value Podcast

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So this is a Friday edition where you are going to be hearing from me. And so if you’ve been listening this week, what you’ve been hearing about is how to market and brand your business. And if you haven’t listen to the episodes from this week, what’s wrong with you? Go back, listen to the episodes from earlier this week. I am here to bring gold to you every single day. And that is my obsession is to bring you all of the tools you need to either create or transform your business from where it is now to world class. Or if you’re starting over to create a world class business out of thin air. That’s the reason why I do all these interviews. That’s why I talk with all these thought leaders and these people who are in the field is to bring their ideas and strategies to you so that you have the tools you need to succeed.

Anyway, just talking through what I’ve been from this week, what I keep thinking about is how important marketing is to really running a successful business. Because as I’m fond of saying, until you sell something, you don’t really have a business, you have a hobby, there’s something that you really enjoy doing. Like, for example. Okay, let’s say that you really enjoy pottery. Okay. And say you want to make a pottery business. Nothing wrong with that. Great. Okay, so let’s say that you go out, you design a lot of pots, you make a lot of pots. They are absolutely beautiful works of art. Until you sell them, you don’t have a business yet. Once you do start selling them, then the business aspect starts coming into play. And so I think the important thing when we’re talking about marketing and branding is the top of that funnel for your business, is bringing the revenue into your business. And I think that’s a really important part that a lot of people, when they start in business, can have a tendency to overlook because most people, when they decide they’re going to make an entrepreneurial transition, what they’ll do is they will start by doing something that they really enjoy or that they really love. It becomes a passion project, which is outstanding because a business that you are not passionate about, when the inevitable difficulty hits, you will have a really hard time sticking through it. I’m fond of saying anytime that you are running your own business, you will have days where you just feel so down that you want to curl up in the corner and die, where you just want everything to stop, where you just want things to be different, but you can’t make it happen. And you are going to have to go through those times of difficulty. And now there are some people who happened to be lucky and get to that point of sustainability and all that really fast. And that is wonderful but not all of us end up there.

A lot of us have to figure things out as we’re going along or have to overcome a lot of missteps or have to go through a very abrupt transition. That’s actually what happened to me is I was laid off for my corporate career right at the beginning of the covid pandemic. On April 20 of 2020, I was terminated with no notice at all. So the result of this was that I had to figure out what I was going to do in pretty short order, and I did not have the benefit of having a plan already together or an audience built or a platform set up. And so these are all things that I’ve had to learn through a lot of trial and error. And so one of the things that I’m doing with this podcast is bringing the learnings that I’ve had and that my guests have had to benefit you as you are ascending or transforming your business as a leader or as you were starting it as an entrepreneur, which will still involve quite a bit of leadership. So as we look forward to next week, what we’re actually going to be doing is we are going to be moving off the topic of marketing and branding and moving toward more of a finance and operations focus. And I think that there could be a tendency for especially a lot of entrepreneurs to really overlook the importance of finance and operations because it’s viewed as just kind of turning the crank. But I think that’s actually a really big mistake, because if you have really efficient, effective, well run, well documented operations that can let your business scale very effectively, because the thing that will kill a business ability to scale is if you have ineffective, slow or disconnected operations that require either a lot of back and forth in order to acknowledge and execute orders or that have a very high cost structure, because at some point that lack of efficiency and effectiveness will catch up with you.And so one of the things that I’d love for you to listen into next week is to start gaining some of these insights on the financial and operational side, we’ll be talking about some of the things having to do with legal aspects of the business of data literacy. And I put that in finance and operations, because understanding how data works is an important part of overcoming typical cognitive biases that can be a really big stumbling block to a lot of people when they are building and growing their business.

So just some of the thoughts, at least that I’ve seen that I wanted to share in this topic and a little bit of recommended reading. One of my favorite business authors, he’s unfortunately passed away for quite a while now, is Dr. Eliyahu Goldratt or Eli Goldratt And he originally came to fame because he wrote a book called The Goad which I think was published in 1984. But this book introduced what he calls the theory of constraints. And the idea behind the theory of constraints is that any process in any business has a flow of dependent variables, and that flow of dependent variables has a constraint, which means there is one part that constrains the throughput of the whole system. And in this case, throughput does not mean producing product throughput means generating revenue, because at the time when he wrote the goal, there was a big problem where a lot of manufacturing companies, particularly in the United States, were measuring their head efficiency metrics and they were measuring how much product was produced. And so what ended up happening was a lot of plants ended up piling up a whole bunch of inventory to meet their efficiency metrics. Well, if you produce product that you can’t sell or that you’re not able to sell, then that is the literal definition of counterproductive. That is the exact opposite of what you want to be doing. And so the big insight that Dr. Goldratt made real is how when you document and understand the flow of a particular process and you identify the constraint, then what you can understand is that any improvement you make at the constraint of a process improves the entire process. And this is actually extremely profound, particularly when it comes to operations, because what that means is that, okay, I’m going to use a manufacturing example just because it’s really tangible. Let’s say that you are manufacturing, manufacturing fittings. And each of the fittings that you manufacture has to go through a number of steps. Let’s say you have to go through a cut process, through a lathe or some other type of thing you need to go through, say, a polishing so that you smooth off all the burrs to make sure that they fit. And let’s say you have to go through a heat treat in order for coloring or for thermal coatings. And let’s say you have to go through a packaging for final shipping. I’m just making this up. So it’s simplified. Okay. In a lot of these types of processes, the heat treat part will take longer than any of the other pieces, and so that ends up being the constraint. So in that type of process, what happens is the heat treat oven ends up governing the flow and ability to generate revenue of the entire manufacturing line. And so the impact of this is actually extremely profound because there’s two things you have to really understand. Number one is every minute of output that you lose from the heat treat oven is lost revenue that can never, ever be recovered. And number two is any improvement you make to the line anywhere except the heat treat oven isn’t real. It does not increase revenue, which is what any improvement you make that does not increase revenue, by definition, increases costs. And anytime you increase cost without increasing revenue. What you’re actually doing is you are decreasing the profitability of your business. And so this is actually extremely important from an operational perspective. And for those of us like me who come from an accounting and finance background, this can be a little bit of a mind shift because almost every accountant who you talk to and finance person for that matter, is going to think and talk in terms of unit price and unit cost. However, when you’re talking about a manufacturing line, or if you’re talking about actually even say if you’re talking about a professional services shop, or if you’re talking about, say, a consulting business, whatever, what will happen is you will have a significant portion of your operating expenses that are fixed, meaning that they do not vary one way or the other based on how much revenue is coming in. And so in that type of situation, if you divide your cost by the amount of, say, hours billed or by the amount of units that are sold, that actually gives you a very inaccurate view of what’s driving your cost structure. Because any cost that is fixed, you should be reflecting on your books as though it’s fixed, or at least in your management reporting as though it’s fixed. The reason being that if you drive an increase in cost that does not drive a commensurate increase in volume or throughput, and it’s not driven by, say, some kind of contract adjustment, you are increasing your overall cost structure without driving increases in your overall profitability. For more information on this, please read Dr. Goldratt published work. The goal is probably the most popular, most widely read, but I really would like to kind of take people to take this as a primer and think about it going forward in terms of optimizing the operations of their business. And so, for example, if we take this manufacturing example and we take it into, say, let’s go information technology, another field that I’m very familiar with in a lot of It projects, what will usually happen is there will be one person or one set of skills that is the constraint for an entire project flow.

In a lot of cases, I found that it usually tends to be one of the programmers or the architects because what will happen is in a lot of processes you need to have a business analyst who collects and collects requirements and runs tests. You’ll have project managers who are managing the overall flow. And then if there’s something you’re designing, you’ll end up having programmers. Programmers tend to be expensive and so there to end, so they tend to be shared across multiple projects well, what will frequently happen is you’ll have a number of tasks in a project that are all dependent on the same programmer well, despite what all of us want to think, nobody is effective at multitasking. In fact, truth be told, multitasking is actually counterproductive to true productivity and so what ends up happening is that one person who is dependent on for all these different steps can only do one thing at a time and so the project falls behind. And so then what they end up doing is they end up getting pulled into emergency meetings, project war room sessions, other things like that to figure out why the project is running behind. And of course, the inevitable reason why the project is behind is because it was built with a key dependency on a single resource that had multiple work streams that were all coming through at the same time. And a lot of times those types of things can be difficult to see in advance unless you have very sophisticated planning going on, which of course is time consuming. And it’s time consuming at the beginning of the project, which is when a lot of people will want to just get going right away. And I think this is actually another thing to really think about when it comes to optimizing your business operations is to think about what is that flow from doing something to generating revenue. What are those dependent steps look like and which of those are in your control and which of those steps are outside of your control? I. E. You’re dependent on someone else at the company, on a partner, or dependent on, say the market for consuming the products or services that you’re selling. And so as you map that out and as you figure out the places where you are dependent on a step that you cannot control, that’s where you start to figure out, OK, what are some ways that we can put mitigation plans in place? For example, let’s say that you have a manufacturing line and you are dependent on paint that is supplied because you have central procurement, you have centrally supplied paint and it’s based on corporate procurement. Well, if you run out of paint and you can’t do your heat treat, then that constraints wine. So what you might do is you might set up an agreement with an alternate supplier for one off purchases so that if you run short on paint that you can augment and make sure that you are not slowing down your constraint. On the other hand, the way that a lot of businesses, especially a lot of small businesses or professional services businesses run is that they end up being constrained by demand for their products or services in the market. In other words, they have the constraints in the market. They are revenue constrained because they cannot bill for new services. In this case, what you have to do is you have to figure out how to create and market a unique offer that other people are not offering or cannot offer the same way as you with that unique offer. What it has to do is it has to create unique value for your clients, unique tangible value for your client that other people can’t easily duplicate and in a lot of cases what most people will do is they will automatically default toward thinking about say, pricing because pricing is the most straightforward way of trying to win business. You cut the price if you have a client who was buying your services for say $150 an hour and now you cut the price to $120 okay, they’ll say, all right, that sounds good. You win the bid well, now somebody else can come in and they can quote at 115 they’re the new low price leader and then they can steal your business really quickly. And so, generally speaking trying to win business do pricing is a bad overall strategy so what you have to do is you have to figure out what is the unique value proposition that you can provide to your prospective clients and then you need to make sure that you identify who they are and communicate that unique value proposition to them and that actually is Segwaying us into marketing and branding because in the contemporary world, especially in the business to business space being able to identify, communicate with and articulate that unique value to your ideal customer is really what B2B marketing is all about. Ultimately that’s usually what business to consumer marketing is about too. It’s just that it’s usually not cost effective to identify your potential clients on a person by person basis and a lot of times you target demographic or zip code or something else like that.

So anyway, as we’re going through all this operational stuff and please listen to all the episodes next week so we can unpack this further but as you’re going through all of these all these operational insights really be thinking about how you can implement them to make sure that your business flows smoothly and has the ability to grow without constraint. So anyway, I really appreciate your attention and listening and I’m looking forward to talking to you again next week. I hope you’re have a wonderful day.

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