What McDonalds inspired systems can do for your small business

Like McDonald’s you can build a reliable system for operating your business.

Photo by Carlos Macías on Unsplash
TL;DR
  • Small business founders should focus more on business development
  • Your business can be more successful by creating systems for the way you work
  • Create your own business prototype using our guide

Being a successful small business is hard

Many people dream of leaving their job to one day start their own business. If you do decide to take the leap to work for yourself it can be challenging to succeed. Often new businesses are founded by people leaving their job to work for themselves. They use their technical skill or know-how as a starting point. You might have a great technical ability but, this doesn’t always translate into business success.

According to a 2020 Fundera study 20% of small businesses fail in their first year, 30% in their second and 50% after five years. Finally, 70% of small business owners fail in their 10th year of business.

The fact that small businesses are started by craftsmen of their trades is the same reason that they fail. It’s usually because the founder lacks business skills.

No matter how good the product or service is, if the founder can’t develop a business it’s difficult to be successful.

Systems can make business easier

If we need to develop our entire business instead of just our technical skills, what does that look like?

The difference between a business like McDonalds and a struggling small business is they understand how their own business operates. They have systems and procedures on how to do business. This helps them to produce a consistent product and experience for their customers. It also helps them improve the way they work and find ways to be more profitable.

Creating a process for the way they work also means McDonalds isn’t reliant on any one person to be successful. Their employees are valuable to them like any other business, but their success doesn’t rely on an individual. If someone was to leave they can be replaced and operate just as effectively as before.

Why does a small business need systems?

Imagine an unorganised business that has a strong focus on their technical offering. They aren't paying the same attention to how their business works. Some of these founders might struggle to get customers in the door. Others might feel overwhelmed dealing with their demand. They're also working longer hours, or taking over from employees to fill the gaps or put out fires.

An even worse scenario is if a crucial partner or employee of a small business was to leave without systemizing their role. This is a blow to the business that could cause failure if their unique insights and way of working hasn’t been passed on.

Example

The example we’ll use is my first start-up project called Piggyback. It’s a website that makes personal training more accessible. The service matchmakes people into small groups of two to four to share a personal trainer and split the cost. One mistake we made was not understanding the way one of our founders did his role. He was the personal trainer that came up with the idea and was leading the front on recruiting personal trainers. Ultimately he decided a start-up business wasn’t what he wanted to do and left but it put us in a difficult position. We should have captured his knowledge and process for recruiting personal trainers. as it was critical to our business.

Systems by themselves don’t guarantee success

As we discussed, many small businesses are started by founders that are great at what they do but have little or no business experience. Therefore as a technical founder it’s important to understand you might have blind spots.

Systems are effective when they are put in place but you should be sure you understand the full picture of your business. If you just systemise what you are good at then you are likely thinking too narrow. You need to be systemising what you don’t have yet but are anticipating with your growth.

If you don’t anticipate what you need you could be caught off-guard thinking you know your business when you don’t.

What aspects of your business need a system?

The E-Myth Revisited outlines three roles required to operate a business. They are ways of thinking and can extend to many job titles. By systemising the ways of thinking instead of specific job titles it allows you to account for more of your business. The three roles are:

Technical role

This is delivering the service or product to your customers. In this role you are focused on the fulfillment side of your business. Most founders meet this role adequately given the way businesses are usually started.

Example

Piggyback had a strong technical team with two engineers working on the software. The problem was that our engineers used different languages and worked on different aspects of the product. It was a good approach for building fast but our engineers couldn’t add value to each other. I think it would have been better if our engineers understood an overlap of each other’s work to make a more cohesive product.

Entrepreneurial role

his is the vision and creative energy that drives the business. In this role you are focused on ways you can grow the business into new markets or implementing new strategies that will set your business apart from competitors.

Example

We developed the first version of Piggyback for over one year before showing personal trainers. This was a very painful mistake in hindsight. We found that the product we were working on was out of touch with the problem we were solving. We had drifted from what the customer wanted. Instead we should have used an entrepreneurial system of a tight feedback loop to iterate fast and often on a more basic version of the product.

Management role

This is the role of using planning and systems to create order and predictability in the business.

Example

Our team was on top of this role as we had three founders to share the administration workload. However we hadn’t gotten to the scale that required many systems to be in place to run our business. If you are lacking in this role you will encounter stability problems in your business and may feel overwhelmed with keeping on top of administration such as accounting or wages.

The innovative McDonalds franchise model

The franchise movement started to take off in 1952 when Ray Kroc visited a hamburger restaurant owned by two brothers named McDonald in San Bernardino. He found high school students producing identical burgers systematically and efficiently.

Kroc realised he could replicate this process with the goal of franchising the restaurant.

Franchising wasn’t a new idea at the time but his innovation that sparked the movement was “business format franchising”. Up until 1952 most franchises just helped the new business owner replicate their product. 

What was Kroc’s innovation?

He taught the franchisee the business format (marketing, selling, inventory, finance, personnel procedures) instead of just giving them the recipes and the branding. It was so successful that McDonalds now has over 39,000 restaurants and a market cap of $178B as of 2021.

Here's some fun facts about the iconic Big Mac to cement how strong the McDonalds business model is

Credit

The business format franchising was then used as a new template for many more successful businesses during this movement.

Prototype thinking inspired by McDonalds

Why is the new template so effective?

You can think of it as the assembly line of a mass production car. It’s based on systems rather than people and it produces a repeatable product every single time. McDonalds tested every part of their process and standardized as much as possible. For example:

  • French fries should be left no more than 7 minutes in the warming bin to prevent them from getting soggy
  • Pickles are arranged by hand in a particular order to not fall out the sandwich
  • Food should be served in under a minute

Even though your business likely isn’t a franchise, you can benefit a lot from using the business franchise model. Like McDonald’s you can build a reliable system for operating your business that enables you to be more robust and scale to handle more demand.

By building a business prototype you can improve your coordination and consistency which typically undermines small businesses.

How you can apply prototype thinking to your business

Before we go further you need to think of your business as being a separate entity to your life. It needs to be an entity you shape and work on rather than in. It’s an important distinction because that mindset shift sets you up with a way of thinking about the business in its entirety. Not just thinking about what you do day to day.

Creating a franchising prototype helps you do this. Think of it as though it’s a prototype for thousands of other businesses like it. It should account for people having the minimal skills necessary in each position of your business.

What makes up a franchise prototype?

Before we begin we need to think about your personal objective. Your business can and should play an important role in your life. Its purpose should be aligned with your personal goals. You should think about where you want to go with your life in order for your business to contribute to that goal.

1) Business objective

This is essentially the heart of your business plan. It’s why you show up to your business every day. A good business objective will detail how you provide value to your customers and how you plan on doing that sustainably.

It should outline who your target customers are and why you serve them better than any other competition. You will want a unique advantage that sets you apart from competitors to form a “moat” for your business serving your chosen niche. If you can have a reason for your niche to choose you over a competitor that can’t be copied it’s a great start to a good business objective. You will also want to think about your financial goals for your business and what growth should look like. 

Check your business plan against your personal goals to make sure it all makes sense. This is a prototype intended for others but it needs to make sense to you.

Here's a good business plan resource to get you started.

2) Organizational plan

You may think you don’t need an organizational chart as a small business. But a chart reflects more than just where you are at present but how you want the business to develop organizationally. You should make a plan of how the organization will look when the business is fully evolved. This will help you with hiring in the future as you have a clearer idea of what to hire for and what specific role they will be helping out your business with. This will help you to avoid the mistake of having blind spots in the roles you need to fill within your business during hiring.

Here's a good organizational plan resource to get you started.

3) Management & Personnel Plan

This is how your business operates. It defines the way your team does their jobs and is communicated to your customers through your actions.

Example

Think of a hotel chain with the management plan of going above and beyond expectations of guests’s. The hotel chain has systems in place to serve the needs and unconscious needs of each customer. This is found in all the small details from the staff determining the guests preferences such as what wine they’d like to drink or the newspaper they like to read. They also anticipate the needs of the guest such as starting a fire in their room’s fireplace on a cold evening or setting the timer to start their coffee pot in the morning.

Having a system in place that has a clear overarching way of working can help filter down into smaller actions that create a consistent great product or service.

Like the hotel chain you want to set up an overall goal but establish ways in which you expect your team to operate. A set of principles or working guidelines will allow your team to think for themselves so they don’t feel micromanaged yet be doing the right thing. Ways you can communicate your guidelines effectively are:

  • Having a clear and thorough onboarding process to bring your new hires up to speed with your business objective and way of working.
  • Set examples of what is expected of them in their roles
  • Create opportunities for people to succeed within your operating guidelines
  • Encourage innovation for your own way of working. The people doing the tasks will know how to improve your way of working the best.
  • Keep it interesting with changing specific details of how you might achieve a task but keep the overall strategy the same
  • Make the way of working fun to be good at
  • Make it logical. Your guidelines on how you work should make sense.

Here's a good Management plan resource to get you started.

4) Marketing & Sales Plan

This is how you discover what your customers' needs are and how you cater to them better than anyone else. To do this you need to understand first who your target customers are in detail. It should be a process that you are always going through to learn more about who you are building your business for.

You also need to understand why your customers buy. By understanding the motives behind your target customers as a process you will be able to align your business offering to better suit their habits. Your marketing should feedback into your business objective and product or service. If you are getting feedback from the market maybe that’s a good signal for an improvement to be made.

Your business will also have a process or way of selling to your customers that should be established to provide a consistent experience for your customers.

Here's a good Marketing plan resource to get you started.

5) Continuous improvement

Most business owners consider innovation to be coming up with a new product or ideas to increase sales. However, now that you understand your business as a system you can look at innovation in your business differently. Your innovation can be in the way your business does things rather than what it produces.

Since you have a system you can also measure your system which allows you to understand the impact your innovations have on your business. Using this combination of innovation and measurement is an effective way to get your business ahead of the competition.

Get the best ideas from silicon valley and world business leaders compiled in a regular newsletter. No advertising or spam. Just great ideas :)

You'll get actionable ideas from top resources such as
NPR How I built this podcast
How I Built This
Guy Raz
Masters of Scale podcast
Masters of Scale
Reid Hoffman
Invest like the best podcast
Invest Like The Best
Patrick O'Shaughnessy
$100 MBA show podcast
The $100 MBA Show
Omar Zenhom
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Got a Project? Tell us everything.
021 119 1658.
zane@signaturewebsites.co.nz
© 2021 Signature Websites