Like McDonald’s you can build a reliable system for operating your business.
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.
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.
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.
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.
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:
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.
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.
This is the role of using planning and systems to create order and predictability in the business.
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
The business format franchising was then used as a new template for many more successful businesses during this movement.
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:
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.
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.
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.
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.
This is how your business operates. It defines the way your team does their jobs and is communicated to your customers through your actions.
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:
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.
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.