During tough times, it's more important than ever to have a business that is running smoothly.
Hands-Off CEO’s Mandi Ellefson helps business owners in scaling up their businesses with only the most necessary input from themselves. Here she and James discuss how to prepare a business to weather some common difficulties entrepreneurs run into.
In the podcast:
Mandi Ellefson helps business owners structure businesses that deliver more while demanding less of them. [01:33]
Here’s why James changed his business goal from super fast to super sustainable. [03:02]
Growing a business is not the same as scaling up a business. Discover the difference and how it impacts you. [05:48]
Is client debt an issue for you? Here’s how our two experts address it. [07:08]
When people know you’re good at what you do, you eventually hit capacity. What then? [10:21]
Not all clients deserve your time and attention. James and Mandi discuss why. [11:34]
Raising your price just a little can have a surprising impact on your bottom line. [14:44]
Being the business bottleneck not only holds things up – it can also chew up a lot of your time. [16:42]
You can learn a lot about task management from James’s orthodontist. [22:11]
There’s more than one way to manage bottlenecks in a business. [23:26]
Take care of this, then think about your marketing… [28:56]
If task handover is your aim, there are two ways of training your team member that can help. [32:36]
When you focus less on process and more on actual thinking, a big shift happens. [24:42]
Mandi Ellefson of Hands-Off CEO was last on the show talking about the day-to-day of the typical business owner. Specifically, how to get out of it by smart delegation. Today, she and James explore the topic of scaling and sustainability, the ultimate goal being to prepare your business to overcome and survive common difficulties.
Would you like to become a hands-off CEO?
Mandi works largely with business that have achieved a certain level of success. Because of that success, the CEO finds themselves in the bind of having to work more and more hours. They know they should hire more people, but they can’t afford it, and to afford hires they need more customers, but lack the time to get them. Catch-22.
Hands-Off CEO has worked with a lot of these difficult-to-scale companies and has gotten great results for them. And there’s a strong enough overlap with her client base and James’s audience that he wanted her back on the show.
A change in business and focus
On a relevant note, James wants to discuss a recent change in his business, where they switched from the SuperFastBusiness branding to his personal brand.
Back in 2007 or 2008 when he started his business, James knew three things could distinguish a business – being good, cheap or fast. He didn’t want to be the cheapest, but he did want to deliver quality. And he thought he might as well be fast, too.
Over the years, James has worked with intermediate and advanced business owners who already have something up and running. They’ve dialed in the fast factor. But other problems have come in, which is what he’d like to address in this episode.
So one of the big reasons James switched brands is he now believes the key skill in business is to create a business you can actually sustain. He does not want to be one of those businesses that shut down in three to five years because they can’t survive.
Are you scaling your business, or just growing it?
One of the problems James would like to tackle is close to his heart, having been a debt collector as his first full-time job. So how would Mandi suggest tuning a business in the area of client debt?
First of all, Mandi would like to make an important distinction. Most of the information out there for growing a business, they call it scaling a business. That’s not scaling your business, but that’s a hot word that works well in marketing. And there’s something very different between growing, which is one plus one equals two, and scaling, which is one plus one equals three, or 10.
Scale is something sustainable, and you don’t create it by focusing on open rates or the latest shiny marketing tactic. Tactics may spike your income for a time, but that doesn’t last long-term.
A lot comes down to the thinking, Mandi says. Are you focused on the one-off gain, like income for next week? Or are you looking at cashflow, profitability as opposed to just reaching a certain number?
A practical solution to client debt
Mandi offers as example a client of theirs. He’d been working 80 hours a week, really stuck in his business. And they were looking to keep business sustainable, by making him more money without much change to the current structure.
One of the things they found was that he had $250,000 of uncollected debt, of outstanding invoices. Now the trouble is, most companies think that’s reasonable.
Well, it’s your business, says Mandi. You get to decide. So as a general rule, she advises, get as much cash upfront as you possibly can. Get it all upfront if you possibly can. It does a number of things, one being that your client will be a lot more motivated to cooperate with you.
The reality is, though, most people don’t have the sales skills to be able to say, that’s how it works, and have their clients agree. So there is some skill that’s required.
James has always been paid upfront, and has a cashflow-positive business. The only part of his business that’s in arrears is his partnerships, but they’re very carefully vetted and super trusted, and it’s in his partners’ interests to pay him, anyway.
“You went into business so that you could have control and be in charge of your own destiny.” – James Schramko
He often tells a client, Just tell them to pay, that when they pay, the work starts. You went into business so that you could have control and be in charge of your own destiny.
If you’re dealing with an enterprise or a government agency, almost all of them will have a credit card for expenses outside their regular policy. So there’s no excuse. And upfront pay will save both the expense and the hassle of debt collection.
What to do when you’ve hit capacity
Now, say the game’s been changed. You’re now so desired that you have more clients than you can handle, all willing to pay upfront.
Mandi looks at the challenge of capacity. If you can’t do the work, you just don’t accept any more jobs till you can deliver. This made one of their clients nervous, but he did it, and was relieved when he once again started getting checks come in.
And another thing Mandi’s client realized was that not all clients deserved to be treated equally. Some of them took up bandwidth that could better have been spent on servicing other, better clients. This was one of the bottlenecks that tied up his capacity.
Because not all clients are created equal…
Some of these lower-end clients not only paid less, but were slow to pay and demanding, as well. They would want to deal only with the business owner, to book one of their tiny projects. And once booked, they would have related issues that they had not mentioned in the first place.
So that exercise helped Mandi’s client see which clients he no longer wanted to accept, which in turn opened up a lot of space for new, sustainable business growth.
Something a lot of businesses don’t understand, says Mandi, is that if you are doing a net 30, which is common, not only are you waiting 30 days to get paid, but also, if they’re two weeks late, you now are waiting 45 days, and you’ve already done a month of service on top of that. Meanwhile, you’re actually incurring expenses of your own. So you’re basically being the client’s banker.
Exactly, says James. And he advises his clients, don’t be the bank. For that to be worthwhile, you’d have to build in a very high surcharge. He does know some suppliers have two rates. A regular rate, and a rate if you pay now. In Australia, at least, he doesn’t think you’re allowed a surcharge, because then you cross over into being a financial institution or the like.
James scores his clients, too, but with other factors, such as, how joyful are they to work with? How much can I improve their situation? Are they famous or unknown, because the famous ones bring a lot of referral business? He rates them accordingly, and comes up with a client score.
A small fee increase can make a ton of difference
Another thing Mandi did for their client was help him increase his fees, 20 percent at the very minimum. He was a little nervous, but got no pushback whatsoever.
Twenty percent doesn’t sound very high, says Mandi, but small changes can make a huge difference in the profitability of the company. If you have, say, a $10,000 service, with a 10 percent profit margin, you can double your profit with just a 10-percent increase.
So true, says James. In his dealership days, at point of service, they’d suggest to clients who hadn’t been in for a year that they change the batteries in their car remote control. A good chunk would say yes. At $20 or $30 a change, for 26 repair orders a day, and 280 working days a year, it was a massive change.
Is being a bottleneck costing you hours?
Another problem Mandi knows James would like discussed is bottlenecks.
It is, says James. It’s another area where you can get profound leverage for tiny little changes.
Years ago at Hands-Off CEO, Mandi and her team started a find time now program. Basically, the first week they worked with a client, they’d help them find 10 extra hours per week. And they’d do that because of the number of people saying they hadn’t time to do what they wanted or needed to do.
The solution was to immediately uncover and fix the bottlenecks that were costing clients valuable time. They’d do that within the first week of working together. And while 10 extra hours is still their guarantee, it’s usually around 20, with many business owners.
They now have a number of bottleneck rules, which they won’t go entirely into in this episode. But what they generally look for is where key people, especially the CEO, are doing unnecessary work, or where they are stopping things up.
The client Mandi has mentioned was doing a lot of scheduling, easily 20 hours per week of work. And because of the intense product knowledge required, only he could do it. It was part of the innovative service his company offered, which is usually, says Mandy, the most difficult thing to replicate and to scale.
They eventually broke it down, and looked at, what are the things you cannot make a mistake with in the role? What are the things you have to get right? And what are the ways you failed in the past to be able to hire this role, and to really understand, what are the pieces that make the difference between the role?
Doing that, they found a lot of opportunities. And while the client thought his next hire should be a scheduling person, it turned out there was work needed before that could happen.
Mandi suggested going less granular and hiring an operations manager. That person could take 20 or 30 hours off the client’s week, and then build out the role. Then they could train this person to do what the client did, and take even more time off his schedule.
The client did just that, and has freed up an enormous amount of his time.
Smart task management in action
James has seen a great example of this in his kid’s orthodontist. On a visit, someone would take them into a room, another person would take pictures, and someone else would take notes. They’d get the patient in a chair, turn on the lights, and only then would the orthodontist appear. He’d spend maybe 10 minutes with them, then walk out, and enter another room where a patient was waiting. There’d be three or four rooms in all.
“A role is just a collection of tasks. So split it down into tasks.” – James Schramko
A role is just a collection of tasks, says James. So split it down into tasks. Take the tasks that are not essential to you and delegate them to someone else.
Other ways of handling bottlenecks
Sometimes the business owner has to sign off on things – that’s an obvious bottleneck. James has solved that for his business with a For Approval channel in Slack. His team will put something to approve, and then he has a right of change. But if he doesn’t respond, the thing gets published.
And one thing that’s not happening enough in most businesses is training. When James wants to get rid of a task only he can do, like editing his podcast, he will train the person. He’ll actually train them, or get them access to training. And when they’ve established a level of competency he’s happy with, he hands the task completely over.
He does recommend putting in processes like a double-checker. In his business, they double-check all emails. Someone writes an email, and someone else (not James) approves it. Then it gets sent.
James got his work hours down to 15 hours a week doing that.
It’s being very respectful of the time of the CEO, says Mandi, and only be putting things through to him that are absolutely necessary.
Exactly, says James. It’s knowing where your effective hourly rate is high and only doing those things. It’s the 80:20 or the 64:4. Not all your tasks are equal. And it’s great when you find people willing to support you in that journey, who are really good at the things you don’t want to do or shouldn’t be doing.
Getting past the marketing myths
The one key hire Mandi’s client made will add millions of dollars of growth to his company, Mandi says. It’s incredible, the impact. And the price increase, she wouldn’t be surprised if it added an additional $300,000 minimum profit extra a year.
“You do not want to scale a company with profit margins that are already suffering.” – Mandi Ellefson
That’s really important, she says, not just if you’re keeping your company the same, but you do not want to scale a company with profit margins that are already suffering. That’s one of the worst things you can do.
With a lot of marketing agencies, there’s an expectation that quality and profitability decreases as you scale. Both are false, but it’s the reality for most marketing agencies because they don’t know a better way.
It’s like the drug of choice for most businesses, James says. Just get more money in the door. And most of the marketing you see from coaches and marketing agencies is all about making that extra $100,000 next month – it’s all short-term greed. That’s why the one focus he wanted on this episode is, how do you make your business survive and sustain and thrive?
“If you improve the capacity, then you only have a marketing challenge to fix.” – James Schramko
He helps a lot of people in this area by improving their capacity, because if you do that, there remains only a marketing challenge, and there’s many ways to fix that.
From the very foundation, says Mandi, she would encourage people to think about scaling, getting the cashflow and the pricing right in your company first and having a really good, irresistible offer. And she was talking earlier about being able to state your pricing terms. To do that, you have to have a really good, kick ass offer of which prospects will say, Oh, I want that. That is what gives you the cashflow to then pay good quality people to build out processes for you.
Kinds of training and what they’re for
And you do need to be training your team in businesses. Either you’re training someone who already has expertise to do things your way, or you’re training someone from the ground up in a specific task or tasks. The latter is either when your business is more mature, or in the beginning when you’re totally broke. But when you’re at that stage where you’re hovering around the low seven figures or just getting up to that point, says Mandi, that is not the time to do that. That will cost you so much money to be training people at that level.
It’s a great distinction, James says. And for reference, when he was talking about training before, he was talking especially about task handover. He imagines Mandi’s client will have to hand over tasks to somebody else. And there’ll be an element of hand holding, likely in the beginning. He also likes to train two people at once if he’s going to train someone, rather than one. He likes to build redundancy at the very first level if possible. Noah’s principle, two of everything.
From process-focused to actually thinking
Another thing, because James started his team fairly early, they’re clocking up 11 and a half years now. So over time, the company has its own vibe. They know what their company actually is, they know what their materials are, they know the context of everything, they have a long-ranging history of what changes have happened over the business from the beginning. So it develops its own brain.
When people move from just being process-oriented to being able to actually think, that’s when you get the big shift. The way Mandi has described it, your business is going to be a thinking and self-managing organism.
Taking a leaf out of Ricardo Semler’s book, James and his team have basically disbanded a lot of the formal structure in their company. They don’t have formal holidays, sick leave days off, or clock-watching or any time-tracking software.
And James thinks people really like working in the business, because their impact is recognized. And they do have things like daily dashboards so they can see what’s happening. But they’re all participating together. James feels like he just plays his role in the business, but the business is a separate thing that they’re all a part of. And it’s a good feeling when you get to that stage.
Hopefully, he says, most people listening will get past a three to five-year stage and have an actual business. If you take the marketing blinkers off, and focus on just having great delivery of your service, having a fantastic offer, and looking for all the little leverage points, the un-obvious ones, like how you get paid, and clearing out the bottlenecks that hold you back from getting stuff done, then you’ll be on track.
If you think Mandi or James could help with your business, reach out to either. Mandi can be found at handsoffceo.com. And if you have suggestions for an episode, let James know.
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