Profit Hides Lots of Mistakes
As I meet with entrepreneurs and their leadership teams around the state of Missouri, I am finding an interesting trend. When things are going good to great, they develop a gradual loss of focus, discipline and accountability.
Basically, they become content, satisfied and less motivated to maintain optimal health in their organizations. In fact, our research shows that over 80 percent of businesses suffer from this condition, and it is costing them significant profitability and cash flow opportunities.
Let me set the stage: For many industries, business is really good right now. Profits are up; company performance indicators are strong. In fact, if you have a product or service that someone will buy and you have your organizational act somewhat together, you should be making money. We are living in exciting times, and opportunities for business growth are abundant and readily accessible.
So what’s the problem?
Unfortunately, our research is showing that with bottom-line success comes the creep of organizational dysfunction. It seems to appear when entrepreneurs and their leadership teams reach a self-defined level of success. In effect, they become content, they take their eyes off the ball, and their businesses become less effective and efficient.
Maybe you don’t need to worry. Maybe you are in an industry that can withstand any economic craziness. Unfortunately, most companies are not and must maintain a laser focus on where they are going and how they are going to get there to be strong in any economic condition. That is why it is critically important for companies to wake up from today’s “economic euphoria” and start getting serious about their businesses — again.
As a point of reference, we are seeing that fewer than 20 percent of businesses have defined core values and a core focus that is culturally embedded into their organizations and shared by all stakeholders. Fewer than 30 percent have a defined long-term plan. Furthermore, fewer than 25 percent of businesses are structured to be scalable, and fewer than 20 percent have adequate/actionable performance metrics.
The list goes on. But it points to the significant opportunity that exists today for Missouri businesses to be more profitable, add more cash flow, be scalable and create more value if — and only if — entrepreneurial leaders and their teams get serious about working on their businesses.
Based on our research, we have compiled a list of characteristics that we see repeatedly in healthy, strong and successful companies.
- The entrepreneurial leaders and their teams have a companywide culture that is honest, open and transparent.
- They have consistently applied processes that ensure the right people are in the right seats.
- They measure and track performance with hard, fact-based data, not based on egos, emotions, subjective opinions or what I call hopes, dreams and wishes.
- They create organizational optimization and efficiency through the documentation of key processes that meet the 20/80 rule — formalizing the 20 percent of the business that contributes to 80 percent of organizational success.
- They have an organizationwide culture of effective root cause analysis and problem resolution. Including a culture of accountability shared by all employees.
Typically, these characteristics are most effectively implemented as part of a single, holistic business operating system. There are a few out there, but as a business owner myself, I have found the Entrepreneurial Operating System, or EOS, to be the most effective. Simply put, EOS gets everyone in an organization to be laser-focused on executing the company vision; operating as a cohesive, functional and healthy team of people; and gaining organizational traction, thereby creating increased profitability, scalability and value.
At the end of the day, our research is showing that as companies become more profitable and satisfied, organizational inefficiency and waste start creeping in. Those who are not committed to increasing the strength of their businesses will either fail or continue to be mediocre, not reaching their full financial potential. And that would be a shame.