Eastside Hot 100 monthly column - Jan 2007

Jan 2007 - Eastside Business monthly - Bellevue, WA
www.eastsidebusiness.com

The Eastside Hot 100
Featuring best practices of high-performance entrepreneurs.
Corey Hansen, MScOD

Million Dollar Decisions
In private-owned businesses the role of owner and manager are often synonymous. One critical part of building a high-performance business is differentiating between ownership and management roles. Management is typically focused on daily operations and incremental profit growth. However, average profits can be dangerous because they can create a false sense of security. To build a high performance business, owners must make what we call, “million-dollar” decisions.

Business owners develop systems to deal with routine business activities because they must be done, but the owner isn’t always the right person to do them. One client owned a hydraulic parts and repair business and struggled with average profits for several years. Eric had two shops in different cities and sold parts and repaired equipment. His efforts to increase his return on investment (ROI) were ineffective, as he spent much of his time monitoring the price points of his competitors and negotiating with vendors to get lower prices.
After completing a high-performance business evaluation, Eric realized there were too many action items for him to do on his own. As a result, he split up his duties and delegated some of them to his supervisory staff, requiring them to regularly report back their progress. He discovered that: “Delegation is a million-dollar decision.”

Eric found he had more time to concentrate on his personal income and ROI. By reviewing detailed financial reports prepared by his controller, he discovered the repair business yielded higher returns than the sale of parts. He then delegated to his branch managers and sales staff the creation of a written marketing plan, and directed them to push repairs and find new repair customers. “Financial analysis and planning are million-dollar decisions.”

Instead of handling customer service problems and negotiating with parts vendors, Eric was now considering how he could afford two new service bays in his existing shops. He called local bankers to see what arrangements needed to be made to finance the expansion. He was so busy working on the expansion plans he paid his CPA to do a cost benefit analysis for the loan application. Expansion, financing and contracting cost-effective labor are also million-dollar decisions.

The supervisors and other staff felt a stronger sense of loyalty to the business because they were more involved and shared a vision of what the business could become. As important, sales that had consistently been at $1 million went up to $3 million, which was a 200 percent increase in only two years. The higher repair margins and economies of scale pushed the ROI up so much that Eric started looking to acquire new shops in new markets, rather than haggling with parts vendors for lower prices. Incidentally, the increase in sales qualified the business for bigger discounts, so the profit margin on parts sales also increased. Acquisition and economies of scale require owners and managers to make million-dollar decisions.

Building a high-performance business is a process. Recognizing the roles of owners and managers are different is a critical part of building a Hot 100 business. In February, this column will feature the first best practice from Best Practices of High Performance Entrepreneurs.

The Eastside Hot 100 is a program to help local small businesses accelerate growth and profitability and is sponsored by BCC, the WSBDC@BCC, Viking Bank, the City of Bellevue, and the City of Kirkland.

Corey Hansen is center director of the Washington Small Business Development Center at BCC; co-author of Best Practices of High Performance Entrepreneurs, and instructor of Build a Hot 100 Business offered Jan 19th, Feb 16th, and Mar 23rd. Corey can be reached at chansen@bcc.ctc.edu or 425.564.2888.