Create a Business that Works Without You – Hub & Spoke Value Driver
How well does your company run when you do not show up for work?
The answer to this question has a significant impact on the value of your business. Suppose your company could survive your absence for a while. In that case, you will score well on something referred to as “Hub & Spoke,” the next driver in increasing your company’s value.
To understand the Hub & Spoke value driver, visualize a big airport like Chicago’s O’Hare or London’s Heathrow. They function as a centralized routing location for the airlines that rely on them. The system works efficiently enough until a snowstorm shuts down a hub and the entire transportation system grinds to a halt. I must assume that I am not the only one who has been stuck in an airport due to weather, computer issues, personnel shortage, or any other issue you can imagine.
Now imagine you are the hub, and you run your business with critical issues coming through you. It is efficient right up until the point you are no longer there to run things, which is why anyone valuing your business will levy a steep discount. Acquirers generally avoid hub-and-spoke managed businesses because they understand the dangers of buying a company too dependent on the owner.
9 Warning Signs You are a Hub-and-Spoke Owner
If you were to draw a picture that visually represents your role in your business, what would it look like? Are you at the top of a traditional Christmas-tree-like organizational chart, or are you stuck in the middle of your business, like a hub in a bicycle wheel? The moment the hub is overwhelmed, the entire system fails. Acquirers generally avoid hub-and-spoke managed businesses because they understand the dangers of buying a company too dependent on the owner. It truly is the difference of owning a business and owning a JOB. Here is a list of nine warning signs you are a hub-and-spoke owner and some suggestions for pulling yourself out of the middle of your business:
- You sign all the checks
Most business owners sign the checks, but what happens if you are away for a couple of days and an important supplier needs to be paid? Consider giving an employee signing authority for checks up to an amount you are comfortable with, and then change the mailing address on your bank statements so they are mailed to your home (not the office). That way, you can review all signed checks and make sure the privilege is not being abused. I must admit, that I am still in this category. This is from habit and due to a former employee, who became an “unintentional” partner years ago.
2. Your mobile phone bill is over $200 a month
If your employees are consistently out of their depth, it will show up in your mobile phone bill because staff will be calling you to coach them through problems. I was also guilty of this until I started asking the same question every time, which was “IF I WAS NOT HERE, WHAT WOULD YOU DO?” This provides a great teaching/coaching moment to verify their thinking process. And in time, if you always ask that question, they will soon stop asking and start making decisions on their own. This is liberating. Ask yourself if you are hiring too many junior employees. Sometimes people with a couple of years of industry experience will be a lot more self-sufficient and only slightly more expensive than the greenhorns. Also consider getting a virtual assistant (VA), who can function as a first line of defense in protecting your time. You can find a VA by filling out the request for proposal at http://www.ivaa.org/ or www.upwork.com.
3. Your revenue is flat when compared to last year’s
Flat revenue from one year to the next can be a sign you are a hub in a hub-and-spoke model. Like forcing water through a hose, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches capacity at some point. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people. OR begin delegating revenue opportunities to those you trust and see how they do. An example for our business, was assigning a lead CSR to be responsible to our New Mover program. Sherry does everything from identifying the prospect, creating the mailer, and tracking the results. If I had to do this, it would not get done consistently.
4. Your vacations suck
If you spend your vacations dispatching orders from your cell phone, it is time to cut the tether. Cell phones are both a blessing and a tool of the devil. They allow you to travel, but you are still connected. I have read that getting a cell phone call requires 20 to 40 minutes to get back to your time off. A gentleman I work with keeps his phone on silent with a message which states he will return messages in the last 15 minutes of each hour. Start by taking one day off and seeing how your company does without you. Build systems for failure points. Work up to a point where you can take a few weeks off without affecting your business. The ultimate goal would be 3 months without going to the office and having restricted contact.
5. You spend more time negotiating than a union boss
If you find yourself constantly having to get involved in approving discount requests from your customers, you are a hub. Consider giving front-line, customer-facing employees a band within which they have your approval to negotiate. We have a MFM member who years ago, hired a CSR Manager to manage all customer interactions. You may also want to tie salespeople’s bonuses to gross margin for sales they generate so you are rewarding their contribution to profit, not just chasing skinny margin deals.
6. You close up every night
If you are the only one who knows the close-up routine in your business (count the cash, lock the doors, set the alarm), then you are very much a hub, more closely defined as a hostage. Write an employee manual of basic procedures (close-up routine, e-mail footer to use, voice mail protocol) for your business and give it to new employees on their first day on the job. I remember those early 15-hour days. If you like this schedule, just keep in mind, this has a severe affect on the value of the business.
7. You know all your customers by first name
It is good to have the pulse of your market but knowing every single customer by first name can be a sign that you are relying too heavily on your personal relationships being the glue that holds your business together. Consider replacing yourself as a rain maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers so over time your customers get used to dealing with someone else. Those who have more than one location, have had to make this adjustment as you cannot be at all locations at the same time. Those with route services, may never meet or get to know those customers.
8. You get the tickets
Suppliers’ wooing you by sending you free tickets to sports events can be a sign that they see you as the key decision maker in your business for their offering. If you are the key contact for any of your suppliers, you will find yourself in the hub of your business when it comes time to negotiate terms. Consider appointing one of your trusted employees as the key contact for a major supplier and give that employee spending authority up to a limit you are comfortable with.
9. You get cc’d on more than five e-mails a day
Employees, customers and suppliers constantly cc’ing you on e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you.
How to Get Your Company to Run Without You
Start by breaking down your job into tasks, and then prepare instructions for your team so that they can follow your standard operating procedures when you are not there.
Assess your team’s knowledge by taking a couple of vacation days to see where your processes have holes. Plug the gaps with more details, and then take a more extended vacation. Keep lengthening your time away from work and tweaking things upon your return so that by the time you are done, your company can manage your extended absence, similar to a maternity or paternity leave.
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How Business Coaching Can Help
Service companies, trades, restoration companies, dry cleaning businesses, laundry businesses come to me for assistance in:
- Developing systems to create smoother operation, improving processes and removing bottlenecks
- Implementing team management practices including meetings, delegation and working with challenging communication issues
- Interpreting financial statements and using the information to make better decisions and become more profitable
- Sales and marketing help to get better clients and bigger projects
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