Products Make You Money, Systems Make You a Fortune

One of the major things I have always concentrated on in all my businesses is creating systems. After first reading Michael Gerber’s book The E-Myth Revisited, I was hooked. The penny dropped inside the business part of my brain. Good thing too because I’ve done very well out of business systems. Creating systems is one thing that took me from struggling and broke in business to doing well and successfully exiting multiple startups.

The most valuable business systems are those which are replicable. If your business relies on a genius or superstar talent at the center of it, then it will be difficult or impossible to replicate. That’s one of the reasons inventor Warren Buffett only invests in “boring businesses,” ones he can understand, that deliver a staple product, that have solid management and that generate a lot of cash — boring!

Among his portfolio you won’t see any high-risk technology start-ups, highly speculative biotech companies or concepts you cannot understand. These often rely on one or two superstars who would kill the company should they leave. Instead, you’ll see solid businesses that have systems that deliver excellent products consistently over a long period of time.

Systems allow mere mortals to run an extraordinary business. Once you have a business system that is replicable, people will want to pay you large sums of money for it. The money will come in many forms but the most common are:

• Customers wanting to do business with you because you deliver consistent results.
• Licensees wanting to license your system
• Franchisees who want to buy into your franchise system.
• An investor or competitor wanting to buy out your business.

There are four main types of business systems you need to create, regardless of what type of business you’re in. You’re almost guaranteed to make a fortune, if you can create scalable and replicable systems in these four areas of your business:

1. Marketing system: generate a consistent flow of leads into the business.

2. Sales system: lead nurturing, follow-up and conversion.

3. Fulfillment system: the actual thing you do in exchange for the customer’s money.

4. Administration system: accounts, reception, human resources and so on.

Regardless of what business you run, these four functions will be relevant to you.

Many small businesses get bogged down with fulfillment and administration while neglecting their marketing and sales systems. After all, no one is pressuring you with deadlines to get you to do more marketing. All the seemingly urgent issues generally fall into the fulfillment and administration functions. This causes a common situation in which the business is struggling, even though they might be offering excellent products and services.

The problem is that customers don’t find out how good your products and services are until they have bought from you. And if your marketing and sales systems aren’t in place, they will never buy in the first place and find out how good you are. It’s a vicious cycle.

Some rely on reputation and word of mouth. While these are great, it takes a very long time to build up enough business purely on reputation. Smart businesses, on the other hand, go to great lengths to perfect their marketing and sales systems. After all, there are very few business problems that can’t be solved with money.

So what exactly is a business system?

In short, business systems start with documented procedures and processes that allow your business to run without you. Most often, these are in the form of checklists, but video and audio training can also be an important part of it. Collectively, these materials are referred to as an operations manual and its purpose is to capture the collective “know how” of the business.

The poster child for business systems is McDonald’s. This is a complex, worldwide, multi-billion dollar business that is essentially run by pimply teenagers who can’t even be trusted to make their beds. How do they do this? McDonald’s has amazing business systems. Their operations manual covers every minute detail of the business, from big things like hiring and customer interaction to knowing exactly how much sauce to squeeze onto a Big Mac bun and how many pickles should be on it. I should know. As a teenager, I used to work there. Here’s a little something I found when I was moving house a few years ago.

In my experience, there are two major reasons why business systems are overlooked by many small business owners.

• The first reason is because business systems are “back office” functions. Unlike the latest product offering, sales techniques or other highly visible aspects of your business, good businesses are considered by some as boring. While building them may indeed systems be boring, the incredible power they give you is anything but.
• The second major reason that business systems are neglected is because of a perceived lack of urgency. When a business is small or just starting out, there are seemingly much more important things to do like sales, administration and order fulfillment. With all of these important things vying for the increasingly scarce time of the business owner, business systems seem like something that can be put off until later. However, just like any other accumulation of neglect over time, it rarely ends well.

It’s a sad situation when a business owner goes to sell their business and finds out, after putting in many years of hard work, that their business is worthless. It’s not so much that the business itself is worthless; it’s that they ARE the business and without them there is no real business to sell. In cases like this, they can’t sell it for any kind of reasonable sum beyond the value of their stock and maybe a small, nominal amount for “goodwill.”

There are numerous benefits to implementing systems in your business. Here are some of the most important.

It builds a valuable asset — It’s nice if your business gives you a great cash flow to fund your lifestyle. But wouldn’t it be fabulous if one day, when you decided it was time, you could sell your business and have the biggest payday of your life? You can do this only if you build the value of the business and that can happen only if it is a system that can continue running without you.

Leverage and scalability — Systems give your business the ability to expand. You can replicate your business in other geographic areas yourself or by franchising or licensing the rights to your business system. Many fortunes have been made this way.

Consistency — Consistency is one of the keys to delivering an excellent customer experience. You may not like the food at McDonald’s but one thing you can say about them is that, wherever you go, they deliver a very consistent experience.

Lower labor costs — When you and your staff don’t have to waste time and effort reinventing the wheel each time, this improves your efficiency and reduces your labor costs.