Creating Success: The Role of the Owner

By Tony Murray
July, 1997

Each year I visit many companies in different industries. I concentrate on the development and growth of my clients and consequently, these companies tend to be small to mid-sized organizations where the owner is the key to the success or failure of micro manage the enterprise.

There is a definite correlation between the owner and whether the operation is struggling or succeeding. But, is not always the ability of the owner that determines the health of the business. Rather it is the way the owner spends their time. I am sure that if will be no surprise when I tell you the owners that micro manage control the less successful operations.

When I point out to people that they need to free up some time, the main objection I hear is that there is no one who can do the job they do. This, of course, is rubbish; none of us are indispensable. When I go into it further, the real reason that comes out in most cases is that they don't think they can afford someone with all the abilities which are need. And, they can't afford to add more staff.

My next question; what do your charge for your services? I have to say that almost without exception, this is the problem. In most cases, these owners have no idea of the true costs of providing service to their clients. Therefore, they don't know what their profit margins are.

This is a vicious circle and once again, it relates directly to the price issue. If you do not know your true costs, then you cannot charge the right price. If you under charge for your services, then you cannot afford good staff. The owner then gets dragged into the operation and this cycle suffocates the growth of the business.

One of the businessman whom I admire is Lee Iacocca. He took a company that was on the edge of extinction and turned it around to one of the most profitable vehicle producers in the country. He did not do this by going to the shop floor and beating panels; rather, he surrounded himself with good people and he orchestrated the recovery.

The owner is the conductor. A good conductor cannot play all the instruments but must understand how they all work and how to blend them to achieve perfect sounds. The owner has the responsibility to blend the team to achieve a perfect business.

So, we come back to the beginning. The owner must allocate their time to looking at the big picture and avoid the nitty-gritty. They must find one or two reliable trustworthy managers who can look after the day-to-day problems and the owner must allow them to manage. These people actually exist in most operations; they are just not given the opportunity to prove themselves. The owner must, and this is the most difficult part, allow the manager the freedom to use their style and to manage their way.

Having delegated the day-to-day, the owner now has time to do some meaningful planning. The first step is to look at all the statistics that are available, both operational and financial, then make an assessment of how the service is perceived by the clients. There is now time to visit some of the more important clients to hear directly what their opinion of the service is and to look more closely at their needs.

The owner should also look very carefully at their financial information and get answers to the following questions:

• What is the cost per minute to run my operation?

• What is the ratio of operator expenses to income?

• How much overtime is being paid per month?

• What are my true fixed costs?

• What is the income per minute?

• What is profit/loss per minute?

The next step is to look at each account. Where possible, calculate the number of minutes used per month. Then calculate income per minute. This is where you will start to see where your problems are. It is my experience you will see that some of these "big accounts" are producing very little.

Now you have to start to make some decisions. There is no point in servicing clients who are not producing a profit, so you must increase their price or ask them to go elsewhere. You see why your visit to your large clients was important, as you should have gained an understanding of their opinion of the operation. With this first hand knowledge, you can plan how to increase their price without losing them.

This is all very time consuming and if you are involved in the day-to-day detail, it will never get done. However, by delegating the day-to-day, you have put yourself into the position where you can truly start creating more income for your company.

Next, have a clear plan as to where you want to be in the next five or so years. You need to know where you are going in order to plan how to get there. Do you want to retire? Double the size of your operation? Have an annual income of $? per year? Sell your business? These are all objectives that I have helped clients to plan for...and there are more.

Understanding where you want to go leads us to the next step creating a financial budget for the next 12 months. This is nothing to be afraid of; all you are doing is mapping your future.

Start by listing all your income by product, i.e., paging, wake-up, etc. Then list all your variable costs operators, telephones, etc. If you subtract income from costs, you now have your gross margin. List all fixed costs rent, leases, etc., and also costs that do not relate directly to the operations room, such as accounting fees and legal fees, stationary, etc. Subtract this total from the gross margin figure and you now have your pre-tax profit.

If you start with the last month's actual figures, then you know that your base is correct. You now need to look at where to cut costs from last month, and plan what the increase in sales revenues is that you can achieve monthly for the next year. Remember, you are gong to increase some prices and you need to add these in.

Now you have a map. You must bring your managers into the loop and tell them what they have to achieve to ensure that the plan is successful. This is where you start setting objectives for your managers.

Objectives should relate to net growth, operator costs as a percentage of income, telephone costs as a percentage of income, etc. There are many more, which are dependent on your operation.

Having set the objective, you must have objective methods to measure the results. Having measured them, you must take immediate action when a manager fails to meet their objective. This is how you control your manager without having to be involved in the day-to-day problems.

Once you have competed your budget for this year, you need to develop outlined budgets for the next five years. This will show you what has to be achieved during that period to meet your plan. This may well highlight that your plan is over ambitious or that you are going to need extra capital to develop the plan.

The main point is that you can prepare for these problems in advance. You can modify your plan at any time, but by having a plan you will always know where you are going and how close you are to achieving your objectives.

You have a realistic plan. Now you have to orchestrate your success. This does not mean you go back to day-to-day hands-on, But, you start promoting your service by attending local business group meetings and making contacts wherever you can.

You are the most important sales person you have because you understand your operation totally. You should be able to see how potential clients can make use of your services in the ways your sales staff would likely overlook. You are the most important public relations person. You are the best research and development person that you have because by continually meeting with your clients and potential clients, you can find niche markets to fill in your area. You might be out of the day-to-day problems, but you will be kept very busy with the long term ones.

Gone are the days of stagnation. You are now the proud owner of a profitable and professional service. Your job now is to shout this from the rooftops. The amazing thing about this is that you will suddenly be successful and growing.

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