The 2nd-Most Important Number in Any Business

A careful reading of all the posts, articles, and essays on G3CFO will reveal a strong emphasis on sales, throughput, free cash flow, and return on investment. That’s a handful of numbers. I could make the case these could be lumped into one number, and I’d call that number the most important in business. But what about the 2nd-most important number in any business?

The 2nd-most important number in any business is rarely mentioned in any MBA program, and I’m not sure how often that number is ever mentioned on HBR’s site.

Props to Chuck Blakeman for addressing this critical number in one of his books, which is the topic of this brief post.

A Conversation With Scott

Scott is his real name, but I’ll keep his last name and business private. I once asked him how many weeks or months he could take off without tending to his business before his absence started to affect the management team and the rest of the organization.

His answer surprised me. He said a few months. I thought he was wrong. I told him a year. He disagreed with me, but I still think I was right.

Scott had spent the previous ten years building a business with sound and repeatable practices. His company had a system and norms for every major activity throughout the organization. Scott only needed to play one key role in the company, but that function was one he loved, and he could have easily given it up to someone else just as capable.

Today, Scott could probably go several years away from the business, and profits would continue to increase. That’s because he hired a CEO a few years ago. I’m not saying Scott is unimportant to the business because he is. Instead, he’s like Warren Buffett, who continues to monitor his investment instead of managing his business.

Let’s move to Debbie. She runs a small media firm that generated about $1 million in revenues about twenty years ago. Today, that number hovers around $1.3 million. Her FTE count is also lower. Debbie is as tied down to the business today as when she started it. She rarely takes time off, and when a staff member leaves, she’s stressed out because her workload has escalated to 60 to 70 hours weekly.

Scott would look at her business and shake his head, wondering, “What’s wrong?” Scott would estimate Debbie could possibly take off two weeks before the company started deteriorating, but that’s with daily check-ins with key staff members.

Can you guess what the 2nd-most important number is in any business?

How Many Weeks or Months?

When serving as an executive leadership coach to a CEO, one of my favorite questions to ask early in the relationship is how much time they could take off before the business started to show signs of weakness and small cracks in the foundation.

That number tells me whether you are a slave to the business or its master. I could ask the question differently. How often do you spend time worrying about the business when you are not in the office? This includes being at home, attending a kid’s concert or basketball game, or sitting in a church pew over the weekend.

This discussion is a thought exercise. The numbers I’m going to reveal below about your answer do not have scientific backing. Call this a conversation starter based on the answer you provide:

• 1-2 Weeks – your business is probably in survival mode
• 2-4 Weeks – you are possibly past survival mode, but not by much
• 5 Weeks or more – your business is now in striving mode, just beyond the survival stage
• Well beyond 12 Weeks – congratulations, you are in the minority. Your business is probably soaring to new heights.

Where do you fit? Where do you want to be?

Getting to the Heart of the Problem

Most business leaders are readers; I assume many have read Michael Gerber’s The E-Myth Revisited. Accordingly, I’m not going to repeat all of his key points in that book other than to state that one of the core themes in the early chapters is that owners launch a business because of strong technical acumen. They naturally assume that their expertise and greatest capability will lead to business success. That thinking lasts for about one week.

The heart of the problem is that the owner never became the CEO. Instead, they became the operating manager fighting fires daily. Planning ahead? What’s that? Developing repeatable systems and processes? What’s that?

Getting to the heart of the problem means the owner has to decide whether she wants to remain the operating manager or the CEO.

Be as honest as you can with this question. Are you your company’s CEO? If you serve in a different capacity, is the person running the company a CEO or just an operating manager with a business that’s fully dependent on him or her?

If I Were Coaching You Today

I want every business owner to run a business that they run. I don’t want the business to run them.

If an owner asked for my help releasing the shackles of the business parts that were enslaving them, I’d look at the overall business model first. How does the business find, get, and serve a customer? We have to start there because some business models are more complex than others. For more complex business models, we’d need to start finding ways to simplify systems and processes.

Next, I’d look at my client’s calendar over the previous four weeks and ask how they spent their largest discretionary time. I’d want to know if they were fighting fires, selling products or services, or chasing down past-due accounts.

Owner firefighting is typically the result of:

• lack of staff,
• lack of training or
• lack of documented procedures to be consistently applied

Let’s start with the last bullet point: the lack of documented procedures. I’m reminded of one of my favorite CEOs, Arlan Alburo, who runs multiple PT clinics in Indiana. Arlan’s team has over 80 documented scripts, processes, and checklists. Years ago, they practiced, role-played, and discussed their workflows in weekly meetings.

Arlan’s business was not always a well-oiled machine. He was a full-time PT and part-time operating manager. His business depended on him. External coaches helped him to step back and start creating repeatable systems and processes that became norms for every staff member in his organization.

That leads to the second bullet point above training. Arlan and this team didn’t just document workflows; they practiced them. They talked about shortcomings in weekly meetings. They used customer/patient feedback to determine ways to improve their processes. For this organization, training was not a one-time act. Training was ongoing and became part of their culture.

Too many business books, including Gerber’s book, focus on documenting processes and workflows. Few address training and retraining, which is a major omission. For every process that you document, practice, practice, practice.

Lastly, hire new staff as needed. The Chief of Staff position is gaining traction in small businesses, and that trend started a few years ago. My suggestion is to either change the title or hire a process manager. They are the CEO’s guide and source for architecting every key process in the organization. They ensure constant and updated training as the business scales.

Other roles that the CEO is currently performing may require a new hire or two. Examples include sales manager, controller, or administration.

Adding personnel will be costly initially, but the payoff will be substantial in the long term. Just ask Scott.

Not a Long-Term Vacation

I’m not suggesting you retire from your business. Instead, this thought exercise aims to address the symptoms of why business owners cannot spend more time away from their businesses.

Most business owners I serve love business. Some would love to spend more time at the office, but not by being bogged down by fighting fires or tending to administrative details they find boring and tedious.

If your answer to the 2nd-most important business number is only one to two weeks, ask yourself, “Why is this case?” After that, consider reading Chuck Blakeman’s Making Money Is Killing Your Business.