Every manager, and particularly an owner operator, is interested in increasing the operating efficiency of the business units they manage.
This article is 12Faces’s introduction to the Optimise100 campaign. A wide range of advice and methods have been distilled into a Professional Development Course. The course recommends a sequence of events so that you can realistically hope to optimise your existing business, and in turn, double your Profits within 100 days. These are outlined at the end of this introductory article. This is a Yellow Belt course.
Who is Optimise100 for?
Optimise100 is designed to help you optimise an existing business so, if you are are a startup or pre-start-up, this is not for you – except for educational purposes.
Anyone can do this at anytime of course but we think there are four most likely users;
- an existing manager of the business unit who decides it is time to do a ‘spring clean’
- a newly promoted manager who now gets to run the business unit and would like to impress the bosses with a cleanup/makeover in the famous ‘first 90 days’ of their management reign
- a business that has acquired another business and wants to spring clean it as part of the takeover process. This will also help to tune it for integration with the existing, parent, business
- you have decided to sell the business in the foreseeable future and want to get it looking as profitable as possible
We are not necessarily aiming to increase your revenue but to streamline what you have and thereby direct more money to bottom-line profit. Because that is simpler than increasing revenue, it can happen much faster. It’s a good idea anyway because it would be wasteful to first focus on revenue increase if the business was not as efficient as possible already. That would mean missing out on maximising the profit from the increased revenue.
If your business has any age and complexity, it will most likely have developed some less productive ‘barnacles’ on its operation and have a number of ‘leftovers’ from earlier Profit growth drives.
Many of these will be draining money, management attention and probably morale.
Rather than leave them hanging around and diverting energy, our first step is to prune out resource wasters.
Related to that is the value of getting yourself and your team as efficient as possible so as to be able to focus on a future profit growth drive.
In terms of degree of difficulty, we label this Program as “yellow belt” meaning that most managers should be able to work through the process. More powerful techniques are provided in ‘blue belt’(intermediate) articles for further study.
Is Optimise100 even possible?
The natural sceptic in us all is probably a bit affronted at the thought that the business we have been running all this time is even capable of much profit improvement; let alone a doubling.
We can’t tell you how much extra profit you will make from following this 12Faces Menu because every businesses’ circumstances will be different.
But to give you some idea of what might be possible, we have a few case studies below demonstrating different scenarios and achievable success rates.
Case Study 1
Let’s take a simple example with figures for a reasonable small business.
- $1 million in Revenue and we think we can improve this by 5% or 5 cents for every current dollar – not a big ask
- $250,000 in variable cost which we think we can reduce by 5%
- $580,000 in fixed or overhead costs which we think we can also reduce by 5%
- the profit in this example will move from $170,000 to $261,000 or a 54% increase. Not too shabby.
- for fun, if we increase the improvements to 10% in this particular example, the profit improved by 108%!
Case Study 2
Let’s use a simple hypothetical case study to demonstrate how all the steps we will cover can add up.
Let us assume you have a business turning over $1,000,000 in sales and making a 5% profit before tax which is $50,000.
This means your costs are 95% of the sales or $950,000.
Let us say labour, which is typically 60-70% of costs, is $480,000.
Remaining fixed costs are $235,000 and variable costs are also $235,000.
Additional profit %
Product range reduction
5 loss making products out of 20 are dropped from the range saving $2,000 each.
1 warehouse dropped at $5,000 p.a. rent
5% quantity discount on 20% of inputs
1 store man dropped when warehouse closed $30,000
Say 10% improvement in production throughput. $100,000 in revenue @ 5% profit margin
Sale surplus capacity
Say 1% of turnover $10,000 less variable costs of $2,350
Inventory run down
Once off improvement of $60,000. Not counted as not repeatable
Say 10% improvement in sales revenue @ 5% profit historically. $100,000 @ 5%
Say 1% improvement in pricing on $1m in revenue
From this realistic example, profit went up by $75,000 which is a 150% improvement over the $50,000 present profit.
Did any of these steps seem particularly difficult?
Might they reasonably be, at least, identified and started in the first 100 days of Optimise100?
We encourage you to download the template (available in the article C2.1) to estimate your own Profit increases after putting this plan into motion.
If the results look promising, you have:
- set yourself a minimum goal of beating what you have quickly worked out and
- reassured yourself that it might be possible and therefore worth making the effort to try.
Case Study 3: Factories
Over several years of applying the skills you will start to use in Optimise100, US manufacturing company Wiremold reported the following results. Remember, most of the improvement will be in the early days because there is more ‘low hanging fruit” for you to harvest;
- production lead time dropped from 4-6 weeks to 1-2 days
- productivity went up 162%
- gross profit went from 38% to 51%
- working capital tied up in inventory and work-in-progress dropped from 21.8% to 6.7%
- inventory turnover (important because it means you are selling product) went from 3 times a year to 18 and
- the value of the company on the market went up 2,467 percent
Case Study 4: Offices
You might be in an office environment rather than a factory or shop.
You might be thinking that there is not much that can be improved in an office environment.
In fact, experts like William Lareau, author of Office Kaizen, say that there is often more opportunities for improvements in the office than the factory because, in the factory, opportunities are often fairly visible and obvious. In the office, they tend to be more camouflaged.
Case Study 5: Retail
Global business consulting company McKinsey and Company quoted the following indicative improvements in the retail sector from implementing the techniques outlined in Optimise100;
- 10% increase in comparable sales
- inventory reduced by 10-30%
- labour costs reduced by 10-20%
- stock outs (run out of stock) reduced by 20-75%
- profitability increased by 5-10%
How Much Time will it Take?
We are all short of time and always looking for the priority for what time we do have.
The good news is this Optimise100 is entirely self paced so it can take as much or as little time as you like.
The actual sequence of events is not too important either. We actually encourage you to do the bits you like first so you start to build up a bit of interest and speed.
You do this at your own speed but, given the goal is more profit, its a process that probably is worth your attention.
A by-product of Optimise100 is that it laser focused on reducing the problem areas in your business. These are the ones you are always fire-fighting so using Optimise100 to get rid of them automatically gives you more time in your life.
We will introduce you to methods and software that lets you manage the whole process. Named “Agile” it was designed to manage multi-million dollar software projects far more complex than your business.
There is no specific formula or science to how you can improve your profits or turn around a lagging or troubled business because every one is different.
But the group of techniques that have been collected in this Program will give you some insight into opportunities to dramatically improve your profit.
They are loosely grouped into several written articles and all of them have “C2.X” in the title to clearly indicate their relationship.
Doubling your Profit sounds like a very formidable task but even something as simple as increasing your prices by 1% can easily lead to an average of 11% increase in Profit according to a study of 1,200 businesses. Similarly, careful application of the 80/20 Principle and the Theory of Constraints can have quite dramatic impacts on profit.
We have arranged the items in this Menu in the order that we feel flows the best. You can of course change the order in which you apply these tasks to suit your circumstances but quite often a method of improvement is ideally preceded by some earlier step. We encourage you to think about following this process before consciously deciding not to.
This Program is about quick ways to improve the Profit of your existing business. In another article, Grow365 (re-Double Your Profit in a Year), we discuss how you can continue to grow your Profit by growing your Sales Revenue using your soon-to-be lean, Profit maximising, business model.
To use a medical analogy, Optimise100 is the equivalent of triage. When a critical patient is first admitted to hospital, staff stabilise them and make the best of what they already have to work with. This is triage. Next, the staff work to get the patient onto a path back to full health and well-being. Grow365 is our equivalent to getting your business as healthy as it can be.
No surprise, Optimise100 means just that. But when you combine it with our Grow365 Program, your Profit can grow 400%!
That’s not all!
Many of your overhead expenses like office space, marketing and IT will not need to double to double your Profit and Revenue.
For the sake of a demonstration, let’s assume your Fixed Costs remain the same. Your profit increase is no longer 400%; it becomes 600%!
Worth investing some time and effort to get these sorts of Profit gains?
As the manager in charge of this process, very little will happen until you, personally, make a start. This is something that needs to be led from the top and although some of the data collection and analysis might easily be done by a member of staff, you need to be seen to be the main mover behind this project if it is going to get any uptake from your staff.
Later, we point out that most of your staff will not be overly enthused by the exercise. You will need to be seen to be taking the project very seriously and monitoring its progress very closely.
To monitor, you will need to setup some sort of reporting mechanism whereby all the various tasks can be listed, assigned to one or more individuals along with a time and a relevant target like money saved, where possible. This then needs to be monitored by yourself and others on a regular basis. Fortunately, there are several simple software packages for both desk tops and mobiles that allow you to manage this sort of project with transparency so that everybody can contribute and see the results. A simple Google Sheets spreadsheet will also do the job well and can be shared around the business.
As we said at the start of this article, it is about quick ways to improve your profit. Grow365 discusses how you can continue to grow your Profit by growing your Sales Revenue using your now optimised and lean, Profit maximising, business model.
The next step is yours!
The journey of a 1,000 miles begins with a single step (old Chinese saying).
All of 12Faces’s resources are in a constant state of updating and expansion as new management insights become available.
You can revisit this Campaign at any time in the future to see if there is new inspiration to improving your business.
In any case, you might want to redo the Optimise100 Campaign every few years to scrape off any new ‘barnacles’ that might have become attached.
We don’t know your business and its environment so we can only offer general advice on what might assist you to grow the profit for the business you presently have. You should always seek professional advice on specific matters only discussed in general terms here. For the same reason, we cannot guarantee a doubling of profit in 100 days as we do not know your particular circumstances.
Optimise100 is divided into several projects to be more accessible for you. These are:
- C2.3 Getting Ready – how to prepare
- C2.4 Cost Reduction – the fastest step so probably where you will start
- C2.5 Increase Revenue – without making many changes to what you presently have, it is likely you can increase revenue. Options are discussed here.
- C2.6 Advanced Profit Growth Techniques – Blue Belt
- C2.7 Using the Optimise100 Planning Spreadsheet – this is a worksheet for all the things you might work on and their expected payoffs, pick the best first.
There are several well-known books that can assist you on your path to doubling your Profits. Ones that we are familiar with, and recommend, follow:
“Double Your Profits in 6 Months or Less”, Bob Fifer, Harper 1994. Although this book was published quite a few years ago, its advice is timeless and it remains on a very popular list of books.
“The Successful Boss’s First 100 Days”, Richard Koch, Financial Times, 1994.