What type of engine is your business?
Is it a muscle car V8 with its high horsepower and torque but a rough, intense ride? An efficient, four cylinder for a commuter car? Or maybe it's something more unique like a V10, large power output, high RPMs, and smooth.
Why is it important to know?
Businesses are engines, they have similar components and functions. If something doesn’t sound right with your engine, you need to know where to look and how it's affecting performance. Also, you can’t expect the same performance from a smaller, more compact engine as a larger one - obviously, a V8 is significantly different than an I4.
How do I know what kind of engine we are?
That’s relatively simple, most small businesses fall under the I4 to V6 range. Now, each engine type can come in different shapes and sizes. Output and efficiency can change within their category i.e. not all I4’s are the same, V6’s are not the same, etc.
An I4 has a small output but highly efficient option, it gets you from point A to point B, and usually in a highly efficient manner; we’re largely looking at companies with 2-10 employees. It’s important to note that I4’s come in all shapes and sizes so it's all in how your company achieves their revenue and margin:
A high-end business would be >$78,000 per employee, per Klipfolio) and good profit margins (20% or higher, per Tim Vipond). A company hitting those metrics would be on the high end so think a Porsche 718 Cayman; a high performance car that won’t knock your socks off with its raw power nor does it have breakneck cornering speed but it is Porsche engineering - a driving experience that is near perfection.
A lower-end business would be <$78,000 with 5% margin. With those metrics, the company would be more similar to a Subaru Impreza: a compact car with low output, might have good fuel economy but is known for having issues. The business is still a going concern but it doesn’t feel strong and healthy.
A V6 takes you to the 11-25 employee range. A higher output engine that can be high performance or a more powerful commuter car
On the top end, you have cars like the Ford GT, Nissan GT-R, and the Audi RS 5; high power cars that can do some serious damage, when driven appropriately.
On the low end, you have the Toyota 4runner - a car that can last a long time but its engine had very low power and efficiency in relation to similar sized engines.
V8s, 10s, and 12s are the 26+ employee companies. Bringing peak performance and coming in all shapes and sizes. Maybe you’re a cutting edge SaaS company with their high revenues and margins - the Ferrari’s of the world. Or you’re a construction company that’s been around for 30 years - a muscle car like a Mustang, Camaro, or a Charger. But, much like cars, there are companies with poor engines that are still in production (still in business).
Ok, I know my engine, I know my car - what’s next?
Identifying your car parts: assigning the functions and roles of your company to car components. An engine cannot operate without these parts; your business cannot operate without these functions:
Marketing is the fuel tank. The larger the tank, the more leads your company generates.
Sales are the fuel injectors. Necessary for the engine to generate power
Finance and Accounting are the pistons and crankshaft. When firing, a piston gets pushed down, the crankshaft rotates and pushes the piston up, generating power.
Human Resources is the lubrication system. Oil, oil pump, and filters keeps everything running smoothly and prevents dirt and debris from causing damage to the rest of the parts
Operations is the engine block, it holds everything together and restricts the parts to where they can only move in the correct direction.
IT and Business Systems/tools is the ECU and wiring, which communicates with the engine to allow each part to be in use at the correct time.
Leadership & Strategy is the driver, they have the steering wheel, pedals, gear shift (and controls of the radio).
Now we have a usable, holistic picture and understanding of your company. The process of identifying problem areas begins. These are merely a list of potential examples that may occur and are no where near being an exhaustive list:
Marketing: does the fuel tank have the appropriate fuel? Some cars can only run on 93 high octane, others are more than happy with the standard of 87; additionally, you could have diesel in there. The fuel are your leads, they are your potential customers. Is your marketing department targeting the right demographic for where you want to go? Maybe you have the right fuel but the tank is leaking or rusting; leads are getting lost within your marketing system, or aren’t being actioned upon.
Sales: are your fuel injectors the appropriate size? Too big or small for your engine? Having a sales team skill set which matches what your company can handle. If you’re sub-10 employees, it might not make sense to hire a sales director with 20 years of experience; the fuel injector is too big causing an excess use of fuel thereby decreasing your efficiency. Conversely, hiring a sales associate with no experience is an injector that is too small.
Finance and Accounting: are you misfiring, a piston isn’t causing an explosion? What’s your cash flow situation? Are your receivables not being collected in the appropriate amount of time? How’s the timing of the crankshaft? Is cash flowing to the appropriate areas at the right time? A key yearly training is coming up for the Sales team but the current budget isn’t allocated appropriately. Vendors aren’t being paid timely, incurring additional fees, or you aren’t taking advantage of early payment discounts.
Human Resources: oil keeps things cool and working smoothly. HR is key in preventing burnout and retaining talent. Assists in the prevention of bad actors coming in and disrupting company culture, as well confirming alignment with compliance standards.
IT and Business Systems: allows for the flow of information to the appropriate parties at the appropriate time. Allows you to measure how much is in your fuel tank, engine temperature and RPMs. Good data capture provides insight to how large your sales pipeline is, the utilization rate of employees, and, most importantly, the capacity of what your business as a whole can operate. There may be 40% of additional overall capacity that your engine can handle but can’t know without data tracking and analysis.
Leadership and Strategy: Dictates where your car is going, how quickly it’s gonna get there, and which route it’s taking. Drivers can easily destroy their car if they don’t take proper care of its components. Don’t change the oil (maintain compliance), your engine blows up in a relatively short period of time. Forget to fill up the tank (not generating leads), you’re not gonna go anywhere.
What do I do with this information?
Like every car owner knows, you need to have a good mechanic that you can rely on because knowing cars is not your business. We have all been fooled by our cars at some point, not noticing issues arising until they become major; but taking your car to the shop for regular maintenance, while not always fun, is necessary for your car’s performance.
At Clear Horizon Consulting, we love cars, grew up around them and learned how they operate; but, most importantly, learning that there is no one size fits all to parts and maintenance. Every business is different and knowing its needs is difficult enough, let alone trying to do it by yourself.