Unlocking Business Success with Standard Operating Procedures: Part One

Chip Schweiger:

So a standard operating procedure, or an SOP, is a set of instructions used to train and onboard your employees to complete a task. Sops are the foundation of building a business that can thrive, while giving you the freedom to work when and where you want.

Chip Schweiger here, and welcome to another edition of Things Entrepreneurs Should Know, the business podcast for entrepreneurs, founders and business owners who want to build lasting financial value and supercharge the growth of their business. Hey, does your business lack organization around basic tasks? Do your employees seem dependent on you and could they benefit from being more autonomous? Are you wondering what you can do to improve your growing business and its value? If you answered yes to any of these, standard operating procedures may be what you need to solve your problems. So today on the show, let's talk about SOPs, why you should create them and how they're the secret to happy customers. In the second part of the series, we'll also talk about what to document in your standard operating procedures And I'll give you the tips to create a great set of standard operating procedures. So be sure to subscribe so that you'll catch both parts of this master series on SOPs. After the episode, check out the show notes at TESKPod.com. Hi and welcome back. So let's talk this week about standard operating procedures, and actually there's so much to unpack here that I'm going to split this into two episodes. This week, we'll define exactly what we mean when we say standard operating procedures and why they're so critically important. In the next episode, i'll reveal what to document in your SOPs and I'll give you the tips to create a great set of standard operating procedures. But first let's get level set. So a standard operating procedure, or an SOP, is a set of instructions used to train and onboard your employees to complete a task. SOPs are the foundation of building a business that can thrive, while you're giving you the freedom to work when and where you want. In addition, sops allow you to provide your customers with a consistent experience, minimize your time spent solving problems and train new and existing employees. So let's explore each of these reasons to create SOPs in a bit more detail. First, SOPs are the foundation of a business that's built to sell. Why did you start your business? Was it because you had an idea, or were you striving to become rich? or was it just out of necessity? While these are all common inspirations for starting a business, most people choose entrepreneurship because they want freedom The freedom to decide what to do with their time and their energy. Starting a business offers the chance to build a life of independence, but just starting a business isn't enough. Most companies are dependent on their founder, so, paradoxically, many owners have less freedom than if they had opted for a 9-5. When you work for someone, you put in your time and then, unless you're a very senior job, you clock out. Most small business owners, though, never really leave their business. They're the ones opening in the morning and often closing in the evening. And even when owners are away from their business physically, most are never far away from their company. Mentally, they are literally held hostage by their business and have much less freedom than if they went to work for someone else. And here's the secret If freedom is your goal, SOPs are essential, and that's why we're going to talk about them. An SOP allows you to train your employees to handle a task the way you want it done. You're essentially replicating yourself and allowing your business to run just as smoothly whether you're there or not. Another thing to consider about SOPs is that they are the secret to happy customers. So check this out Satisfied customers are the lifeblood of any business. When a customer is pleased, they're likely to come back, they're likely to tell their friends and colleagues and they create organic growth through repeat customers and referrals. Now ask yourself who, amongst all your employees, offers the best customer experience. For most smaller companies, the founder is that person who most consistently delivers for customers. You have the most knowledge of your product or service, have the most experience to share and likely care the most. That's why most customers prefer to deal with the owner of a business, but if your customers demand you look after them, your business is going to require you to do the work all the time. Most founders can't or won't do that, so they empower employees to interact with customers. It's only natural that employees usually care less and lack your level of industry knowledge. Therefore, the experience of buying from your company suffers and your customers want you to stay involved. This means the growth of your company usually stalls at a few hundred thousand dollars in revenue Because there are only so many hours in any day that you can personally devote to serving customers. The secret to getting your employees to offer an owner-like customer experience is to document your expectations of them, And great companies do that through SOPs. SOPs will show an employee how you want them to handle a specific task, which enables employees to treat customers the way you want them to be treated. This consistency across your frontline employees means customers know what they're getting when they do business with your company, and that allows you to build a brand in the mind of your customers. SOPs also minimize your time spent solving problems. In his global bestseller, the Seven Habits of Highly Successful People, Stephen Covey provides his instructions to readers who want to emulate the number one habit of the most successful people in the world "Be proactive." Covey describes the importance of picking your priorities and goals and relentlessly carving out time and energy to proactively focus on your quote unquote big rocks. Now, the opposite of being proactive is spending your day reacting to all the situations that come up. The least successful people in Covey's research let others dictate how they invested their time and spent their waking hours fighting fires. Sops allow you to preempt most questions your employees will have, so that they don't come to you with their problems. The more issues you can anticipate and document in an SOP, the less likely you will be called in to fix a particular problem. Most importantly, when you invest time in creating the SOPs, they act as instructions for your employees when you're not there, and that means they can operate independently, which frees you up to focus on the most important projects. In other words, it gives you time to be proactive. Another benefit of SOPs is that they help you train confident employees. So have you ever stopped to think about how your employees might be wired differently? Unlike founders, most employees don't like uncertainty. Instead, they want a sense of mastery in their job. They love the feeling of doing good work, pleasing customers and generally feeling confident in their professional lives. In contrast, most founders learn by doing. When they get a new piece of furniture to assemble, they throw out the instructions and start experimenting right away. Right, but your employees need instructions. They crave instructions. They want the recipe card for doing their job right, and that's why SOPs can be so important for training your employees. They give your people clear instructions for mastering the main tasks that make up their jobs. Sops build confidence from the instructions you provide, and that confidence becomes contagious. Another thing is that SOPs allow you to document your instructions for new employees and only do it once. So having SOPs for new employees is critical to ensure that they know your way of doing things. As your company grows, you'll get further and further away from your frontline employees, and that means your message for how to get things done gets muddled. But with SOPs you can talk directly to new employees on their first few weeks on the job and explain exactly how you want things done. And a few more things. SOPs make your company worth more money. So when a financial acquirer evaluates your business, they are trying to understand how much profit your company will make in the future. Now acquirers usually use a modeling technique called a discounted cash flow to estimate what they're willing to pay for your future stream of profits. Now, rather than get into the math behind the calculation in this episode, just know this The riskier they view your future cash flow, the higher the discount rate that they apply, and that means the lower the valuation to you. Sops give an acquirer confidence that your business will continue to succeed after you leave. They'll see your future profits as less risky, and so they apply a less punitive discount rate, leading to a better and higher valuation. Financial acquirers are also looking to understand how well your company would perform with a substantial injection of new capital. They want to understand if your business has the structure to handle the increase in volume their money could provide, and this is really important. If your business is duct taped together with a few rules and loosely understood guidelines, they see the equivalent of a house of cards. By contrast, if you've invested time to build out your SOPs, an acquirer will assume your business is built on a solid foundation and will know that an injection of fresh capital should directly translate into larger business rather than topple the shaky structure. I know it's a lot to cover in a single episode, but it's also one of the most powerful secret hacks to free up your time and to make your company easier to run and to make it more valuable. So next episode we're gonna talk in more detail about how to build a great set of SOPs and the one mistake that you should always avoid when trying to relieve all of this pressure from you. So be sure to come back. Well, that about wraps up another edition of the Things Entrepreneurs Should Know podcast. Be sure to check out our website at TESKPod.com where you can find the show notes and archive of our past episodes and other resources to help grow your business. That's TESKPod.com, and if you haven't done so already, i'd really appreciate it if you take one minute to give us a review on Apple Podcasts or rate us on Spotify. It helps out a ton to get this into more entrepreneurs and business owners. And if you've already done that, please consider sharing the show with families and friends who you think might get something out of it. As always, thanks for your support. This is Chip Schweiger reminding you that if you always do what you've always done, you'll always get what you've always got. We'll see you next time.