Beyond the Pieces: The Big Picture of Business Expansion

An allegory is a literary device in which one object or event describes or represents another.   Allegories are usually a story, poem, or picture that uses an easily relatable concept to help create new insights.  In the Allegory of the Profit Tree, an apple tree is used to show the inner workings of a profitable business that equates the harvested apples of a tree to Profits and the taproot to Owners’ Equity as reflected below:

Just as apple trees need full sun and well-drained soil to thrive, a business has similar needs.  Both start from a seed that takes root, followed by forming a trunk with bark that ultimately forms into a crown.  The crown is the top part of the tree, which features limbs, branches, and twigs that grow out from the main trunk to produce apples.

The following picture was ultimately created in The Allegory of the Profit Tree to show how the core components of an apple tree correlate to a business:

Without the roots, trunk, limbs, branches, stems, and leaves working together, an apple tree would never produce buds, blossoms, or fruit.  Put another way, the amount of delicious apples an apple tree produces is proportionate to the health of the core components of a tree working together to grow each apple just as it is for any business.

If your goal is to own a business with continuously growing profits and more significant Owners’ Equity, then you do need the core components of your business working with little involvement from you for that to happen.  Click here to appreciate The Allegory of the Profit Tree better. {M-18 Allegory of the Profit Tree}

How does a small business become a large business?

The Allegory of the Puzzle Pieces is used to explain how small businesses become large.  Think back for a moment on how you approach assembling a puzzle.  You likely started by dumping out the puzzle pieces where you intended to build your puzzle.  You then turn the pieces picture-side-up as you sort out the pieces into groups of edge pieces, corner pieces, center, and similar color pieces.  You then arranged your corner pieces from the corner edges.  After that, you connected the edge pieces to fill in the corners to create a frame of your puzzle image similar to the following:

Next, you likely put the bottom of the puzzle box into the image side of the puzzle box so you could best see the image you are looking to assemble.  You set up the image from the puzzle box this way to see how your finished puzzle will look.

Putting the required pieces together to earn a business profit

People assemble jigsaw puzzles as an escape from the stresses and strains of the day.  They seek an activity that allows them to think about something other than their challenges or problems to help them to relax.  Doing a jigsaw puzzle-like, the one below, is a proven way to wind down with the family or even on your own.

Working with puzzles helps develop fundamental skills such as shape recognition, concentration, goal setting, patience, and a sense of achievement.  Puzzles help develop hand-eye coordination and fine motor skills due to the precise nature of matching each piece exactly.   Commonly recognized benefits from assembling a puzzle include:

1. Simultaneous exercising of both the left and right sides of your brain.
2. Improvement of your short-term memory as you work to find a needed piece.
3. Expansion of your visual-spatial reasoning in being able to tell where pieces are in the pattern.
4. Greater mindfulness as you focus your attention and awareness on the activity of assembling the pieces of a puzzle into a completed image.
5. Superior problem-solving and critical thinking skills develop from the trial and error nature of working with the different jigsaw shapes and sizes.

Owning your own business requires the simultaneous use of both the left and right sides of your brain at once.  Make a mistake on a customer order that costs you money; you will experience an immediate improvement of your short-term memory and need for superior problem-solving skills as you work to resolve the problem.

The challenge is if you don’t turn the data flowing through your business, you fail to see the trends and patterns in your business that you need to influence.  You also lose out on the opportunity to be more mindful of what you choose to focus your attention and awareness on through the day because you fail to have clarity on your goals and how you know when you have achieved them.

Just as every puzzle has an edge, corner, and centerpieces, every business has core pieces available to them

The need for the core pieces to business success is proportionate to the size and complexity of the business.  Startups and small businesses only need the bottom corner pieces to function, whereas expanding companies need all four corner and edge pieces to work.  In contrast, significant businesses like in the Fortune 100 have all the pieces working together as shown below to create the sizeable results these few businesses produce year after year:

Either a business startup will be good at building its foundation for generating revenue at a profit, or it won’t.  Those new business owners who are good at generating sales at a profit before burning through their initial financing are also good at bringing the above puzzle pieces into their business as they become needed.

Those who don’t become good at working with the early phase pieces will struggle as small business owners.  Their result will either have them going out of business with nothing to show for their hard work and sacrifice or at best; they will sell the assets of their business for very little to no return on their investment.

The five stages of business profit progression show when each of the ten core pieces of business is needed

The business profit progression stages of “stuck” and “substantial” come after a startup survives either the stretch or survival stages.  If the startup entrepreneurs do everything right, they can quickly move from the stretch into the substantial stage.  Think Facebook, Uber, and Google.  If they don’t, they will either go out of business, remain in the survival stage, or fall into the stuck stage.  Below is a diagram and high-level description of the four stages of business profit progression:

	Survival	Stuck	Stable	Stretch	Substantial
Definition	Doing whatever they can to exist into the month.	To be fixed tightly in this position.  Likely in a rut working in a situation that never changes.	To be steady at a fixed level.  Very similar to being in a groove of routine and habit.	Ownership is reaching as far as possible, financially and professionally, in a particular direction.	The business is of considerable importance, size, and worth.
Headline	It’s always groundhog day looking for the light at the end of the tunnel that never comes.	Doing what’s always been done because of not knowing any better.	Likes doing what works because it’s easy and comfortable.	Some strategy, structure, and processes are working, but not all.	Predictable and repeatable business results through interlocked strategy, structure, and processes.

While several factors will change in importance as a business grows and develops, what’s most important is their profit progression, not the age or complexity of the business.  What matters is their cash flow, sales, and profit management regardless of the business’s age, size, or complexity.  This recognition is reflected in the following business profit progression model:

Ultimately, every business will either become stuck or stable if they haven’t successfully stretched themselves into becoming a substantial business as identified below:

As shown above, a business will either achieve the substantial stage, remain stable, become stuck, or go out of business.  The stretch and survival stages are not sustainable over long periods.  In contrast, a business can be stuck, stable, or substantial for years at a predictable level of sales, cash flow, and profitability based on how they perform through the business profitability model:

Understanding how the ten core pieces of business come together is key to becoming a significant business

In The Allegory of the Profit Tree, we learn how the parts of a business come together to produce profits.  How these parts are intended to work together to produce higher profits is reflected in the following picture:

The first three core pieces a small business must have come together to exist into next year

The success of any business starts with its organizational structure.  Org Structure is more than the org chart that illustrates who reports to who in the hierarchical lines of authority.  The first core piece of any business represents the following fundamental components of the organization:

A business is an economic system or organization where goods and services are exchanged for money.  Every business requires startup capital and customers to whom its output can be sold consistently to make a profit.  The organization of a business defines the what, when, why, and how for the business.

Business Model defines how a business makes a profit.  It lays out the products to be sold, the target market to be pursued, and the expenses it anticipates to bring its products and services to market.  Its role in establishing your Org Structure is to answer the question, “How are we going to make money to survive and grow?”

Noble Purpose is a clear and concise statement about the value your business creates for your customers.  It’s the jumping-off point for the objectives, goals, priorities that include every facet of your organization.  Its role in establishing your Org Structure is to answer the question, “Why should our customers care about buying from us over anyone else?”

Values are the core beliefs or ideals shared by the business employees about what is good or bad, desirable or undesirable.  Their purpose is to influence employee behavior and attitude and serve as broad guidelines in all situations.  Some common business values are fairness, innovation, and community involvement.  Their role in establishing your Org Structure is to answer the question, “What are the guiding principles in our business that we want to shape our behavior by?”

Objectives + Goals establish specific results your business plans to achieve within a time frame from your available resources.  In general, objectives are more specific in communicating what you are trying to accomplish.  Goals provide an observable and measurable result of one or more objectives to be achieved within a defined timeframe.  Their role in establishing your Org Structure is to answer the question, “What are we trying to accomplish, and how will we know when we have done it?”

Strategic Priorities represent the approach you are taking to achieve your objectives ranked by their importance in achieving the goals of the business.  All subsequent operational or tactical planning and resource allocation are based on strategic priorities.  Its role in establishing your Org Structure is to answer the question, “What do we need to focus on in order of importance to achieve our goals?”

Tactics are how a strategic priority is carried out.  They involve both planned and ad hoc activities meant to deal with the demands of the moment required to move from one milestone to another in pursuit of a goal.  In a large business, the strategy is decided by the senior executive team and the tactics by the department head for implementation by their managers, supervisors, and employees.  Its role in establishing your Org Structure is to answer the question, “What are the specific actions we need to follow through on by when to accomplish our goals?”

Vision + Mission starts with the aspirational description of what your organization plans to accomplish in the future.  Your vision serves as a guide for choosing current and future courses of action.  Your mission declares your core purpose to filter out what’s matters from what doesn’t.  Their role in establishing your Org Structure is to answer the question, “What is it specifically are we trying to pursue (our vision), and what is it we are trying to accomplish (our mission) through our business pursuits?

The importance of each of the seven components of this lower-left corner piece that positions a business for success is of equal importance to every business.  Your stage of business profitability that you are currently in, as shown below, shows which of the seven Org Structure components you should be most worried about today.

Survival	Stuck	Stable	Stretch	Substantial
Knowing your Business Model for making a profit is the most critical Org Structure component today.  If you don’t start earning a profit, there will be no tomorrow.	Being clear on your Noble Purpose for your business funded by the profits from your Business Model is key to getting more people to buy from you.  Your business is likely stuck because you aren’t selling to enough customers.	Owners of stable businesses have an implied Org Structure that developed over the years the owner and their core employees have been working together.  Their need is to document, at a minimum, their Business Model, Noble Purpose, and Values to include in the pitch used to sell the business when the owner wants to exit.	When your business is in the stretch stage, you have to be clear on what you are trying to accomplish and how you will know when you have realized the accomplishment.  Use your objectives, goals, strategic priorities, and tactics to know what you will and won’t do in the coming year.	Businesses evolve into the substantial profit stage because they got their Org Structure right early and continue to refine it year after year.  The softer components of Org Structure involving values, vision, and mission become increasingly important the more layers of management between senior execs and the customer-facing employees.

The second most important piece to your business lies in your financial statements

Knowing what to do and why you are doing it to earn a profit comes through Org Structure.  Knowing how well you did it is determined through your financial statements.  Every business starts with cash, which is invested in various ways to generate revenue.  Ultimately, the revenue is turned back into cash, and the cycle begins anew.  Your financial reports enable you to know how the core elements of your business are performing and where you need to intervene to produce better results.  The second core piece of any business is represented in how your financial statements come into existence:

Each completed business transaction produces data that forms the financial reports used by your accountant to calculate your financial position for tax liability purposes.  Those who choose to maximize their sales and profits use these same financial reports for so much more.  They know that their financial data can help them build sustainable operating cash flows and higher profits.  Your financial statements tell you what you need to build on, what you can ignore, and what you need to change.

Profit & Loss Statement provides the best overall summary of management’s performance.  It itemizes the revenues and expenses that led to your current profit or a loss. Your P&L Statement tells you what the actions of your business cost you and whether they made you any money or not?

Balance Sheet lists the company’s assets, how it paid for them, what it still owes (its liabilities), and what amount is left to the owners after satisfying the liabilities. Your Balance Sheet tells your capacity to produce revenue (assets), what you owe for these assets (liabilities) and what claim you have as an owner against your assets (equity).

Statement of Cashflows is your picture of your sources and uses of cash flows from operations, including investment and financed money.  Your Statement of Cashflows tells you where your money came from or will come from and where you’re money went or will go?

Chart of Accounts is the list of ledger account names and numbers showing classifications and sub-classifications for assets, liabilities, equity, revenue, and expenses.  The quality of your financial statements is proportionate to the accuracy of your chart accounts.  Your chart of accounts protects you from recording a financial transaction in the wrong account leading to GIGO (garbage in garbage out) in your financial statements.

Bank Reconciliation is used to compare your financial accounting records to those of your bank to see any differences between these two sets of records for your cash transactions. Matching these records is used for fraud detection and financial recording mistakes.  You know your financial statements are accurate every time you’re accounting records agree with your bank statement.

Timely Reporting is the difference between getting your financial records ready for your accountant to file your taxes and your ability to shape the management decisions you make based on your financial reports.  Timely reporting is how you know if your business activities are producing the planned results for your business or not?

The most crucial component of this lower right corner piece to business success that you should be most worried about depends on which of the following five stages of business profit progression your business is currently in?

Survival	Stuck	Stable	Stretch	Substantial
Most businesses fighting through the survival stage do because they don’t perform timely reporting and are slow to process customer invoices.  Your priority is to get into the habit of recording every week your financial transactions.  This is the best start to getting out of the survival stage.	A stuck business is often stuck because they have an inaccurate chart of accounts and are slow to perform their bank reconciliations.  As a result, they don’t trust their financial statements, so they don’t use them to make better decisions about what they need to start, stop, or do differently.	Stable business owners either have an Office Manager or Bookkeeper who is very good at keeping their financial transactions recorded accurately and timely.  The owner knows how to look at their P&L statement to see what’s changed and will look into issues that concern them.  They also have an accountant who does an excellent job keeping their Balance Sheet accurate.	Those who survive the stretch stage do so because they consistently use their financial statements to gauge how they are doing.  When they see their business is burning through too much cash, they make the needed changes.  Those who fall out of this stage to either stuck or survival mode did because they ignored what their financials are trying to tell them.	Substantial businesses consistently use all three of their reconciled financial statements on a timely basis to confirm how their business is performing and where they aren’t.  They are particularly adept at looking at the information conveyed in their P&L, Balance Sheet, and Cashflow Statement to influence their near and long-term decision-making.

The third most important piece to your business lies in your ability to manage cash

It’s difficult to generate cash until you have your Org Structure and Financial Statements in place.  It’s impossible to capitalize on your Org Structure if you aren’t collecting the cash owed to you or generating surplus cash from your operations.  The third core piece of any business represents the ability of management to manage the cash flowing through their business:

Cash management is more than looking at your Statement of Changes in Cashflow that shows you cash flows from operations, investment activities, and financing decisions.  Cash management is how you manage the relationship between your opening cash balance and your ending cash balance week to week.  It is how you know the amount of your cash inflows and their sources.  It is how you manage your cash outflows and their uses.  It is how you know week-to-week whether you are building cash reserves or burning through them?

Current Cash Position is the cash available at the beginning of the week.  For most businesses, this is what exists in your business checking and savings accounts.  Your beginning cash balance tells you what you have to spend in the week ahead if no new cash inflows come in.

Ending Cash Position is the ending cash balance projected at the end of a given week after “receiving” all of the Cash Inflows and “paying” out all designated Cash Outflows.  Your ending cash balance tells you whether you are building cash reserves or burning through them.

Weekly Reporting is performed by small businesses because of the rapid changes that occur in your cash position.  By doing weekly cash management, you determine, in advance, probable shortages or excesses in cash that may occur in the weeks ahead.  Weekly cash reporting enables you to proactively adjust your cash inflows and outflows as needed versus having to react at the moment to cash problems.

Customer Invoicing serves as a demand for payment and becomes a document of the title when paid in full. Nothing good in your business will ever happen until you issue and collect payment for your customer invoices or bills of sale.  Your first indicator of profits ahead is by the volume of customer invoicing you perform each week.

Accounts Receivable Collections is the practice of collecting the monies owed to you for sales made, but not yet paid for by the customer.  This number represents the amount of money still owed to you by customers after receiving the goods or services they purchased.  If you consistently pay out monies (Payroll + A/P) faster than you collect the money (A/R), you will have cash management problems.

Operating Budget is a detailed projection of the income and expenses based on forecasted sales revenue by month for the year ahead.  The most important number is the sales budget, followed by your direct and indirect expenses budget.  An operating budget sets your spend targets based on your projected sales.  Without this view on your business, it is complicated to know what’s working and where you are spending more than you should.

Payroll is the primary expense that must be accounted for week-to-week in its entirety. The most important asset of the company resides within its labor. If labor is not paid, the risk that the business will lose its best labor is great.  Lose the people who get and perform the work, and you won’t have a business to manage.

Recurring Expenses are the fixed expenses of the business that are difficult to adjust in the near term.  These don’t vary with sales and production volumes, so they are easy to plan for and should be easy to manage.

Accounts Payable Payout Timing represents the amount of money you plan to pay your creditors (suppliers, etc.) week-to-week in return for their goods and services.  Failure to pay your vendors and suppliers on a timely basis, and you are likely to find yourself cut off, put on cash on delivery, or forced to find another more costly source for what you need.

The lower left edge piece to business success is not part of the Financial Statements corner because it’s more than financial reporting of your results.  It’s managing your cash week-to-week.  The degree of worry over the cash management process is highest in the lower stages of business profit progression, as reflected below:

Survival	Stuck	Stable	Stretch	Substantial
You can’t spend what you don’t have.  Businesses in the survival stage must stop all cash outflows until they control their cash inflows represented by their Customer Invoicing and A/R Collections.	Businesses that are stuck need to be more proactive in how they manage their cash.  Knowing how their current cash position will become their ending cash position week-to-week gives them a line of sight to where they are wasting money.	Stable businesses have owners who tend to be very frugal and careful with their money.  They aren’t likely to carry a lot of debt and have a good sense of when they will get paid by their customers and to who they owe money.  Their challenge is they are the only one who does this.  What happens to the business if they become incapacitated puts a stable business at unnecessary risk.	The key for businesses in the stretch stage is their Operating Budget.  Knowing what they can afford to spend based on what they project to sell is how they keep from burning through their business expansion cash before their investments start generating a return.	Substantial businesses are very good at investing their surplus cash.  These businesses have a corporate treasurer, a Controller, and CFO to focus on maximizing the money received, spent, and invested by the business.

Org Structure, Financial Statements, and Cash Management are the top three areas for any business in Survival Mode

If you are a business owner trapped in the survival stage, it’s time to stop learning more business practices and theories.  Your business stage doesn’t need more ideas to distract you; it’s time to focus on what your business does need you to master immediately.  Below is what specific components to business success you need to focus on:

The next three core pieces a business must have come together to be more profitable

The fourth puzzle piece to realizing superior business success is grounded in the business truism: you can’t control what you can’t manage, and you can’t manage what you can’t measure.

Your odds of quickly improving anything in your business are proportionate to your business intelligence system (BIS), which is more than what you get from your financial statements.  Every financial statement is a lagging, not a leading indicator of results.  Your financial reports inform on the quality of decisions already made and the actions you have already taken.  They are the easiest part of your BIS that establishes your final results.  The heart of BIS is to track the progress of activities from start to finish on an accurate and timely basis.

Think of BIS as a simple equation where “actions = results.”  Start with the results you want to be represented by your key lagging indicators to make the equation work.  Then work backward to identify the necessary actions, the leading indicators you will need to act on to realize your planned results using the following:

Data is present everywhere across your business for output as usable information.  Data represents information in a raw or unorganized form (such as alphabets, numbers, or symbols) that refer to or represent conditions and outcomes.  The challenge with data lies in capturing and organizing the data for use in business intelligence reporting.

Timely Reporting is critical to business success because the value of data converted into information is proportionate to its effect on behavior, a decision, or an outcome.  A piece of information is considered valueless if it comes too late, or after receiving it, things remain unchanged.

Leading KPI’s are key performance indicators representing inputs that measure the activities that are necessary to achieve your goals.  These come first. They describe how to achieve your goals, serving as indicators of the likely results of your actions.  These metrics are outcome predictors that are harder to measure yet easier to influence and improve upon directly.

Lagging KPI’s are key indicators corresponding to your outputs that measure the actual results that confirm whether you hit or missed your goal.  These metrics summarize the outcome of an event.  As a result, they are easy to measure, but impossible to improve upon directly or influence in the near-to-short-term.

Variance Analysis is the process used to compute the variance between actual and planned or actual to targeted performance levels.  The gap between what you expected to happen and what did is the variance.  The goal of performing any variance analysis is to identify what caused the performance gap.

Misses Follow-up is how you correct for what isn’t happening in your business as it should.  Anytime you experience significant gaps in results between what you planned and what did happen represents an opportunity to intervene to address the miss.  Failure to follow up on misses robs you of the opportunity to confirm that the required actions are being completed as planned or if the actions need to change because you aren’t getting the desired results.

Management Scorecard is a graphical representation of the progress of a business over time toward the realization of specified goals. The core components are targets by key performance indicators (KPI’s) and planned results by each target.  The management team uses a weekly scorecard to identify where management intervention is needed to create new actions to drive better results in the next week.

The components in this fourth piece to business success that you should be most worried about are reflected below by the stages of business profit progression.

Survival	Stuck	Stable	Stretch	Substantial
Not applicable.  Your objective is first to get a handle on your business model, timely invoicing, and A/R collections.  Once you have that in control, your goal is to add additional components from the first three core pieces before starting this fourth piece.	A stuck business becomes unstuck by performing monthly actual-to-plan P&L Statement variance analysis when the gap between actual and plan is great. It’s about identifying the misses then following up on the needed actions to improve performance until they are done.	A stable business can earn higher profits by performing monthly year-over-year P&L Statement variance analysis.  Here they are looking for wide swings in performance between the current year’s results and the previous year.  Significant differences in numbers represent an opportunity to improve business performance.	A business stretching itself needs to have a weekly Management Scorecard to monitor progress being made to realize its strategic goals.  This requires them to have the other seven components of a business intelligence system in place to have a relevant scorecard to help them manage their rapidly growing business.	A substantial business becomes substantial because they know how to work with their data.  They have evolved their business intelligence systems to include real-time monitoring tools (Dashboard) in a central hub for multiple reports from various datasets that are continuously updated to affect daily operating performance.

The fifth most crucial piece to your business lies in your marketing and sales

Thomas Watson, Sr., president of International Business Machines (IBM) from 1914 to 1956, said, “Nothing happens until a sale is made.”  Everything in your business is dependent on your sales volume by day, week, month, and year.  Until you collect the money earned on a sale, all you have is cash outflowing from your business.  The upper left corner of the Profit Tree puzzle is your marketing and sales.

The majority of business books written are on Marketing and Sales.  Each book represents some nuance in the art and science of getting work for a business.  Much of what’s in these books can help you generate more leads that you can convert into sales.  If your goal is to become a marketing or sales professional, the component list below will feel incomplete.  If your goal is to get work into your business through new and repeat sales, then the following is what you need to manage:

Market Research identifies specific markets by size and other characteristics to determine if new business opportunities exist.  For existing markets, the goal is to identify market trends you should capitalize on and those you need to get ahead of before they negatively impact your business.  For new markets being considered, your goal is to establish what you will have to do to make money in that market before you commit to entering it.

Customer Research starts with understanding existing customers’ needs, desires, and expectations and why they chose your product or service over competitors.  The process of researching your customers is one of the most effective ways to identify problem areas in your business.

Lead Generation is the process of making people aware that your business exists.  A lot of money can be wasted on ineffective advertising and promotion to build awareness and generate interest in considering what your business does.  You minimize wasting money on marketing through knowledge earned in your marketing and customer research.

Lead Cultivation is needed because not every prospect that reaches out to your business will buy on their first interaction with your sales process.  The bigger the purchase price, the more sales persuasion you will need to bring forward through each sales interaction.   Its purpose is to get clear on prospects’ needs, so your salespeople provide the information and answers they need to purchase from you.

Sales Support is on the front end of the sales process in helping win new business, and it is on the back end of the sales process making sure people are satisfied with their purchase from you.  You invest a lot of money in taking someone from unaware of your business to purchase.  You reduce the cost of acquiring new customers when those who buy from you promote your business because of their purchase delight and sales experience satisfaction.

Pricing is the only piece of the marketing mix that brings in the revenue.  Price is the monetary value paid to take ownership of a good or service.  It is determined by what a buyer is willing to pay and a seller is willing to accept.  It is directly impacted by your business’s direct and indirect costs and what your competitors are willing to charge.  The more perceived value you create for your customers plus control you have over your costs, the more profit you will earn and the more cash you will have available to reinvest in your business.

Customer Experience is much more than servicing the customer; it is the entirety of a customer’s interactions with your company and its products.  Managing the customer experience is an integral part of customer relationship management. The overall quality of the experience is reflected in how the customer feels about the company and its offerings.  Fail to manage the customer experience; you not only lose the upside of repeat business your ability to generate new customers to sell to because exponentially more difficult.

The fifth piece of the puzzle to business success has a significant impact on the horizontal axis representing sales in determining which stage of the business profit progression model your business is currently.

Survival	Stuck	Stable	Stretch	Substantial
Not applicable.  If you don’t know how your business makes money (Business Model) or struggle to be timely with your customer invoicing and payment collection, you have no business seeking new customers to lose money trying to serve.	A stuck business accelerates getting unstuck by making sure they have the best pricing in place.  Through the accurate and timely recording of expense transactions, you know what things are costing you, resulting in your ability to set prices that cover your costs at a profit.	A stable business has learned what it needs to do to market its product and services and convince people to buy.  Their opportunity is to document why people buy from them since the number one reason people will want to buy your business is tied to the strength of your existing customer base.	Market research is the key to a business in the stretch stage.  A lot of growth capital is wasted in trying to penetrate a new market to capture more customers.  Avoid wasting your investment by being crystal clear on what your business will have to do to penetrate a new market cost-effectively.	Substantial businesses are either masters at marketing and sales or, because of their economies of scale, are positioned with surplus cash that they can afford to spend a lot on generating leads that they convert into new customers.  The businesses that remain substantial have all seven marketing and sales components dialed in through teams of marketing and sales professionals.

The sixth most significant piece to your business lies in your ability to do the work people pay you for at a profit

Operations transform assets into products and services your customers buy from you.  Two or more connected operations constitute a process and are generally divided into four basic categories associated with processing, inspection, and storage until delivered to the customer.

The design, execution, and control over operations in delivering products and services is the second most crucial determiner to business success.  The first determiner to profit is price.  It doesn’t matter what your cost of goods sold (COGS) is if you can’t sell what you do at a price that allows you to make a gross profit—the most important number in any business.

Gross Profit measures what it costs you to transform a dollar of sales into a profit by subtracting COGS from Net Sales.  Without a healthy gross profit in your business operations, it is impossible to have a substantial Net Income number.  Your gross profit percent is the best determiner of how efficiently your operations convert sales into profits.

If your percent of gross profit earned on every dollar sold isn’t improving noticeably, year-over-year, then your business operations aren’t becoming more efficient.  A gross profit that is continuously improving is the best reflection of a well-managed business as accomplished through the following:

Business Assets are the Balance Sheet assets deployed to generate profits and cash flows.  Idle operational assets are one of the largest drains on a companies ability to hold onto their cash—particularly involving financed assets that cost you more in principal and interest than you generate in gross profit.

Always Be Reducing Your COGS starts by accurately accounting for every direct expense related to producing the goods and services bought by your customers, within your cost of goods sold or COGS chart of accounts. COGS are considered variable expenses because they vary with sales.  The most common COGS are Direct Labor, Subcontractors, Materials, and Equipment.  Every dollar you pull out of your COGS is a dollar more in Gross Profit to pay for your fixed expenses at a profit.

Quality Assurance is more than quality control; it is the broader concept that covers all systematic activities implemented within a quality system.  QA represents the input and output requirements, suppler certification and rating, product and service testing for conformance to established quality, performance, safety, and reliability standards, process effectiveness evaluation.  The most critical part of QA is auditing the operation’s final output for conformance to technical, reliability, maintainability, cost, and performance requirements.

Deliver Work transfers the purchased product or delivery of the acquired service from the provider to the purchaser.  It represents “place” in the marketing mix that affects how and where what you do is bought.  The location of where you choose to conduct business drives you distribution methods used to deliver what you do to your customers at a profit to you.

The sixth piece to business success you should be most worried about is often the piece that owners stuck in the survival and stuck stages spend the most time in, whereas those owners of substantial and stretch businesses spend their least time working to improve.

Survival	Stuck	Stable	Stretch	Substantial
Stay out of this business area until you know with surety how your business makes money, and you get paid for the work you have already delivered.  Most owners trapped in survival mode are in this stage because they are most comfortable hiding in operations from the work their business needs them to do.	A stuck business owner frees up their time to work on their business by spending at least 75% less time working in their business.  This means making sure the assets you have in your business are generating sales, not working with the assets in operations.	Most stable business owners have highly tenured people who they trust working in operations.  Complacency with the status quo is the challenge to overcome for Stable businesses.  Anytime you become too comfortable with accepting an increase in your COGS costs you money.  Your opportunity is to turn reducing COGS into a game of making more money for you.	The delivery of work for a business in the stretch stage is the most critical part of the Operations puzzle piece.  If you are growing through geographic expansion that requires new physical facilities to be set up, you are taking on high additional costs to be in those new markets.  Make sure your market and customer research is solid before committing to new places to conduct business.	The secret to operations that substantial business owners understand is the role Quality Assurance has in their ability to earn higher financial returns.  Because of the strength of their QA activities coupled with the timely and accurate recording of their sales and expense transactions, they manage their pricing to maximize their profits and, ultimately, their market dominance.

Businesses in the Stuck stage become unstuck by acting on the pieces associated with Business Intelligence, Marketing and Sales, and Operations

The movie “Groundhog Day” starring Bill Murray is an entertaining film, yet the idea of reliving every day the pains of owning a business in the Stuck stage is no way to live.  Become a Stable business by acting on a few of the core pieces associated with Business Intelligence, Marketing, and Sales by spending less time in Operations.  Below are the specific components to business success a Stuck business owner needs to focus on:

Working on the business in these additional areas associated with Business Intelligence, Marketing, Sales, and Operations assumes that you know your business model positions you to make money.  You are consistent in accurate and timely financial transaction recording, and you are diligent in collecting the monies owed you.  If you aren’t consistent in performing these business basics, don’t take on what’s been identified above until you are.

The seventh core piece a business must have to be more profitable is Management Accountability and an owner committed to Personal Development

The thought you may be wrestling with is how can the role of management be the seventh puzzle piece when management is responsible for organizing, planning, controlling, and directing the resources of a business to achieve the goals and objectives of the business.

The latter part of this definition for management, “achieve the goals and objectives of the business,” places this as the seventh of the ten puzzle pieces that are core to business success.  In the Allegory of the Profit Tree, the apple tree’s trunk holds the key to understanding how a tree works.  Its primary purpose is to connect the leafy crown of the tree with its roots.  The management team connects the assets of a business reported on the Balance Sheet with the activities reported on the P&L Statement through their shared accountability for the business results that lead a small business to become a large business.

Every business makes money by putting its long and short-term assets to best use every day.  These assets include their people and, more specifically, themselves.  The best way for any manager to be an asset to the business is to hold themselves and each other accountable for their results.  The right actions have the highest probability of producing the right results, whereas the wrong actions have a 100% likelihood of producing less than the desired result.  Below are the critical few ways a manager becomes an asset versus a liability to the business they manage:

Asset Protection best occurs when management maximizes the return on assets (ROA) since the sole purpose of assets’ is to generate revenues and produce profits.  Management’s ability to convert its assets into profits is the difference between having a thriving root system versus a decaying one.  The second part of asset protection is safeguarding the wealth in your assets through legally structured techniques from those who may file and could win a legal claim against any of your assets.

Execute Profit Plan means that first, you have a twenty-four-month plan for earning a profit.  Failure to execute a profit plan leads to management failing to shape the results of the actions of the business they are investing in to generate a profit.  The profit plan sets your roadmap to success, one that will take your business from where it is today to where you want it to be tomorrow.  Realizing your desired destination only happens if you execute your plan to make more money than you spend.

Action Follow-Through represents the underlying number one challenge holding a business back.  The failure of management to follow through on their planned actions.  It is never enough to be a well-intentioned individual who commits to act only to get distracted or discouraged and not complete their commitment.  Follow-through on your commitments is how you overcome the second and third highest killers of small businesses: complacency and procrastination.  Overcoming these business killers begins with your management team’s commitment to do what they say they will do before this same commitment manifests in your employees.

Own the Results comes down to owning the outcome or effect of an action.  Actions are defined as a thing done, the process of doing something, typically to achieve an aim.  The challenge with completing actions is the fact that many actions don’t produce the desired result because of things outside of the control of the person acting.  Those who own the results are continually practicing “KFC.”  They know what they want, find out what they are getting, and change up what they are doing until they get what they want.  Not giving up, identifying what’s not working, then making another run at realizing the planned result is owning the results.

The second part of the management puzzle piece involves personal development.  Substantial businesses with great founder stories involve an owner who was personally committed to continuously improving themselves.  They were curious, and they challenged the status quo.  They enjoyed becoming better at what they do today than they were yesterday.  They are defined as people who were always driven to be learning.

Because of a high commitment to personal development, their skills, capabilities, knowledge, and wisdom evolved faster than their business evolved.  They worked to overcome inabilities that could become the anchor that held their business back.  Their commitment to developing themselves became the catalyst that propelled their business forward as they continuously worked to improve themselves.

Another extensive collection of books published involves personal development.  While there are many good books and articles written on the subject, the puzzle piece associated with Personal Development comes down to three core themes to live by, not specific steps you can take to become better today than yesterday.

Stop Profit Losses starts with awareness of what’s not working as it should.  The secret to consistently growing profits is to resolve the #1 constraint impacting business profitability.  You do this through learning how the constraint should work then assessing how it is.  You stop the profit loss by ending the constraint.  Increasing business profits comes down to behavior change by modeling management accountability and learning what corrective actions are needed to produce better results today than you did yesterday.

Always Be Learning involves the continuous acquisition of knowledge, wisdom, skills, and capabilities through experience, study, and being taught.  Great learners are masters at taking in information (input), mixing it in with experience (process + reflection) to create new intellectual intelligence (IQ).  Personal learners are exceptional problem solvers because they are continuously looking to learn how to do things better.

Master EQ + CQ starts with the four main sets for emotion intelligence (EQ), involving self-awareness, self-management, social awareness, and relationship management skills.  EQ is the ability to develop and maintain mutually beneficial relationships with other people.  IQ is the intellectual ability to manage ideas, knowledge, and thoughts.  Having a high IQ and EQ is of little value if you don’t practice communication intelligence (CQ).  Without mastery of CQ, a manager cannot successfully pass foundational information along to others, so they understand what they need to get done by when.  This failure to transmit and share ideas, observations, facts, and values from one person to another leads to the wrong actions being performed, resulting in waste and profit losses.

The easiest way to discern the profit progression stage of a business without knowing the sales, profits, and cash reserves is by seeing how the owner or senior leader approaches the management of their business and their interest in learning.  Below are the number one management priority found in this seventh piece to business success you should be focused on if you aren’t happy with the business profit progression stage you are in:

Survival	Stuck	Stable	Stretch	Substantial
The number one management priority for an owner trapped in the survival stage lies in stopping their profit losses.  Thy best do this by first identifying the biggest problem area in your business model then by following through with discipline on the actions required to stop the losses.	The number one management priority for an owner who feels stuck by their business is to take greater ownership of their business’s results.  The most dissatisfied result represents the number one area to follow through on with discipline on the actions required to stop the losses tied to that business area failing to produce the desired results.	The number one management priority for the owner of a stable business is the second part of asset protection, the safeguarding of the wealth you have created in your business assets.  Take advantage of the asset protection techniques within the bounds of the law to prevent others from filing then winning a legal claim against any of your assets.	The number one management priority for an owner or senior leader in the stretch stage is profit plan execution.  You can only evolve into a substantial business if you and your managers own the results their actions produce.  Failure to follow through on commitments will cause you to fall out of the stretch stage into the stuck or survival stages.	The number one management priority for the owner or senior business leader is always be learning as you master your EQ and CQ skills.  Failure to take in new information that is then effectively communicated and applied to continuous business improvement is critical for staying a substantial business.

The eighth most important piece to business success and the number one contributing factor to a small business becoming a large business lies in the usefulness of your leadership

The other nine core puzzle pieces to owning a successful business involve management practices that consist of assessing, planning, organizing, and controlling the assets of a business to accomplish its goals and objectives.  Leadership is different from management.  It refers to an individual’s ability to influence, motivate, and enable others to contribute toward organizational success.  It has been said that influence and inspiration separate leaders from managers, not power and control.

Again, there are more books written on leadership than one reader could read in a lifetime.  The key to this eighth puzzle piece to unlocking the allegory of the profit tree lies in what you are trying to influence and who you are trying to inspire.  The building blocks for positioning your people to perform at their best are defined by the noble purpose, values, vision and mission, strategic priorities, objectives, and goals established in your Org Structure puzzle piece.

An impactful leader becomes one through their never-ending investment of time and energy in positioning their people for success.  The core component they do this through is the culture they always work to cultivate and care for, represented by the bark of a tree.  In the Allegory of the Profit Tree, the reader learns how the tree’s outer bark protects the tree from injury, disease, insects, and weather.  Below are the primary areas a leader keeps on the right path in leading their business forward:

Culture of a business is seen in shared values, attitudes, standards, and beliefs that shape how people work in a business.  A strong culture is a defining component for any business making more money and sure protection against outside forces attacking the business.  In contrast, a weak culture is often the leading contributor to substantial businesses ultimately failing.

Decisiveness is the ability to make decisions quickly and effectively.  Leaders who bring the most to their businesses are always clear on the best approach to deciding.  They know the challenge they must balance is how much involvement they want from the people affected by their decision versus the benefit of decision speed.  Increased involvement brings the benefit of increased commitment along with the curse of decreased decision-making efficiency.

Hire and Develop Talent can be one of the best parts of being a leader if you consider the most valuable resource of your business to be the people employed.  Not only does your talent represent one of the top three costs of most businesses, these same people have the greatest impact on business profitability and cash flow.  The key to every company’s future, no matter its size, is the people it hires today and the people they promote tomorrow.

Change Management involves the leader and those in their employ successfully taking on new challenges, expanding their company capabilities, cultivating new behaviors, and capitalizing on new ideas.  Any intentional change starts with the conscious decision to change and, as a result, will produce events that surface issues and responses that will either be positive, neutral, or negative.  Depending on the response to the change event, you will either meet with success or experience poor acceptance that results in a failed change implementation.  This is why knowing the guiding principles, new practices, and behaviors that you are prepared to reward for the successful implementation of a change is foundational to leading a business to do more than what it did last year or even last month.

Communication is how you make it ALL happen through leadership.  You can’t direct your people to achieve any goal if you can’t translate what needs to be done into a realistic vision of what is to be done that is communicated so that the people involved in getting it done can understand and accept.  Great communicators will inspire those involved to want to perform what’s being asked of them to the best of their ability because they see the value created.

Engage Stakeholders is what leaders do to create interest and involvement by groups of people that can influence the success of a business.  The top three stakeholder groups for every business are the customers, employees, and suppliers engaged in the business model.  As a business looks to grow, the next important stakeholder group is the investors.  Once the business has achieved a community presence, it’s about connecting with the community stakeholders that they touch locally.  When the size of the business is such that it gets the attention of government representatives, then government relations becomes an area for interest and concern.

Note:  only large businesses with high sales volumes to pay for multiple levels of management hierarchy can afford leaders who don’t also have to manage.  Every other business stage needs strong managers to earn more profit in the current year than they need a leader planning for three or more years out.  This is why the nine other core pieces for business success come down to cost-effective management.

Which component of this eighth piece to business success should I be most worried about depends on which of the following five stages of business profit progression your business is in currently?

Survival	Stuck	Stable	Stretch	Substantial
A business struggling to survive into next month needs a decisive owner.  Businesses in this stage get trapped here because decisions on what to do never get made. Their biggest problem is they lack information to recognize what to do differently confidently. As a result, they don’t dare to pull the trigger that leads to the decision being put into action.	A stuck business owner needs to read a book on change management.  They need to develop the skills they need to unstick the business by creating the needed momentum to change up how things are done since what you have been doing isn’t working for you.	A stable business owner needs to worry about developing their talent.  The more capable the people they have around them are of doing what needs to be done, the easier it is for the owner to spend less time in the business.  Failure to develop the talent to work the business without you is why you continue working more than you want to.	For a stretch business to become substantial in the long run, they need a handful of their managers to step up and apply the skills required to be a “useful” leader since they won’t have the luxury of keeping a suite of offices occupied with leaders who can’t manage as they burn through money trying to grow their business rapidly.	Substantial businesses ultimately became substantial because of strong leadership.  This piece of the puzzle is what brought all the other puzzle pieces together.  The risk they face is allowing weak leadership to create an unyielding bureaucracy to compensate for their weak leadership skills.

The ninth most crucial piece to your business lies in your performance management process

Most employees want to do as good a job as possible within reason and are not interested in working harder yet are open to being shown ways to work smarter and more efficiently.  The primary responsibility of each Supervisor to those that report to them is to help their direct reports understand where and how well they are contributing to business results.  Failure to evaluate and discuss the quality of job contribution means an employee has to figure out for themselves whether the hours they put in each day, week and month is contributing to company sales and profitability or not

Performance management aims to pair coaching with feedback that helps employees learn how they are doing and what they can do better for themselves and the company.   It starts with employees knowing their specific accountabilities through a Job Description or Tasks and Duties Lists.  Once this is understood, the next step is periodic feedback through scheduled evaluations that recognize strong performance while sensibly discussing how to improve weak performance through the following management tools.

Job Description, Roles, and Responsibilities define and document what is expected of a person in their assigned job.  The intent is not to document every single thing expected of an employee in that job.  The goal is to provide a job summary giving a general overview of the job’s purpose, a list of the essential duties and responsibilities, and the qualifications for the position they must bring to the role.  The failure to provide employees with a job description is a failure to position their manager with a formal document they can use to hold a person accountable for job performance.

Evaluations help your people become better employees.  The purpose is to assess an employee’s value to the company equitably and objectively.  They are not designed to find fault but to develop better employee talent and, therefore, a better company.  Too many weak managers use it as a forum to communicate what they don’t like about an employee than as a process to help those they supervise further develop their respective talents.

Incentives, Benefits, and Compensation exist to increase the quantity and quality of performance of employees for the benefit of the company.  The goal is equitable wages and benefits that reflect the requirements and responsibilities of a position and incentives that pay for superior results achieved, not the promise of something in the future.  They should be mutually beneficial to both employer and employee in realizing business profit plan goals.

Progressive Discipline exists to help those struggling to contribute to business results earn the money they are being paid or move them out reasonably and decisively from your employ.  The only person who can fix employee performance issues is the immediate supervisor.  Fixing it early through progressive discipline will make it easier.  Delaying action makes it more complicated, if not impossible.  Fix performance issues or face the single greatest destroyer of morale and hence companies is the application of inconsistent discipline.

Effective performance management is continuous and not restricted to the formal, annual written performance evaluation. Supervisors must have regular informal discussions with their subordinates throughout the year.  Progress is more formally summarized in the annual evaluation, yet there must never be any surprises in the formal evaluation.

The informal discussions establish a common understanding, including how the job is going, what problems (if any) exist, and specific employee expectations over the next three to six months to a year.  The informal discussions form a natural progression culminating in the annual performance evaluation.  This eliminates any “surprises” for the employee when they are formally reviewed.

Which component of this ninth piece to business success should I be most worried about depends on which of the following five stages of business profit progression your business is in currently?

Survival	Stuck	Stable	Stretch	Substantial
One of the leading contributors to a business fighting for survival is its failure to consistently discipline problem employees.  Owners of survival businesses prefer to do the work themselves than confront an employee who isn’t contributing as they should.  Until a progressive discipline process is adopted, businesses are like to remain here until they replace their poor performers.	Stuck businesses remain stuck because they have failed to be clear on what is expected of each employee.  They aren’t likely to have job descriptions that adequately lay out the roles and responsibilities of each position.  One of the surest way’s to get unstuck is to use job descriptions to confirm what’s expected of each person in their assigned role and implement an incentive program that rewards exceptional contributions to superior results.	Owners of stable businesses are clear on what they expect their people to do.  They are comfortable talking with those who aren’t meeting expectations, but aren’t likely to have a formal evaluation or progressive discipline process.  Their people stay with them because they  provide adequate compensation and benefits with little variation in what’s expected from each employee.	Businesses powering through the stretch phase are loose with job descriptions and evaluations while aggressive with incentives and progressive discipline.  They are quick to get rid of people who aren’t cutting it and generous with rewards to those who contribute.  Managers in these businesses are more concerned with growing the business than they are with developing talent.	Substantial businesses have large HR functions responsible for designing and administering the elements of performance management.  The best are focused on positioning managers for success in using the tools of performance management.  Unfortunately, most large HR functions position themselves as bureaucrats who are more concerned with checking boxes than they are with getting the most out of their people.

The tenth most vital piece to your business lies in your documented process, policy, procedure, and standards

The people drawing a wage from you either know what to do when or they don’t.  Those who have been in your employ for a while and are inconsistent in how they work their assigned processes either don’t know the policies, procedures, and standards associated with each process they are assigned to work, or you don’t have any documented processes, policies, procedures, and standards.  Either way, you are losing money when everyday work is not done consistently and efficiently.

A process is a series of actions or steps taken to achieve a particular end.  Policies are guiding principles intended to influence decisions and actions.  They help people recognize why something needs to be done.  Procedures are a specific way of doing things.  They tell you how it is to be done with standards telling you what is to be done and how you know it was done correctly

When effectively deployed, policy statements help focus attention and resources through rules followed by specific responsibilities.  As a result, policy statements have the following characteristics:

1. Are general for widespread application.
2. Identify company rules, why they exist, when the rule applies, how it is enforced, and the consequences of violating it.
3. Less subject to change.
4. They are typically described in simple sentences and paragraphs.
5. The purpose is to reduce operational issues.

The procedures associated with each policy and process are the instruction steps describing how to complete a task or do a job.  Procedures coupled with policies by process bring uniformity to vital business operations to improve operating efficiencies and reduce the risk of an unwanted event.  Procedures have the following characteristics:

1. Are narrow in application to identify specific actions to be taken
2. Explain when to take action, what alternative actions exist, specific warnings, and cautions.
3. Prone to change as processes improve.
4. They are typically written in outline form by major steps.
5. It exists to describe core process steps to be performed.

Policies can be company-wide, department-specific, or process-focused.  Procedures detail how to perform specific business functions.  Standards provide the measures, metrics, and controls that confirm whether business areas are compliant with defined policies and procedures.  Policies are a statement of intent, while standards function as rules to achieve that intent.

Together, policies and procedures provide a roadmap for day-to-day operations.  They ensure compliance with laws, regulations, and company policies.  They give guidance for decision-making and streamline internal processes.  Standards exist to help those accountable for specific processes know if they contribute to business results or not.

Which component of this tenth piece to business success should I be most worried about depends on which of the following five stages of business profit progression your business is in currently?

Survival	Stuck	Stable	Stretch	Substantial
The fastest way for a business to move out of the survival stage is to master the processes associated with cash management.  Consistently practicing foundational cash policies, procedures, and standards used the world over creates space for the business to improve its profit model.  Once cash reserves are being built from profits, the next opportunity is to adopt more ambitious standards while documenting the core processes, policies, and procedures that make the business money.	Stuck businesses have become too comfortable doing what they have always done.  They don’t worry about continuous improvement, how long things take to do, or what they cost.  Their biggest opportunity is to establish performance standards to push themselves to perform core processes faster and cheaper than previously.  Their second goal should be to document each process, policy, procedure, and standard they have mastered to become less reliant on individual heroics and more reliant on established means and methods for getting, doing, and enabling work.	Stable businesses aren’t likely to have documented policies and procedures.  What they have are highly tenured people who know what to do when with little oversight or supervision. The more of these types of people in place, the less the owner has to work.  The risk for stable businesses that are overly reliant on specific people for their process success is when they lose that person.  Particularly if it’s the owner who wants out of the business.  They protect from this by documenting their core processes, policies, and procedures with their associated standards.  Until they do this, they are only one key person away from becoming unstable.	Stretch businesses that breakthrough to substantial do so because they have mastered winning policies and procedures that enable them to move from founder dependence for getting things done to process dependence.  They are no longer reliant on a core group of people.  Their reliance is on doing what works through the discipline of continuous improvement.	It is adherence to year over year adherence to established policies, procedures, and standards that work is a major contributing factor to a business becoming substantial.  They have proven ways of doing things that new hires are taught to do, enabling these businesses to develop world-class sales and profits.  What causes a business to go from the substantial to the survival stage is the failure to adapt its policies and procedures as market and customer needs change.  Most failed substantial businesses failed because they were overly reliant on doing what they had always done.

Every business of any size is shaped by the quality of past management decisions and the completion of profitability actions taken.  The results of both are what lands that business in one of five stages of business progression.  The hard reality is that the quality of the decisions made and actions taken this year by the current management team will shape whether their business stays where it is, evolve to a higher profit stage, or regresses.  Know what business stage your business is in to improve the quality of the decisions you make and the profitability of the actions you take.

Take the test to learn what profit progression stage your business is in

If you want confirmation as to what business profitability stage your business is in click here to take our no-obligation business stages test to learn which of the following best represents your business stage today:

Upon completion of the business profit stage test, you will receive a stage profile showing you what stage your business is in and likely to be in the next three years.