Traction is a blueprint for first-time entrepreneurs and those who’ve hit a ceiling in their business where hard work and determination are no longer enough for it to survive and grow.
Business owner and consultant Gino Wickman explains how to structure your business using his Entrepreneurial Operating System to remove typical frustrations, so it runs seamlessly and gains the traction to grow at a faster rate than you thought possible.
If your business seems to be spinning its wheels, part of the problem may be that you’ve become so wrapped up in it that you’ve forgotten it’s a separate entity from you. To reach the next level you need to build it into a self-sustaining entity, powered by an effective system rather than by your determination.
The Entrepreneurial Operating System or EOS™ builds or strengthens the following six key business components, so your business functions smoothly without your constant oversight:
Most entrepreneurs have a vision for their company, which they assume everyone else can see as well as they can. But many times, others in the organization don’t see it. To get traction—the ability to execute, or make the company’s vision a reality—you need to clearly define and communicate your vision**.
Your vision defines your organization, and it spells out where it’s going and how it’s going to get there. To create a vision, determine the following:
1) Your defining values: Your core values serve as guiding principles for your company. They define your culture and who you are. You build a culture around your core values by letting them guide you when you hire, fire, review, and reward people. To determine your values, follow these steps:
2) Your focus: To determine your core focus, you need to know two things: your company’s purpose and its niche. Here are some questions to ask to figure out what they are.
3) Your 10-year target: Discuss with your leadership team where you want to take your company. Start by asking what the company’s revenue goal could be in 10 years. The right target is one that generates energy and excitement throughout the company.
4) Your marketing strategy: One reason you need clarity about your core focus is so you can then focus your marketing strategy effectively. An effective marketing strategy has four parts:
5) Your three-year goal: In writing your three-year goal, focus on measurables and bullet points, not details—that is, focus on the end point rather than the potential hurdles.
6) Your one-year plan: A plan for what has to happen this year creates traction for achieving your vision.
7) Your 90-day priorities: Your leadership team should set 90-day priorities to put you on track to meet the one-year goal, which positions you to meet your three-year and 10-year targets.
8) Your issues: With your leadership team, discuss and list any issues you’re likely to encounter in pursuing your vision. Maintain and continually update your issues list as part of operating your business.
The second component of the EOS™ is people. There are two steps to managing people in your business:
Create a spreadsheet listing the names of your employees in the left column and listing your core values across the top. Rate the people on the list on how they align with each core value. Grade each person with a plus, a minus, or a plus/minus for being in the middle. Decide the minimum acceptable standard managers should apply in hiring and holding employees accountable. For instance, if a company has five core values, the minimum could be three pluses, two middle ratings, and no minuses.
Before you can put people in positions, you need a structure. The Accountability Chart is an organization chart that defines the functions (departments) and roles in your business. Every business has three major functions: sales/marketing, operations, and finance/administration. These may be further broken down into sub-functions. To fill out your Accountability Chart:
Besides the major functions or departments, businesses typically have two other roles: an integrator (a CEO or president who coordinates the work of the departments) and a visionary. Often these people are partners or co-founders.
The visionary is a creative idea person, whose new ideas keep the company growing. In contrast, the integrator manages the business nuts and bolts: profit and loss, and overall business objectives. On the chart, department heads should report to the integrator/CEO, who reports to the visionary.
To determine the right positions for people, assess them with the GWC tool. Ask yourself whether they:
1) G: Get it: When someone “gets” or understands a job, they fully grasp the role and responsibilities, including the systems, deadlines, and the way the job relates to other positions and the company’s mission.
2) W: Want it: The person also must have a strong desire and motivation to do the job, as well as truly enjoy it.
3) C: Are Capable of doing it: Being capable means having the intellectual, physical, and emotional capacity to do the job. For instance, a position may require more than 40 hours a week, which not everyone will want to commit to, or it requires certain knowledge or interpersonal skills.
The third component of the EOS™ is data. Many entrepreneurs are like pilots flying blind with no data to indicate where they are or where they’re going. However, a handful of key numbers comprising a weekly “Scorecard” will let you check the vital signs of your business weekly, spot problems and trends, and make course corrections before problems become crises. The Scorecard will enable you to let go of control while remaining connected.
Here are the steps for creating a Scorecard for your business:
Issues are the fourth component of the EOS™. Unresolved issues or problems drain your company’s energy. The Entrepreneurial Operating System provides two tools to help your leadership team uncover problems, drill down to the cause, discuss solutions, and act: the issues list and the “Issues Solving Track” (a three-step process).
The issues list is a tool for getting issues on the table and in one place where they can be dealt with. Organizations should keep three types of issues lists:
With these three issue lists, issues will surface regularly. Once you’ve identified and listed them, the tool for solving them is the “Issues Solving Track,” which has three simple steps: Identify, Discuss, Solve (IDS). Start with the three most important issues to be solved, then:
The fifth component of the EOS™ is process. Your company has a few key processes that keep it running—together they constitute your unique “way” of doing business. Honing your processes so they run without constant oversight frees you to focus on building your business rather than being mired in its details. Also, when you have a defined way of doing business, your company becomes scalable and more valuable should you decide to sell it.
There are three steps to systematize your business:
With five components of the EOS™ (vision, people, data, issues, and process) in place, you’re ready for the sixth and final component—traction. Getting traction means executing, or making your vision a reality. To create traction, set 90-day priorities and establish a meeting structure.
You and your senior leaders should meet quarterly to review the vision and set priorities for the company and leadership for the next 90 days. Here are the steps:
It’s a myth that meetings are a waste of time—meetings are where you practice accountability and get traction. But they need to be productive. By following a structured meeting schedule with purposeful agendas, you’ll find that everyone will get more done and continuously advance the company’s vision. You should have two types of leadership meetings: quarterly and weekly.
1) Quarterly meeting: Each quarter, your leadership team should meet to:
2) Weekly meeting: Once you’ve set your quarterly priorities, you and your leadership team need to meet weekly to stay focused, address issues, and communicate. The weekly meeting is like a drumbeat that keeps your leadership team marching forward in step. The agenda should be:
The combination of vision, people, data, issues, process, and traction—the Entrepreneurial Operating System—positions your company to achieve your vision. Once you and your leadership team have mastered the tools, roll them to the rest of the company, one level at a time.
Traction is a blueprint for business success for first-time entrepreneurs and those who’ve hit a ceiling in their business where hard work and determination are no longer enough for the business to survive and grow.
Business owner and consultant Gino Wickman explains how to structure your business using his Entrepreneurial Operating System to remove typical frustrations, so your business runs seamlessly and grows at a faster rate than you thought possible.
The system is based on practical experience, not theory. Numerous tools and templates lead business owners step by step through processes to create a structure and focus that strengthen and reenergize their organizations.
Most entrepreneurs experience one or more of the following frustrations:
Part of the problem is you’ve become so wrapped up in your business you’ve forgotten that it’s separate from you. To reach the next level, you need to build it into a self-sustaining entity, powered by an effective system rather than just your determination.
The Entrepreneurial Operating System or EOS™ builds or strengthens six key business components the author discovered while turning around his family’s company; he now teaches the system as an author and consultant. Clients using the system average 18% annual revenue growth.
Most entrepreneurs get caught up in worrying about countless details. However, every organization or system has a number of key components—and when they’re set up correctly, your business functions smoothly without your constant oversight.
The six key elements of any business or organization are:
1) Vision: You need a compelling vision for your business that you communicate clearly so everyone can focus their energy on it and help you achieve it.
This book explains how to define your vision, which capsulizes who you are as an organization, where you’re going, and how you’ll get there. You develop a vision by identifying your “sweet spot,” the area where you excel; defining a marketing strategy; and setting one-, three-, and 10-year goals.
2) People: You need to have the right people in the right positions. People who are wrong for your company, or are in the wrong positions, hurt your business. A tool introduced in Chapter 4 helps you identify the right people, those who share your core values. Another tool (GWC) helps you put people in the right jobs by assessing whether they “get,” want, and are capable of the job.
You also need the right organizational structure. The Accountability Chart helps you create a structure defining and clarifying your business functions, roles, and responsibilities.
3) Data: By creating a “Scorecard” or weekly report on a few key numbers, you can regularly check the vital signs of your business, quickly see and solve problems, and predict the future—without waiting for financial statements. You can also give each person a metric or number she’s accountable for.
4) Issues: You need to systematically identify and address issues before they undermine your business. To do this, maintain and regularly review an issues list (covered in Chapter 6). When you take the time to solve a problem, you’ll save up to 10 times that amount of time dealing with the problem or its consequences later.
5) Process: Your processes are the way you do business. You need to identify, address, and document each of your core processes, and continually improve them. Many entrepreneurs don’t fully appreciate the value of having the right processes—however, sound processes create efficiency and make your business scalable and more profitable.
6) Traction: Traction—the ability to execute, or make the company’s vision a reality—requires two things: 1) 90-day priorities for everyone, and 2) regular, focused, productive meetings at every level.
These six components make up the Entrepreneurial Operating System model. In any given area, most businesses are less than 50% effective. Achieving 80% effectiveness in every area will create a smoothly functioning, effective operation. The myriad details that used to consume you will take care of themselves.
Most businesses fail to reach the next level of growth because owners are afraid to let go of total control, trust their leadership team, and delegate to them. But for their business to grow, they need to take that leap of faith. The key is getting an EOS™ in place, so your business functions without your micromanagement.
The first step is to change your thinking: Stop treating your company as an extension of yourself and let it evolve into its own entity. For your company to evolve, you must:
Every entrepreneur must decide whether to operate the business as a dictator or with a strong leadership team.
A business run by fiat can’t grow beyond a certain size, nor outlast its leader. It stalls when the number of decisions and problems becomes too much for one person to handle. The best approach for the health of the business is to run it with a strong leadership team.
Your senior leaders should have clear responsibilities, authority to make decisions in their areas, and accountability for their decisions. Once you choose the right people and establish the expectations and communication processes, you need to let them take control. They’ll be better at running their departments than you would be at trying to do everything.
At the same time, the team needs to speak with one voice to the rest of the organization.
Businesses usually grow in stages—they reach a ceiling and push through to the next stage. You must keep making adjustments in order to grow. This is the only option; the alternative is to stagnate and die.
Growth can be external—in revenue, profits, physical size—or internal in organizational capability. Usually, you need internal development first to drive external growth.
Many organizations fail to survive their first growing pains when they hit a ceiling. About half of small businesses fail in the first five years. Michael Gerber, author of The E-Myth Revisited, put the number at 80%. Further, he wrote that 80% of those that do last five years fail in the next five. (Shortform note: Read our summary of The E-Myth Revisited here.)
However, you can push through to the next level of growth when you and your executive team adopt five approaches—simplify, delegate, predict, systematize, and structure.
Your team must be able to simplify the business to enhance efficiency and focus, by streamlining the system, processes, communication, and the vision. The EOS process is designed for simplicity; the theme throughout this book is that less is more.
Reaching the next level of performance for your business also depends on your ability as the leader to delegate. Delegating operational details allows you to take a strategic view of where the company needs to go, which is the best use of your time and talents. By contrast, you hold back the company’s growth when you stay mired in the details. Think of it this way: when you grow personally, by taking that leap of faith and relinquishing control, your company grows.
At a minimum, you need to delegate tasks like handling customer complaints, approving most invoices, and opening the mail. You’ll set an example for your senior leaders, who also need to delegate.
A company’s leaders must be able to accurately predict where the business will be in both the long and short term.
Publicly held companies predict earnings for every quarter. If they hit their projections, their stock value goes up; if they miss, it falls. However, if small companies fail to meet their projections, they go out of business—so leaders need a strong sense of where a company is going and how it will get there.
A long-term prediction is for 90 days or longer. This kind of prediction isn’t about guessing, but determining what you will do in the future based on what you know today. The way to make long-term predictions is to start 10 years out and work backward, to three years, one year, and finally to the next three months.
Leaders need to take the long or strategic view. While your crew battles through the jungle, you need to climb a tree, see where you’re headed, and provide direction. In The E-Myth Revisited, Gerber argues that business owners must stop working so much in the business, and spend more time working on it. When you do, you’ll reach your goal faster.
The short-term focus is on what you do daily and weekly. You need to have a handle on the immediate issues and be able to troubleshoot because avoiding or solving them will affect the company’s performance in the long term. As you and your team get better at predicting, you’ll foresee problems and preempt them.
In the early stages of leading a business, you’re often reactive, resolving every complaint and issue on the fly. But at some point, instead of numerous individual responses, you need to systematize the way you handle recurring things.
Businesses need only a half-dozen or so core processes in order to function. You need to identify them and integrate them into an operating system. By simplifying and documenting these processes, you increase efficiency and reduce errors. With well-defined processes, you can delegate responsibility for each one, while you take the long view.
You need to create a structure for your company that clearly defines functions, roles, and responsibilities. Often, small businesses are loosely structured and built around the ego or personality of the leader. This kind of company may get stuck because it can’t grow without changing its structure. However, a structure with defined roles and accountability encourages and enables expansion.
The third requirement for your company to evolve is to choose a single operating system. Your operating system is like a computer’s operating system that organizes activities and data in a way that enables everyone to be more productive. It’s a consistent approach to planning, setting priorities, determining your vision, meeting, and communicating. If you have more than one system, people will work at cross purposes. For your company to succeed, you need an operating system that keeps everyone on the same page.
Finally, for your business to evolve, you and your leadership team must be open to new ideas and willing to admit what you don’t know and ask for help. You, as the leader, must know your strengths and weaknesses and let those with greater skill in specific areas take charge. You also must be vulnerable or humble enough to see and address your organization’s weaknesses.
When you’re ready to let go of total control, you can build a stronger organization that continues to succeed at higher and higher levels.
Many businesses become stuck or fail because their owners can’t let go of control, build a trusted leadership team, delegate, and systematize their business.
In your business, do you have a leadership team that you trust? What kinds of things do you delegate? How often do you check up on people?
Do you spend more time working on your business (thinking and planning strategically) or working in your business? Why?
Think of a recurring issue in your company. How do you and your people handle it—is there one way or does everyone do things their own way? How could you handle it more systematically?
The first component of the EOS™ is your vision. Most entrepreneurs have a vision for their company, which they assume everyone else can see as well as they can. But many times, others in the organization don’t see it—and when people are confused, they go in different directions and visions can’t be realized.
To get traction—the ability to execute, or make the company’s vision a reality—you need
to clearly define and communicate your vision.
To create a vision, determine the following:
If you prefer, you can download the Vision/Traction Organizer V/TO tool free to fill in your answers.
Creating a vision starts with defining three to seven core values that serve as guiding principles for your company. They define your culture and who you are. When your core values are clear and compelling, you’ll attract people who share them and discourage those who don’t from sticking around.
You build a culture around your core values by letting them guide you when you hire, fire, review, and reward people. In Built to Last, Jim Collins and Jerry I. Porras write that successful companies defined their core values early in their development and built a culture around them.
In contrast, most businesses lack clarity about where they’re going, which hinders their growth.
Here are four steps to determine your company’s core values:
Step 1: Think of three people in your company who stand out as star performers.
Step 2: List the characteristics these people embody. What do they do or what values do they exemplify—for example, working hard, serving customers, and acting with integrity or imagination.
Step 3: Your core values are among the characteristics you listed. Combine similar values and narrow the list.
Step 4: Decide which three to seven values define your company. Examples are: service, results, or cutting-edge knowledge. Think about them for a month or so, then finalize them.
Communicate them to your employees in a compelling way. Write a speech that backs up each value with stories and examples of people in your company applying the value. Present the speech at a company-wide meeting. Also, explain the values and examples when you interview job candidates—and ask them about ways they have applied those values in their previous work. You’ll make better hires if you determine whether candidates share your values before you evaluate their skills.
When your core values are part of the common language in your organization, they’ll become a way of life.
The second step in defining your vision is determining your company's main focus. When talking about their main focus, businesses use different terms for it, including mission, core business, and “sweet spot.” Your core focus is the job your company excels at. It should get your time and resources.
It’s the responsibility of your leadership team to establish your company’s core focus and make sure nothing distracts from it. When you clarify your focus, you may discover that you need to streamline the business, eliminating unrelated product lines, positions, or even divisions that don’t fit. While this is painful, it strengthens the company in the long run.
To determine your core focus, you need to know two things: your company’s reason for being and its niche. Here are some ways to think about these components.
1) Why does your company exist? What’s its purpose or mission? The answer doesn’t have to be unique to your business; when you answer the niche question, you’ll be looking for what’s unique or differentiates your business from others.
To define your purpose or mission, strive for an answer that:
An example of a purpose or mission would be “to improve the quality of life in our town.”
2) What’s Your Niche? What specifically do you do that fulfills your mission? The answer should be simple and useful in making decisions about how to spend time and resources. Examples of niches include: popcorn (Orville Redenbacher) and solving complex real estate problems (a real estate company).
Here are some examples of both mission and niche, which together define a company’s core focus:
As you concentrate your company’s efforts on its core focus (purpose and niche), you’ll see increased success and profits as a result of building on what you do best. It’s like playing golf: a golf club has a “sweet spot” that, if lined up with the ball, sends the ball farther and straighter, improving your score. Your company’s core focus is its sweet spot—if you stick with it, your business will get the best results.
Companies need long-term goals so they know where they’re heading and whether they’re on or off course. In Built to Last, Collins and Porras write that successful companies stand out in setting big, bold, long-term goals, which the authors referred to as BHAGs: “big, hairy, audacious goals.” (Shortform note: for more information about BHAGS, read our summary of Good to Great by Jim Collins here.) When you have a big, attention-grabbing goal, you start doing things differently in the present to get there.
To make such a mental leap, focus on ends rather than means. Think of your long-term target as the “end.” Like an athlete making a long jump, focus on where you will land. When you orient your thinking this way, solutions come to you that wouldn’t otherwise.
Examples of big, bold goals include: “$10 million in revenue with 15% net income,” “5 billion gallons moved” (an oil company), and “25% of target market.”
Identifying a 10-year target may take some time. Discuss with your leadership team where you want to take your company. The goal should be specific, measurable, and clear (with no gray areas).
Start by asking what the company’s revenue goal could be in 10 years. Once people start talking, firm up a target that everyone agrees on. The right target is one that generates energy throughout the company.
When your company is three years from achieving your 10-year goal, make it your three-year goal and set another 10-year target.
One reason you need clarity about your core focus is so you can then focus your marketing strategy effectively. A focused strategy will increase your business, and be the basis for promotional material, messages, plans, and advertising.
If you lack focus as a company (try to do too many different things), you’ll waste time and money on diffuse marketing messages, printing, or consultants’ services that have little impact. For instance, if you try to do everything your customers want, it will be hard to keep up, you’ll get frustrated, and the business will be less profitable. A scattered approach may have worked in your company’s early stages, but to reach the next level of growth, you need focus.
An effective marketing strategy has four parts:
Identifying your target market means defining your ideal customer. Your employees need a clear understanding of who you should (and should not) be doing business with and how.
Brainstorm with your leadership team on the following:
As an example of a target market, a laser printing company targets “IT directors in companies with 25 or more laser printers in Michigan and Ohio.”
Next, based on how you define your customer, create a list of prospects for your sales staff to pursue.
In the process, you may discover you have some existing customers who aren’t part of your target market. If they’re not profitable enough, you’ll need to shift your attention to better customers. By focusing on your best-prospects list—those bringing more profit with fewer hassles—you’ll turn sales around.
Creating your list will involve: examining current prospect lists, getting referrals from clients, examining trade publications, and asking your salespeople for recommendations. Your list should include contact information for each name.
The next question is how to reach them. Most companies find that using referrals is the best method. Or you could use cold calls, direct mail, or a variety of other options appropriate to your business. Implementing a targeted approach will create a snowball effect where your sales effort is self-perpetuating. Generating new business will take less effort.
As part of your marketing strategy, identify three qualities or differentiators that make your company stand out to your target customer. (Sometimes these are referred to as uniques or your value proposition—basically, they’re what you have to offer customers)
Many businesses offer too many products or services in an effort to please everyone. As a result, they don’t stand out at anything. Your sales staff should be able to tell customers what you do better than anyone else and to look elsewhere if they want something different.
For example, Southwest Airlines’ three differentiators, under co-founder and CEO Herb Kelleher, were: the lowest fares, on-schedule flights, and having fun. This didn’t satisfy those who wanted additional services, but Kelleher famously stuck to the company’s core focus, telling dissatisfied passengers, in effect, “So long.” Stick to your differentiators and don’t apologize for them.
Start by listing everything that makes your company, product or service, and people unique. Include your sales and marketing team in this exercise. Ask some of your key customers the same question. Narrow the list to the three qualities that are most important to you and your customers. None of your competitors should provide all three of these services or attributes the way you do.
For example, a property management firm focused on these differentiators: we offer personalized customer service and sales, we invest in our people, and we have an owner’s perspective.
In most companies, salespeople try to win over new customers by showing them a lot of numbers, visuals, and charts, which makes the salesperson sound the same as every other sales rep.
A more effective sales pitch focuses specifically on what your company does and how. You have a distinct way of delivering your product or service every time that produces a consistent result. It’s why your company is successful.
Define your “proven process” in up to seven steps, present it visually on a single sheet of paper, and give it a name, such as “The X Company Difference.” Presenting your process this way stands out and increases customer confidence in your ability to deliver. You can introduce it like this: “Here’s how we deliver great results for our customers. We have a proven process called …”
Step 1: Map out up to seven steps for delivering your service and give each step a name. For example, a financial services company listed the following process steps: Discovery, Solution Presentation 1, Competitive Bidding, Solution Presentation 2, Solution Implementation, Review and Service.
Step 2: Add up to five bullet points to each step for salespeople to use as talking points. In the previous example, the first step (Step 1—Discovery) listed the following subpoints: About Us, About You, Defining Your Objectives.
Step 3: Give your delivery process a name, like the “The X Company Difference” or “Our Proven Process.”
Step 4: Have a graphic designer illustrate your process and have it professionally printed.
Offering a guarantee as part of your marketing strategy is a way for you to differentiate yourself by calling attention to a service or quality shortcoming of your competitors.
For example, Federal Express emphasized its reliability and speed compared to others by guaranteeing overnight delivery: “When it absolutely, positively has to be there overnight.” Similarly, Domino’s Pizza guaranteed fast delivery:: “30 minutes or it’s free.”
To come up with a guarantee for your company, think about what your customers count on you for.
You don’t absolutely need a guarantee, but you’ll be more successful if you offer one. You’re already missing business because of some area where you don’t have the full confidence of potential customers. If you can get that confidence, you’ll increase your sales.
Besides increasing sales, having a guarantee puts everyone in your company on notice that they need to deliver. It also forces you and your leadership team to ensure the company has the necessary capability. Both of these strengthen your company.
It may take time to come up with the right guarantee for your company. Start by identifying your target customer’s biggest concerns and frustrations. Then develop several guarantees that will bring you more business by addressing these concerns.
Get feedback on your proposed guarantees from customers. Choose the most effective one that you can deliver—call it a pledge, commitment, or promise if you don’t like the word guarantee.
Now that you know your values, focus, 10-year goal, and marketing strategy to get there, the next step in defining your vision is to create a mid-range or three-year target.
Having a picture for how things will look in three years has two benefits:
In writing your three-year goal, focus on measurables and bullet points, not details—on the end point rather than the potential hurdles.
When the leadership team understands and agrees on all major points, share the three-year plan with employees.
Creating a one-year plan is the sixth step in defining your vision. The one-year plan, what has to happen this year, creates the traction for achieving your vision. Pick up to seven objectives for the year. When you have more than that, none stand out, your efforts are scattered, and you accomplish little. But when you focus on a few key things, you accomplish more.
Once you have a one-year plan, determine your priorities (referred to in the book as “Rocks”) for the next 90 days. Like the one-year plan, your 90-day, or quarterly plan creates traction or keeps your company moving forward.
In many organizations, department heads have competing priorities. Having your leadership team determine priorities for each quarter gets everyone united. The right 90-day priorities put you on track for your one-year plan, which positions you to meet your three-year and 10-year targets. (Chapter 8 explains how to set priorities or “Rocks.”)
The last step in establishing a vision for your company is creating an issues list—once you know your destination, you need to know what stands in the way. You’ll always have issues—being clear on what they are is key to solving them
With your leadership team, discuss and list any obstacles and concerns you’re likely to encounter in pursuing your vision. Always maintain and continually update an issues list, as part of operating your business. Chapter 6 will address solving issues.
With the completion of your vision, you have a basis for building and implementing the rest of the Entrepreneurial Operating System (EOS™). Next, share your vision with employees so everyone is working toward the same goal. Communicate your vision with three company events:
1) A kickoff meeting at which you present your vision, using your core values speech and answering questions.
2) A quarterly company status meeting at which you share progress, review the vision, and share the priorities for the next quarter.
3) A quarterly leadership meeting to set both company priorities and priorities for each department to support the overall vision.
The meetings will give employees clear direction, which will enable them to make better decisions and enable you to “delegate and elevate.”
Employees typically need to hear the vision seven times before it sinks in, so it’s critical that you, as the leader, deliver a consistent message repeatedly. Expect to keep repeating your vision, as opposed to expecting employees to get it by the second or third time.
The next chapters deal with making your company’s vision a reality.
Your business should be guided by a vision, which is based on: your core values; a core focus or purpose; a marketing plan; 10-year, three-year, and one-year goals; and 90-day priorities.
What are your three core values (think of the values demonstrated by your three “star” employees—some of those are likely your core values).
What is your company’s core focus—what does it do better than anyone else? What functions are you performing that you should consider getting rid of because they distract from your core focus?
What’s your long-term goal—what do you want your company to look like in 10 years (for instance, in terms of revenue, profit, and market share)?
What’s your three-year goal—where should your company be in three years to be on track for your 10-year target?
The key component of a successful marketing strategy (another part of your vision) is knowing your company’s differentiators (three strengths that set your company apart from competitors). What are your differentiators?
The second component of the EOS™ is people. There are two steps to managing people in your business: 1) hiring the right people, and 2) putting people in the right positions. The tools and practices introduced in this chapter help you do both.
Three common personnel problems are:
1) Right person, wrong position: The employee shares the company’s core values but isn't in a position that matches her particular talents. She may have been promoted to a position that’s not a good match, outgrown her current position, or was put into the wrong position to begin with.
Often, the person is allowed to continue in an unsuitable position because she’s been around a long time. But as long as she’s in the wrong position, she can’t grow and will hinder the company’s growth. If the right seat isn’t available for her, you may have no choice but to let her go.
2) Wrong person, right position: An employee’s skills and talents may be a good match for the job, but if he doesn’t share your values, he’ll hurt the company in the long run. He’ll likely undermine the company by making negative comments and spreading dissension. When a person is wrong for the company, he needs to go.
3) Wrong person, wrong position: Sometimes a position evolves as company needs change, but the person holding it doesn’t or can’t change. This person also needs to go.
The “People Analyzer” is a report card tool for assessing how well current and potential employees match your company’s values. Download the tool here or create your own version. It helps clarify personnel decisions and makes them less subjective.
Using the downloaded form or a spreadsheet, list the people you’re assessing in the left column and list your core values across the top.
Rate those on the list for how they align with your core values:
The company’s senior leaders need to decide the minimum acceptable standard managers should apply in hiring and holding employees accountable. For instance, if a company has five core values, the overall bar could be three pluses, two middle ratings, and no minuses. People who are at or above this standard would be right for your company.
Step 1: Have your leadership team analyze each other’s alignment with the company’s core values. There are two benefits:
Step 2: As a leadership team, assess the rest of the employees and have each person’s manager share the assessment with him.
Step 3: As the company leader, use the assessment tool in your quarterly performance reviews with senior leaders and let them grade you too.
Step 4: If you have a personnel problem, use the tool to assess the person. If they’re not meeting the standard for the right fit, use the three-strike process.
If a current employee is falling short, share your assessment and give him a chance to improve.
Use the three-strikes rule:
Usually, when you’re clear about the company’s core values, people who aren’t right for the company will realize it and leave voluntarily because they can’t go on unnoticed.
Before you can put people in positions, you need a structure. The Accountability Chart is an organization chart that defines the functions (departments) and roles in your business.
A business typically has three major functions or departments, which are equally important and interdependent:
All three functions need to be strong or the company will struggle. For instance, it will fail if it has a strong sales effort but the operations department can’t reliably deliver the product.
For the Accountability Chart, visualize the three functions as three boxes lined up horizontally.
Only one person should be in charge of each function and accountable for its performance. If you have more than one name in a box on your organization chart, your lines of accountability aren’t clear, and this is likely hindering your company’s ability to grow.
Some functions may be subdivided—for instance sales and marketing or finance and administration may be split—but remember to keep things simple.
To coordinate the three major departments and manage the tension that will develop among department heads, a company needs an “integrator,” usually a general manager, CEO, or president, who runs the overall business. In addition to the integrator, many organizations have another key role: that of visionary.
The visionary is usually the company’s owner, co-owner, or founder. When there are co-founders or partners, one is often the visionary and the other the integrator.
They’re opposites in many ways. The integrator manages the business nuts and bolts: profit and loss, overall business objectives, and day-to-day operations. The integrator is a good manager, who solves problems and holds people accountable. She tends to be practical and logical.
In contrast, the visionary is a creative person, whose new ideas keep the company growing. He solves big problems and is good at building outside relationships with banks, vendors, and key clients. The visionary is attuned to the company culture and morale.
The visionary and integrator have unique talents and complement each other when working within a structure that defines their roles and responsibilities. If a company has a visionary leader but lacks an integrator, the leader may struggle to gain traction and feel frustrated at having to get involved in day-to-day operations.
The Accountability Chart identifies the key roles within each major business function or department. For example, the visionary function’s roles might be: research and development (ideas), problem-solving, key relationships, selling, and culture.
Everyone on the chart who has direct reports is responsible for three things—leading, managing, and holding people accountable, which can be designated on the chart by the acronym LMA.
To fill out your Accountability Chart:
Your Accountability Chart should look like a typical organization chart, but with bullet points indicating roles. In total, it defines functions, roles, and the reporting structure. Your structure creates accountability. Meanwhile, your culture should be open and honest, encouraging communication across all organizational lines, so there are no silos.
The visionary, integrator, and people heading the major functions or departments comprise your leadership team. The next four chapters explain how the team should meet, prioritize, resolve issues, and execute the company’s vision.
Once you’ve created the right structure with lines of accountability, your ultimate goal is for people to be in positions where they’re functioning at their highest level.
When considering someone for a position, use the GWC tool. Ask yourself whether they: 1) “get” it, 2) want it, and 3) are capable of doing it. No one can perform at their highest level without meeting all three criteria.
In fact, when you have a performance problem—when someone isn’t meeting their job responsibilities—it’s usually because they don’t meet one of the criteria. As a result, you can’t delegate responsibility to them because you can’t trust them to do the job; you have to do part of it yourself and you’re both frustrated.
Here’s what the criteria mean:
1) G: Get it: When someone “gets” or understands a job, they fully grasp the role and responsibilities, including the systems, deadlines, and the way the job relates to other positions and the company’s mission.
2) W: Want it: To do well in a job, the person also must have a strong desire and motivation to do it, as well as truly enjoy it. He doesn’t need to be pushed or cajoled by a manager to do what's required.
3) C: Are Capable of doing it: Being capable means having the intellectual, physical, and emotional capacity to do the job. A position may require more than 40 hours a week, which not everyone will want to commit to, or it requires certain experience, knowledge, or interpersonal skills.
In applying the GWC test, you may find that one or more members of your leadership team are in the wrong position, and you’ll need to make leadership changes to achieve your vision. Here are some additional personnel considerations:
As you develop your Accountability Chart, you’ll discover people who aren’t a good fit for your company. Don’t immediately start firing people—proceed step by step to avoid creating a lot of vacancies at one time and endangering the company.
However, don’t ignore problems—hoping they’ll resolve themselves or sending people to training that isn’t going to help is like overwatering a plant when what it needs is pruning.
Also, don’t be tempted to procrastinate to avoid the discomfort of a termination. It will only be painful for about 36 hours—the time leading up to and including the termination. Things will improve significantly afterward. Employees who were picking up the slack or suffering because of someone’s poor performance will be grateful that you acted. To avoid 36 hours of pain, some managers and their teams end up suffering much longer.
To operate effectively, your business needs a structure that clearly defines functions and roles and establishes lines of accountability. Then people must be put in positions that match their capabilities.
In your organization, what function or functions are you performing (integrator, visionary, or both)? Are you performing any roles better suited to a department head?
What are the key roles of each department head in your company (for example, customer retention or quality control)? How can you clarify any roles that are overlapping or confusing?
Who is your most difficult employee? Assess the employee using the GCW test (do they “get” their job, want it, and have the capability to do it well)? What should the next step be if they fail to meet one of the criteria?
The third component of the EOS™ is data. Many entrepreneurs are like pilots flying blind with no data to help them determine where they are or where they’re heading. They may talk to a few people and gather subjective opinions about the health of the company, but opinions and instincts aren’t enough to make good decisions.
Instead, a handful of key numbers comprising a weekly “Scorecard” will let you check the vital signs of your business weekly, spot problems and trends, and make course corrections before problems become crises. The Scorecard will enable you to let go of control while remaining connected.
The Scorecard immediately tells you how your business is doing. Most companies rely instead on a P&L (profit and loss) statement, but by the time you get it (monthly or quarterly), problems have already occurred. With the Scorecard, you can see where you are and, if necessary, change where you’re headed.
For example, as mayor of New York City, Rudy Guiliani used a type of scorecard to more quickly address and even prevent crime. The tool, called CompStat, allowed police to report crime numbers immediately so precinct commanders could spot trends and deploy more officers to problem areas.
Here are the steps for creating a Scorecard for your business:
Step 1: Brainstorm with your leadership team about what numbers tell you the most about how your business is doing on a weekly basis—for instance, revenue, sales activity, customer complaints, accounts receivable, and production output.
You should end up with about a dozen numbers. Create a template or spreadsheet with the categories listed in the far left column, followed by a goal column and columns for entering numbers below dates running across the top. It should be designed so you can see 13 weeks of numbers at once.
Step 2: With each category, also list who is accountable for the number—only one person, usually the department head, should be accountable for each. This person provides their weekly number to whoever is in charge of updating the spreadsheet.
Step. 3: Decide on a weekly goal for each category (for instance, a sales goal) and fill it in. The goals should align with your one-year plan.
Step 4: Determine who will update the spreadsheet each week for senior leaders to review at a regular meeting. Determine how the person will get the numbers from each leadership team member.
Step 5: Review the Scorecard with your leadership team every week to monitor how the business is doing and take any steps necessary to stay on track to reach your goals.
1) The Scorecard numbers should be activity-based and traceable to an originating step.
For example, new revenue and sales are activity-based numbers, but if you track them only as they come in, you can’t react to sales slumps in time to make a difference. Instead, trace the sales process backward to find more actionable numbers. By tracking the number of new leads received each week, you can see how many leads typically translate into sales, and therefore predict how many leads you need to develop today to hit a sales target in the future.
2) While the Scorecard can help you to spot potential problems, you still need to look at monthly and quarterly financial and budget statements to get a full picture of the company’s finances.
3) When a number doesn’t hit or exceed the goal for a week, mark that number in red in the Scorecard so it stands out and creates a sense of urgency at your weekly meeting.
Your Scorecard will evolve—it will take about three months to get it the point where it’s fully useful.
After creating a Scorecard, the next step in using data effectively is to give every employee a single, meaningful number they’re responsible for meeting. When everyone has a number to meet, you can track high-level numbers down to an individual.
The benefits of making everyone accountable for a number include:
1) Numbers are concrete and objective. When a manager asks an employee how sales went last week, she gets a number instead of a vague comment like, “Things seem to be picking up.”
2) Numbers create accountability. When you set a number, an employee is clear on what’s expected. For example, keeping the number of accounts receivable under 40 is a specific expectation, while being responsible for collections is general.
3) Numbers boost production. You can create competition by presenting a target number to your teams. For example, in one of Charles Schwab’s steelmaking plants, crews competed daily to produce the most batches of refined steel. Each crew leaving for the day chalked their number on the floor and the next shift tried to beat it. Overall production increased.
4) Numbers lead to results. For instance, if you set a goal of zero unresolved customer issues, by achieving this goal, you’ll boost customer retention—a positive result.
5) Numbers create teamwork. When a team has a number to hit, they work together to make it happen, even calling out team members who aren’t doing their part.
To help you find numbers for every employee, review your Accountability Chart. Many of the listed roles can be assigned a number. For instance, the following project manager roles are measurable: complete projects on time, achieve the margin goal on each job, meet quarterly standards.
Reviewing a handful of key numbers or vital signs weekly can tell you how your business is doing—for instance, revenue, sales activity, customer complaints, or production output. They give you a chance to avert problems and help you stay on track to meet your goals.
What numbers do you review regularly to see how your business is performing? How often do you receive and review these numbers?
Who in your organization is accountable for each number? What is each person’s goal?
How can you use the numbers to avert problems or make course corrections?
What is an important goal that isn't represented by the key numbers? What numbers can you monitor to track progress?
The fourth component of the EOS™ is issues. Many leadership teams talk endlessly about problems without solving them. But unresolved issues or problems drain your company’s energy.
The Entrepreneurial Operating System provides tools to help your leadership team uncover problems, drill down to the cause, discuss solutions, and take action. The tools for tackling issues are an issues list and an “Issues Solving Track” (a three-step process).
The issues list is a tool for getting issues on the table and in one place where they can be dealt with. Organizations should keep three types of issues lists:
1) A quarterly meeting issues list: This is where you list non-urgent company issues that can be addressed in future quarterly leadership meetings. They’re not immediate priorities for this week or this quarter, but you need to note them so they won’t be forgotten. Examples include: new product ideas, HR issues, and capital needs.
2) A weekly meeting issues list: These issues are tackled at weekly leadership meetings.
They’re strategic, non-departmental issues that need to be addressed this week or this quarter at the leadership level. Examples are: priorities being off track, a missed Scorecard goal, client issues, and process-related issues.
3) A departmental issues list: This list contains immediate departmental issues that must be handled at a weekly departmental meeting. For instance, sales department issues might include: not hitting call numbers, planning sales presentations, and closing sales. Operations department issues might include: production numbers and customer complaints.
With an open, problem-solving culture and these three issue lists, issues will surface regularly.
Once you’ve identified and listed them, the tool for resolving them is the “Issues Solving Track.”
The “Issues Solving Track” has three simple steps (the acronym is IDS):
First, look at your list and pick the top three (most important) issues to be solved. When you work through issues in order of priority, some issues will disappear because they were really symptoms of a key issue you addressed. Discuss each of your top three issues using the three-step process:
First, drill down to the real issue or source of trouble. Probing for the underlying issue can be uncomfortable because problems usually involve people. But it’s important to be honest for the good of the company.
This step may take longer than the other steps. You may spend most of your time identifying the problem, and need only a few minutes to discuss and solve it.
There are generally three kinds of issues:
The person raising an issue should indicate the response needed—for example, she might say, “I just want to make sure everyone understands and agrees with the new maintenance contract.” This speeds up the process.
The discussion step is where everyone gets a chance to weigh in. Many teams flounder on this step because they didn’t identify the real issue first. They talk a lot without solving anything.
However, once the team has identified the issue, there may be little need for discussion because the solution is clear. In that case, don’t be afraid to suggest a solution. This will either save time or it will prompt valuable discussion as people jump in to make additional points before it’s too late.
Discussions often drag on too long because they keep going off on tangents. One way to deter tangents is for team members to call out “Tangent alert” when the discussion starts going off track. If a tangent raises a real issue, however, add it to the list and refocus on the topic at hand.
In this step you determine a solution or conclusion, with an action for someone to take. Add the action item to a to-do list, and when it’s carried out, you’re done with the issue.
You should decide issues in ways that move you closer to achieving your vision. Thus, you can’t start solving issues until you’ve established your vision or you won’t make the right decisions. It would be like driving a car without knowing where you’re going—you won’t have a rationale for deciding where to make turns.
1) When team members disagree on a solution, the integrator should make a decision and the team should get behind it. When views are split, the majority is often wrong. Also, as author Jim Collins pointed out in a Fortune magazine article, the most important decisions usually aren’t unanimous.
2) Get first-hand information. When an issue involves multiple people, you need to hear from all of them. Get everyone together to talk about it at the same time.
3) Act in the company’s best interests, not out of self-interest or for political reasons. Keep your eye on the company's goals when making decisions.
4) You have three options for handling every problem: put up with it, end it, or change it. Putting up with it should be a last resort—you want to end it instead.
5) Face your fears and act. The issue you’re most afraid of is the one you need to tackle first.
At the conclusion of the three steps (Identify, Discuss, Solve), a team member needs to verbally summarize what’s been decided and the next steps. For example: “Nicole will meet with John and discuss the warehouse issue. She’ll offer him a transfer to another position, and if he doesn’t take it, we’ll terminate him.”
When two people don’t get along, have a third party facilitate a solutions meeting with them. At the meeting:
If this process doesn’t resolve the problem, you may have to let one of the individuals go or move him to another position.
Unresolved issues or problems drain your company’s energy. Systematically identifying and solving problems using the IDS system (Identify, Discuss, Solve) keeps problems from escalating and keeps you on track to meet your goals.
Which step of the IDS process (Identify, Discuss, Solve) needs the most improvement in your company? How can you improve this step?
Are your employees comfortable raising problems? Why or why not? How do you know?
Start an issues list for your department or for the company. What are the three most important issues on your list?
The fifth component of the EOS™ is process. Your company has a few key processes that keep it running—together, they constitute your unique “way” of doing business.
Many entrepreneurs neglect this component and allow their way of doing business to develop haphazardly; people do their jobs in whatever way they see fit. This creates inconsistencies and inefficiencies as well as never-ending headaches for you, as the owner.
In contrast, honing your processes so they run without constant oversight frees you to focus on building your business rather than being mired in its details. Also, when you have a defined way of doing business, you make your company more scalable and valuable in the event you decide to grow or sell it.
There are three steps to systematize your business:
Your leadership team needs to identify the processes for carrying out every major activity of your business. List the processes on a single sheet of paper and agree on what you will call each one, so there won’t be confusion over what anyone is talking about.
Most businesses have processes to handle the following:
The person accountable for each process should document it. Don’t list every detail, just the most important steps, with a few bullet points for procedures under each. Follow the 80/20 rule: document the 20% of the process that produces 80% of the results.
Here’s an example of documenting an HR process. (Each step should have bullet points, but in this example, bullet points are included only for the first step.)
The HR process
The documentation for each process should be up to 10 pages. Your goal is to keep your processes simple. As you document steps, you may find redundant or unnecessary steps that you can eliminate. For some processes, a checklist may suffice.
While codifying your processes, you may find areas where new software can increase efficiency. But do your research so you get the right technology and don’t waste your money on bells and whistles you don’t need.
Compile all of your documentation into a manual, whether printed or digital. Each process should be a chapter. The title should be “The (your company name) Way.” Train employees in the processes you need them to use.
As the company’s leader, make clear your expectation that everyone, including your leadership team, will follow the processes. Also, show how the new system coordinates everything to make individual jobs easier and the company more successful.
It may help to create a visual of your “way” that illustrates how all of the processes work together.
The benefits of having documented processes include:
Your business has a few key processes that keep it functioning. Identifying, documenting, and ensuring that everyone follows your key processes consistently makes your business more efficient and scalable.
Think of a process in your company or department that different people handle differently. What problems have resulted from the inconsistency?
What is a key business process that you’re involved with? Document it by listing the most important steps. Next, list the procedures for each step as bullet points.
Streamline the process by removing any redundant or unnecessary steps. What steps could you take to share and ensure others follow the process?
With five key business components (vision, people, data, issues, and process) in place, you’re ready to create organizational traction and move forward. Getting traction means executing, or making your vision a reality. To create traction, set 90-day priorities and establish a meeting structure.
Short-term priorities move you in the direction of your vision. The company, leadership team, and employees all should have three to seven quarterly priorities aligned with your vision. When you focus everyone in the same direction, you collectively gain traction.
This book refers to priorities as “Rocks,” based on an analogy in Stephen Covey’s book, First Things First, involving a cylinder (container) and rocks, gravel, sand, and water.
The cylinder represents the amount of time in your work day. The rocks are your priorities, gravel represents day-to-day responsibilities, sand represents interruptions, and water is everything else that comes up during your day.
If you put gravel, sand, and water into the cylinder first, the rocks won’t fit—that is, when you spend your time on day-to-day details, interruptions, and trivia, there won’t be time to address priorities. But when you put the rocks into the cylinder first, followed by gravel, sand, and water, everything fits.
The point is that you need to work on priorities first and everything else will fall into place. (Shortform note: for more information about setting priorities, read our summary of First Things First by Stephen R. Covey here.).
Leaders should meet quarterly to review your vision and set priorities for the company and leadership team for the next 90 days. Here are the steps to follow:
Step 1: After reviewing the vision, list things that must be accomplished in the next 90 days to move toward your vision.
Step 2: Narrow the list to three to seven priorities.
Step 3: Set the due date for meeting each priority (usually it’s the last day of the quarter). Define each priority so that it’s specific, measurable, and doable. For example, a priority might be: “close three major sales.”
Step 4: Assign an “owner” from the leadership team to each priority. This person will be accountable for achieving it, by creating a timeline, assigning tasks, and ensuring people complete them.
Step 5: After the company priorities are set, each leadership team member should set their own priorities, including the company priority they “own.” Some items on the brainstorming list that were dropped in step 2 could become individual priorities.
Step 6: Put the company’s and leadership team’s priorities on a spreadsheet or one-page document and review it each week at the leadership team meeting.
Step 7: Share these priorities with the entire company at the quarterly company status meeting.
Step 8: Have each department establish up to three priorities. Further, each employee in the department should choose up to three individual priorities.
It’s a myth that meetings are a waste of time—meetings are where you practice accountability and get traction.
But they need to be productive. By following a structured meeting schedule with purposeful agendas, you’ll find that everyone will get more done and continuously advance the company’s vision.
You should have two types of leadership meetings: quarterly and weekly.
When you have annual, three-year, and 10-year goals, it’s human nature for people to start wandering off track in about 90 days. To counter this, you need to focus on interim goals every 90 days—or you’ll lose sight of your vision.
Your quarterly leadership meeting should be a full-day, off-site event with the following agenda:
Repeat this meeting every quarter—don’t skip any quarters. Your quarterly meetings will become increasingly productive.
At the end of the year add a second day to your quarterly meeting for annual planning, following this agenda.
Once you’ve set your quarterly priorities, you and your leadership team need to meet weekly to stay focused, address issues, and communicate.
The weekly meeting is like a drumbeat that keeps your leadership team marching forward in step. In terms of productivity, this meeting should be a “10”—most people rate their meetings as a 4 or 5 on a scale of 1 to 10.
A level 10 meeting will keep your Scorecard numbers and priorities or “Rocks” on track, and give you an opportunity to troubleshoot and solve problems. The following agenda will ensure a productive meeting.
Meetings are an opportunity to get traction and hold people accountable. But to be productive, they follow a schedule and have a consistent purpose and agenda.
What meetings do your senior leaders and department heads hold weekly and monthly? How do you feel after a typical meeting (for instance, energized, exhausted, clear on direction)?
On a productivity scale of 1-10, how would you rate most of your meetings? Why did you rate them as you did?
How could you make your company’s regular meetings more productive? Create an agenda for your next meeting using the suggested “weekly meeting agenda” as a model.
The combination of vision, people, data, issues, process, and traction—the Entrepreneurial Operating System—positions your company to achieve your vision.
This book presented one component at a time in order to make the EOS™ model easy to understand and learn, but that isn't the most effective way to implement it in a business. Based on the author’s experience with hundreds of companies, the following sequence is recommended.
Implement these seven tools with your leadership team first, in order, before sharing them with other managers and employees.
1) Accountability Chart (along with the People Analyzer and GWC): Create your Accountability Chart first because it goes to the root of most issues. Determine the right structure, then put the right people in the right positions. With this tool in place, the other tools are more effective.
2) Priorities: Once you know who is accountable for what, you’ll set better priorities.
3) Meeting schedule (including the IDS process, and quarterly and annual meetings): Implement the weekly meeting first. This requires you to choose what’s most important every week and start solving the key problems, using the IDS tool, to gain immediate traction. Start your quarterly and annual meetings based on where you are in your calendar year.
4) Scorecard: This takes one to three months to develop and further creates accountability, ownership, and results.
5) Vision statement (including core values, core focus, 10-year goal, marketing strategy, three-year goal, and one-year goal): The first four tools above create a foundation on which to build your vision rather than pie in the sky. After you’ve established accountability and traction, creating a vision is easier and the result will be more meaningful. Anyway, most organizations have a fair idea of where they’re going already.
6) Core processes: After the foundational tools are fully implemented, the next step is to document and train people in your core processes using the three steps.
7) Everyone has a number: This is last because without the main tools in place, it’s less effective due to lack of accountability and strong management. However, with the foundation in place, adding a number for everyone increases results.
Once you and your leadership team have mastered the tools, roll them out to the rest of the company, one level at a time. Start with the middle managers who report to the leadership team and present these tools:
If you have multiple locations, site managers need to be fully on board with the foundational tools before sharing them with the next tier at that location.