- See if this sounds familiar:
- What is a business? It is a machine.
- The elements of a business machine
- Element 1: Define the business
- Element 2: Processes
- Element 3: The Factory
- Element 4: You
- Element 5: People
- Element 6: Metrics and Money
- Element 7: Invention
- And those are the 7 elements of the business machine
- Related questions
What is a business is one of those critical questions that every MSP owner should ask but too often doesn’t ask.
If you are not working for somebody else (or don’t want to be working for somebody else), then you should create a business.
That you need to create a business may sound obvious, but the fact is that the vast majority of businesses are glorified jobs. You end up trading a job and a boss you don’t like to work for yourself. And you realize your new boss is worse than your old one.
When you search “what is a business,” you will find lots of legalistic definitions and advice on whether you should form a limited liability company, an s-corp, or a c-corp, advice on keeping your finances separate, and recommending credit scores.
That is all well and good, but the legal structure of your business is not a business definition. What your business does defines your business. Let the accountant worry about LLC or S-corp; what we talk about here is the actual definition of business. The one that allows you to live an extraordinary life.
See if this sounds familiar:
You are good at something. You are great at IT support, baking, weaving baskets underwater, whatever, but you are good at something. Maybe you worked for someone at some point. You thought something like, “I am sick and tired of working at this place.”
Or you got laid off and dreaded going back.
Or your friends and neighbors told you how good you were at what you do.
Something like that happened, and you decided it was time to take your career into your own hands.
Then you end up working tirelessly to make the business work. You hire people and fire people; you sometimes make progress only to fall back to where you were just a few months ago. You can’t scale, and you end up lamenting the lack of good people who care about your business. You end up in an MSP ownership spin cycle you can’t escape.
Or maybe you spend your life buried in your work only to realize that you are earning less and are more unhappy than you were in the first place.
Most MSP owners fall into some version of this scenario. Michael E. Gerber, in the E-myth, uses the term “MSP ownership seizure” to describe the moment an expert starts a business. It is a magnificent phrase that captures the moment perfectly.
The seizure almost always leaves the people who start their businesses wondering what they were thinking.
MSP owners dreading their work-life tend to start doubting themselves. Maybe they think they are not good enough. Or they begin to believe that their miserable, overworked, underpaid existence is the MSP ownership life.
It isn’t. And most business owners are great at what they do. The problem is no one taught them how to build a business. That is why something like 80% or more of businesses fail in the first couple of years, and 90% of the remainder stumble along, not dying but also not thriving.
Most MSP owners work 65% more and earn 38% less, despite being highly qualified.
The good news is that learning how to build a business is easier than mastering whatever technical skills you’ve learned. It is a process. It is repeatable.
Some people are naturally qualified MSP owners. That is the thing they are good at. Think of Elon Musk. Is he good at anything other than being an MSP owner? I don’t know. But he is excellent at starting and building businesses.
Why are people like Elon Musk great at starting and growing businesses? Because they follow a process. They put the pieces in place, and they treat building a business part as an essential task, one that is independent of the work that the business does.
If you want to achieve your life goals, and build a business that supports and works for you, then you must do the same.
What is a business? It is a machine.
Or, well, it should be.
Most people think of businesses as people doing stuff to make money. In some way, you use your expertise to deliver a valuable result to a customer. That is wrong.
Your business should be a machine. A business machine delivers a repeatable solution to a defined customer type. The answer may have nothing to do with your technical expertise.
This is where MSP owners get confused; they think: I have the expertise; I will sell that expertise and turn my delivery of that expertise into a business.
The MSP ownership process goes something like this: Oh, there is a gap in the market, and that person (those people) is not getting the solution they need; I will put together a solution and deliver it to them repeatedly.
Is Elon Musk a master tunnel borer, electric car maker, rocket designer, and payment processor? I doubt it. His talent is in identifying a need and creating a business around it.
Your expertise will help you identify the gaps in the market. If you work in IT support and are good at IT support, you will probably be able to identify gaps in the IT support market that a business can fill.
But the building of the business doesn’t depend on your knowledge of IT support. You must build a machine that delivers a result and solves a problem independent of your involvement. You can inform, guide, support, and even work in the machine, but you must build a machine to have a successful business.
The elements of a business machine
A whole machine breaks down into parts or elements. It is as valid for your business machine as it is for the one you drive to work. The Business machine has 7 essential elements: The business (defined), Processes, the Factory, You, People, Metrics and Money, and invention.
An MSP owner builds each part of the business to solve someone else’s problem. The sections below give you an overview of the machine, but this scratches the surface. At SGM, we are documenting each element of the machine and create detailed guides to help you build it.
The idea sounds simple, but so far, we have broken the elements into 71 sub-elements (and we are still adding) – this is the formula for building a business rather than a job.
So, there is much more than the overview, but let’s go through the overview:
Element 1: Define the business
We start with the definition of the business. You must define the business as separate from you: you don’t do work, and the business does work. Here you define how you make money and what costs you money.
Understanding that you must structure your work as a product is critical. Even a service is a product because a product is repeatable. Defining something as a service is just an excuse to keep yourself busy without achieving results.
This element of the machine:
Since you should be setting your machine up for growth, you must also create the glue that will hold your team together and ensure everyone is working in the same way toward the same goal.
So we also include:
Element 2: Processes
The next machine element is processes. Processes are critical to your business because they define how you work. A business must have systematized, measurable, repeatable, and automatable processes to scale. If you make things up each time you do them, you cannot scale your business.
Processes also play a crucial role in retaining people. MSP owners tend to try to find the highest level of skill they can afford.
But you should always hire the lowest skill level possible for a job. The lower the skill level, the more labor availability there will be. Labor shortages happen with narrow skillsets, not general skillsets. So the more you focus on processes, the easier it is to find (and retain people).
We break processes down into four elements:
- Attract: attracting customers/clients is the first essential process in your business; without it, you will not have much to do.
- Convert: once you attract customers, you can convert them from non-customers to customers.
- Deliver the actual transformation that you deliver.
- Complete the transaction or project; this includes collecting money and renewing engagement with the client.
These process steps encompass the machine’s work to deliver transformation and scale/grow itself.
Design Standard Operating Procedures
An essential part of defining processes is documenting them: writing them down. These documents or instructions are called SOPs. Defining, developing, refining, and using SOPS is essential to machine building. Often success and failure hinge on the quality and completeness of SOPs.
Element 3: The Factory
It is one thing to know the business and another to understand what the business does, but where does your business machine operate?
A factory is the place where the machine can do its work. The factory includes all the tools needed to work with your machine. It is where machines connect to other machines (as you grow, you may have many machines), and it is where people work.
The factory does not have to be a cement block building out in an industrial park somewhere, but it does need to exist.
There are three parts of the factory you must have in place to support your machine:
- The physical space, whether it is an office or a desk where you work – you need a place that is set up for you to do the work you do. Once you have a team, customers, and vendors who visit you in person, you should have a space that expresses your brand and facilitates work. You define what this place looks like.
- Computer hardware: you and your team must have the proper hardware to do their job and do the work the machine requires.
- Software or your “tech stack” is all the tools the machine needs – these are like the cogs that enable the machine to run.
Without a well-defined factory, your machine will not be able to operate.
Element 4: You
The business should exist outside of you, it should be a separate entity that runs without you, but you still matter.
Really, you do 😉.
You create the machine. You determine the strategy. You initiate the first hires.
And you can derail the whole process.
You have strengths and weaknesses, are great at what you do, and offer value to the world. The problem comes down to the mindset shift from employee to MSP owner, and This is tough because it requires you to venture outside of your comfort zone.
There is a lot to changing mindset: people have written books on this stuff. But our goal is to make each element of the machine clearer and easier for you to digest, work with, and use. So, along those lines, we have identified 7 critical mindset shifts in the journey from employed to an investor, and you can learn more about those here.
Element 5: People
The who of your business is as important as the what of your business. If you don’t have other people working in your business, you can never escape it – it is about you. A business about you isn’t scalable, isn’t a separate entity, and cannot provide you with an extraordinary life.
So you will hire, manage and work with people.
If you are going to hire people, and you are, the next challenge is to manage them effectively. Many (most?) MSP owners fall into gotcha management styles because they haven’t done the work to define their business and haven’t structured their management approach.
Some of the ways we think about how to manage people are:
Core values assessment (hire for core values)
The key to hiring people is values. MOST MSP owners hire for skill but remember you want to hire for the least level of skill possible for a given task; your work is to work on the processes and make them more efficient so that you can hire a broader range of people.
So, you can teach people to do the work.
The question is, do they believe the same things you do? If they do, they will contribute to your business; if they don’t, you will find working with them difficult, and they will eventually bring your business down.
Core Values are a crucial part of your hiring and management process; our Core Values Assessment Tool is a powerful way to assess your team.
Organization design (who does what)
Believe it or not, organization charts matter. Well, not the charts but the organization that they represent. Your employees must know their roles and how the business is structured.
Organization design is not a small thing: if you have a group of people all hired to do “work” and whatever it is they are good at, then there is no way to plan. People do what they want to do, not what will move the company forward. This confusion leads to conflict and serious management challenges.
So, you must design the organization. We call this defining your hats chart because small businesses in growth mode have small teams, each member of which wears many hats. Understanding how to divvy up the work and what roles exist within the company is critical. Even if you are the only person in the company.
The trick with performance review is to manage output rather than input. Without a formal evaluation process, you will lose sight of what is necessary for each role, which leads to hiring, firing, and making pay decisions based on emotional factors.
That is why putting a performance review process in place is so important.
Element 6: Metrics and Money
Like it or not, business is measured in money. Maybe someday we will live in a post-money utopia. But not today.
So to understand how well your business is performing, you must understand your finances and the metrics that drive financial results.
Measurability is essential in building a business machine. The machine starts with “process,” but the only way to make sure the processes work and improve them over time is with metrics.
First and foremost, there are financial metrics.
Even human-centric businesses must earn money. This is because money is how we allocate scarce resources. The function of a business is to business attract solve a problem more efficiently than someone can solve it themselves. People will dedicate their scarce resources (money) to you because they are better off for doing so.
Therefore you have to measure how much money is coming in and how much money is going out. The money coming in should be more than the money coming out because that means you are doing the work you need to do: solving a problem more efficiently than someone else can solve it themselves.
There are three critical management reports you will have to get your head around. They are:
Financial Results are the destination, your ultimate objective, and they are essential to managing your growing business.
However, they are also “lagging” indicators: they tell you what happened rather than what will happen. They are also not specific enough to give you information about the profitability of individual initiatives or how well each of your strategies is working.
Therefore you need other sets of metrics, such as a marketing scorecard that tells you how well your marketing strategy is working:
The concept to grasp is the importance of measuring what you are doing. Much of business is experimentation: try it and see what works. The problem is you only know if something works if you have measured the results.
Element 7: Invention
No plan survives first contact with the enemy. So many people have said this throughout history that nobody knows who said it first. The reason so many people have said it is that it is true.
And it is as true in business as it is in war: the only thing I know about your plan for the future and your expectations for sales, expenses, and growth is that it is wrong.
As your business grows, you will discover new strengths and weaknesses, talents you didn’t know you had, and challenges you didn’t expect to face. Clients, employees, and competitors will force you in new directions and you will have to come up with solutions.
Also, once you have a growing business your attention will shift from managing the day-to-day internally to exploring opportunities externally.
All of this means that you will have to invent.
We include invention at the very beginning of the process by starting off with your hurdles and opportunities list. As both hurdles and opportunities arise, make a note so that you can come back and solve them.
For solving hurdles, we recommend a structured approach of clarify, explore, solve and implement, or CESI (because who doesn’t love a good acronym?); we outline the CESI approach here. Opportunities we process with the opportunity lever canvas. We also have tools and templates for brainstorming and innovation.
The key is not to get stuck in innovation but to follow the process, come to a resolution, implement and measure. See how it all comes together?
And those are the 7 elements of the business machine
No matter what business you are building, if you want it to work for you, power an extraordinary life, and deliver your wealth, freedom, and impact goals, you must put these seven elements in place.
Are you ready to get started? Download the template powerpack here, and our templates will guide you through the process of defining your business: this is the first essential step. If you would like some help, fill out an application here, and we can talk about what program might be right for you.
What is a Business Plan
We often get asked what a business plan is and what it should look like. There is even debate as to whether a business needs a plan. Here’s our take:
The business plan describes what you will do before you do it. It is structured, and you should follow a process, so you don’t leave anything out. We, humans, only know what we know. Having a business plan allows us to define the necessary steps to both creating the business machine and having the machine do what you want it to do.
Determining what you will do before you do it also helps you (and everybody else) focus. It allows you to evaluate performance and measure results.
Do you need a business plan? Only if you want to build a successful business.
What is a business for you?
We talk a lot about business for you. Here is what we mean by that:
Your business should help you achieve your human and life goals. It helps you express yourself, deliver solutions and lead an extraordinary life. That is why we focus so heavily on the prosperity plan; a business for you should help you achieve your life goals.