Building the Machine

"Chefs create tremendous value for the world with their inventions. But a lot of times, what you really need is a recipe. I need to make dinner tonight. I don't have time to invent something. I just need a recipe that will taste good. That's a standard operating procedure." - Maxwell Anderson

Some business owners prefer standard operating procedures and running a tight ship. Some business owners prefer a more entrepreneurial, creative culture and worry that standard procedures will hamper their product. Two questions often arise at the opposite ends of the spectrum:

- For businesses that are more repetitive in nature (e.g. manufacturing), how can you introduce a more entrepreneurial culture without reducing the quality of output?

- For creative businesses (e.g. creative agencies), how can you introduce more standard operating procedures to reduce repetitive work while maintaining a creative (less standardized) overall process?

The answer lies in the business function - is it a process where the result needs to be consistent? If so, it's probably best to write out an SOP. What if it is a process that, by nature, produces a different product each time? In this case, it's best to make room for innovation.

Regardless of what type of business you work in, all businesses require some degree of standardization. The degree to which your business may need more (or less) SOP's can be answered by asking a simple question: do you control your business (as the owner) or does your business control you (a job)? Depending on your answer, it may be time to start documenting processes that generate the most headaches in the form of standard operating procedures.

After all, business owners want to work on their business, not just in their business. Establishing SOP's can help you move in this direction. In general, SOP's have four main benefits:

1. Writing out SOPs clarifies your ultimate goal for the process and the method by which it will be accomplished for all employees.

2. SOP's save everyone time by reducing confusion and redundant work between teams.

3. SOP's establish a yardstick for performance.

4. SOP's empower employees to create their own standard processes, which leads to an organization that is self-sustaining in nature.

Businesses are just loosely functioning groups of people working through a loosely defined process to produce a product that serves a need. In general, the more well-defined the process, the better the product will turn out. Great people can't produce great products without a great process. For a solid framework on creating SOPs for your business, we highly recommend the piece by Zapier below in the OPERATIONS section.

All articles in OPERATIONS are from the most recent edition of The Weekend Reader by Maxwell Anderson.

How standard operating procedures can help you grow your business (Zapier)
+ "In training the new hires for my nail bar, I went with the show-and-tell method. I hoped the recruit would learn by doing exactly what I did. Great, if I could remember everything off the top of my head—and hope they didn't forget either. But that's not how brains work. It ended in self-manufactured chaos."

The indispensable document for the modern manager (First Round Review)
+ "After consecutive year-long searches for his Head of Product and Head of Operations, he didn’t want to squander that investment because he couldn’t figure out how to work with them. So what did Desai do? He penned a user guide — similar to the kind that’d accompany a rice cooker or bassinet — but this one deconstructed how he operated optimally, when he might malfunction, and how others could use him to their greatest success. To create and the compile the guide took a intense self-reflection, drawing both from his early management mistakes at leading PatientPing and a career in finance (Parthenon Capital, Lehman Brothers) and healthcare (Centers for Medicare & Medicaid Services, CVS Health).

Charting the economic recovery (Dr. Aaron Hedlund, Guest of Permanent Equity)
+ This essay by Dr. Aaron Hedlund, Associate Professor of Economics at the University of Missouri, is the first in a series of collaborations we’re calling Friends of the Firm.

The world's largest database of cell towers (Alcinar)
+ "OpenCelliD is the world's largest open database of cell towers with a license CC BY-SA 4.0"

Vanity metrics and why they are a waste of time (Julian Shapiro)
+ "We chase vanity metrics because they’re visible and easy. Vanity metrics are intermediary goals that occur before the fulfilling goals that matter. Because vanity metrics occur sooner, they require fewer steps to accomplish. This makes them easier. Further, we rarely recognize when we’re focused on vanity metrics—because society normalizes them. When everyone’s showing off how many books they’ve read, we internalize this as a worthy goal for ourselves. In short, we inherit society’s most visible goals then we don’t challenge them."

Leaders need “User Manuals” – and what I learned by writing mine (Abby Falik)
+ "My User Manual is one of the ways I practice leading out loud. It’s a living document that describes my innate wiring and my growing edge, while putting it out to the world that I know I am – and aim to always be -- a work-in-progress."

Global private equity report 2021 (Bain Capital)
+ "Having rebounded impressively from a dismal second-quarter performance (North American deal value alone was off 85% from the same quarter a year earlier), the global industry sprinted to the finish in 2020, generating $592 billion in buyout deal value. That was an 8% jump from 2019’s performance and 7% higher than the five-year average of $555 billion (see Figure 6). A full $410 billion of that total came in the third and fourth quarters as GPs raced to put money to work. Confidence reigned that central bank stimulus would prop up the global economy long enough for the worst of the Covid-19 pandemic to pass. Covid did have a pronounced negative impact on global deal count, as the number of buyouts fell 24% to around 3,100 in 2020, from 4,100 in 2019. With the exception of the technology and telecom sectors, the number of deals slumped across the business landscape compared with the five-year average. The retail, consumer, and media and entertainment sectors were among those taking the biggest hits."

A COVID reckoning: American households have big bills coming due (Insights from Stanford Business)
+ "By the end of March 2021, the researchers predict, 60 million people will be $70 billion behind on their payments. Most of those looming bills are tied to home mortgages ($3,200 on average, as of last fall), car loans ($430 on average), and student loans ($140 on average)."

Lumber prices are soaring. Why are tree growers miserable? (Wall Street Journal)
+ "Timber growers across the U.S. South, where much of the nation’s logs are harvested, have gained nothing from the run-up in prices for finished lumber. It is the region’s sawmills, including many that have been bought up by Canadian firms, that are harvesting the profits."

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