Is your small business a dairy herd or a vending machine?

Al Switzler, co-founder of Vital Smarts, made the point that in his experience there are only two kinds of companies: “dairy herds” and “vending machines.” Companies that sell the services of a staff of experts – lawyers, accountants, and others who leverage human effort – are like dairy herds. The main job of management is tending the herd. Vending machines, on the other hand, are companies that sell a product over and over. The job of management is to ensure that resources expended in product development can be leveraged to build profit from repeat sales. I am grateful to Al for this interesting insight. Since that conversation, I have been thinking about the implications of the two business models.

Are you a dairy herder? What are you doing to maintain and grow your human capital?

For big businesses, it’s a numbers game. Large numbers of recent graduates are brought in, trained in the company’s methods and generally work long hours for relatively low pay. The payback for these recruits is having an enhanced resume, the possibility of being one of the few who rise to management roles or earning certification/credentials to work as an independent and establish their own consultancies. Small businesses generally lack the scale to do this.

If your small business is a dairy herd, how do you attract and then hang on to your valuable employees, that is, avoid training your future competition? Here are a few ideas.

• Keep your employees happy and engaged. People who love to come to work are less likely to stray. Compensate your staff for their contributions; consider sharing profits or even a piece of the company. Financial compensation is only part of the total picture. Acknowledge outstanding workers and teams publically and check on everyone’s wellbeing and satisfaction. Have you asked your employees what perks would be appreciated? A ping-pong table or a company paid monthly ice cream social could be a great investment in happy employees. And as we wrote in this earlier post, make sure the incentives you offer produce the behavior you desire.

• Guard your intellectual property. Trademark and/or copyright material. Document and uniquely name any processes that you develop that add value. All customer, prospect, partner, supplier and vendor information should be kept in company-managed data stores with company ownership clearly indicated. A good “rolodex” is a huge asset. If your staff maintains your critical data on personal computers, what’s to stop them from walking out the door and using that to jump start their own businesses or work for your competition?

• Off load the drudgery. Establish systems to do the “administrivia” that bogs people down. In a professional services business, there are few barriers to entry. Yet every business, regardless of size, needs to have ways to track time, bill, and collect. If your business has effective methods to do routine tasks easily and well, remaining an employee becomes increasingly the path of least resistance.

• Be a winner. Develop and maintain methods to generate leads and close sales. When they have confidence in a steady stream of new and repeat customers, employees will be more likely to want to remain part of your winning team.

• Discourage job hoppers. Establish and enforce non-compete agreements. Get professional advice to create enforceable agreements and don’t make exceptions, even to lure a star.

Ultimately for “dairy herds” the growth and sustainability of the company is dependent on the size and health of the herd. Does it make sense for your business to move along the spectrum toward becoming, at least in part, a “vending machine?”

What makes sense for your small business? Here are some ideas.

Build a unique brand. Brand building is more than a catchy name and logo. At its heart is making and continually fulfilling a clear and understandable brand promise. Make and keep your small business the go to place to get the solutions you sell. Read Karen Utgoff’s previous posts on brand building basics here and here.

• Create products for customer use and re-use. If you have useful tools that help the customer incorporate your methods in their business, you can sell these over and over. Price them so that customers will have an incentive to buy from you rather than develop their own. For example, perhaps you have an effective process to track key business performance measures and teach customers this method through consulting engagements. The more that you can capture what you teach in replicable format – forms, books, video/audio, etc. – the less sophisticated the staff who deliver this information to the customer needs to be.

• Select engagements thoughtfully. Some assignments will result in materials that you can leverage to create products. Other assignments may build your brand or help you move into a sizzling new market. As you consider new opportunities, factor in how each will contribute to your company’s value and to employee engagement.

Success in small business – regardless of model – takes constant attention. I offer these perspectives to encourage small business owners to think in different ways about the enterprises they have worked so hard to establish and maintain. Take some time to consider your business through this lens. I welcome your feedback on whether this offered you a different perspective and, perhaps, ideas to improve your business.

Since 1991, Laurie Breitner has assisted organizations with operational improvement, organizational development and strategic planning. Learn more at http://www.lauriebreitner.com.

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