Why do some small and medium sized businesses grow in to big businesses, while most stay small? Lean author Tim Mclean shares insights from his book “Grow your Factory, Grow Your Profits” about what holds back so many small and medium sized businesses and how Lean can be the key to unlocking their growth potential.
Read the Transcript of this Video
Why do some companies become really big, but most stay really small? If you are asking yourself this question about your business, then keep watching to learn why and what you can do about it.
Hi, I’m Tim McLean Welcome to this TXM Lean Video
I’ve spent the last decade helping small and medium sized businesses to implement lean. In that time, I have seen the same problems holing back business after business. I wrote a book about it called “Grow Your Factory – Grow Your Profits”.
But if you don’t have time to read the book right now here are some of the main ideas.
When we study high school economics, we learn about the economies of scale.
That is, when businesses grow, their variable costs grow in line with sales, their fixed costs stay fixed and so their profits and profit margins grow faster than sales.
Over the past decade we have worked with hundreds of small and medium sized businesses. I have observed that in reality most of these companies’ experience what I call the “diseconomies of scale”
Variable costs and fixed costs grow faster than sales. Profit margins decrease until eventually the business starts making a loss or run out of the cash it needs to fund their growth.
The reason this happens is that as businesses grow in size, they also grow even faster in complexity.
As a result it becomes harder and harder for management to know what is going on and to keep control. Costs rise, mistakes get made, efficiency falls and profits evaporate.
What these businesses often lack is business processes that are reliable and efficient and ensure that the customers get what they want every time and at a competitive cost. The businesses also need a management system that can get the best out of people at every level of the organisation and take some of the pressure off top leadership. Most big companies took decades to develop their business processes and management systems. In today’s hyper competitive marketplace, you don’t have decades to wait. Therefore, you need to look for a proven, practical and ready made system that you can adapt to your business. That system is Lean.
To implement Lean in a small and medium sized business you need to take some key steps:
- You need clear strategic goals that explain why you must change your way of doing things.
- You need to get your management team aligned and on board.
- You need to understand how your business creates value now and how it can do it better using a value stream map.
- You need to establish clear standards in your business and expect them to be maintained.
- You need to engage leaders at all levels in your business, especially front line leaders in driving improved performance every day.
- You need to have clear and simple metrics to track business performance every day or even every hour, and
- You need to recognise change is hard and make sure you have patience and provide the resources to drive the change.
Implementing Lean will unlock the potential of your business.
Dramatically shorter lead times allow you to respond faster to customers. Lower inventory and lower costs free up cash so you can invest in innovating and marketing your business to grow. Empowering your team, gives you, the business leader, time to focus on where your business is going rather than just being stuck in day to day firefighting. As a result we have seen customers increase sales by more than 100% in three years following Lean implementation.
If you own or work in a small and medium sized business that is struggling to grow or if you see your margins and cash disappearing due to the diseconomies of scale, then you need to take action.
Get a copy of my book or give us a call at TXM. Don’t wait until its too late.
I’m Tim Mclean Thank you for watching this TXM Lean Minute.