Do You Prefer To Maximize Or Optimize Your Firm's Operations?

By Tom "Bald Dog" Varjan

Do you know now many folds a traditional chef's hat has?

Believe it or not, it's 103.

Why 103?

Because there are 103 ways to cook an egg. No, not as egg as one of the many ingredients in the recipe, but, 103 ways of cooking a single egg.

In reality, there are about 15 ways, and the rest is just the degrees of cooking. The point here is that sometimes, less is more.

And this is what the optimisation of your firm's performance is all about.

And this is where firms differ depending on their leaders.

Some firm leaders prefer to maximise and some others prefer are optimise their firms' operations.

You can recognise maximisers (mercenaries) because they talk about the three main factors they've maximised: Gross revenue, number of locations or headcount.

In fact, they are the three indicators that can help you to get on various business achievement list (Fortune, Inc., etc.) even if you make zero profit and live on investors' money.

Those firm leaders focus on those three indicators and do anything in increase gross revenue and the size of the firm.

This is why, based on conventional wisdom, a generalist firm (A) of...

Headcount: 300

Locations: 15

Gross revenue: $50 million

Hourly rate: $50

Minimum engagement level: $5,000

... is far more successful than a specialist firm (B) of...

Headcount: 30

Location: 1

Gross revenue: $15 million

Hourly rate: $200

Minimum engagement level: $25,000

Of course, when we dig deeper, we see that firm A's ARPE (annual revenue per employee) is $166,000, whereas firm B's ARPE is $500,000.

But maximisers don't dig deeper. They dig deep enough to reach their pet absolute KPIs and then they revel in their superficial successes.

Optimisers (Missionaries) not only dig deeper, but they dig somewhat differently.

They use relative KPIs. Something relative to something else. In many cases, return relative to the investment. But they often use dollar figures relative to effort.

Profit per hour on a specific project. How many total hours has it taken to complete a project and how much net profit the firm has generated on that project.

So, First Let's Take A Closer Look At Maximisers

Maximisers are seekers of instant gratification. They care only about the short-term return and ignore the long-term consequences. They run on short-term optimism, bravado and enthusiasm. They set idiotically high goals: "Within two years, my start-up will displace Google and will rule the internet."

It's like stuffing your face with the most delicious poppy seed strudel today and ignoring the raging constipation tomorrow. Yeah, poppy seeds are delicious, but also can be nasty beyond your wildest imagination.

Your firm is based on a maximiser culture if...

Authoritarian leadership based on blind obedience and punishment. Instead of communicating behavioural expectations, as optimiser firm leaders do, maximiser firm leaders communicate tactical behaviours, like sales, quota, working hours, number of daily cold calls, etc. Also, instead of clear specifying clear consequences, maximiser leaders apply random punishments. Maximiser firm leaders expect loyalty to themselves.

Firm's structure: "Big boss and his minions" in master-servant relationships.

Mindset: Predominantly heavily tactical operations, based on doing more of the same as before but harder and longer. That is, chucking more and more spaghetti at the wall, hoping more and more sticks.

Operating system: "Gunslinger": Ready => Fire => Fire => Fire... until they run out of their own or their investors' money.

Maximisers focus on one KPI regardless of everything else. Typically, gross revenue, headcount and number of locations.

Example: Stalin was a maximiser of a military leader: Victory regardless of the losses. He even sacrificed his own son. When the Germans captured Stalin Jr., daddy let the Germans kill his son because daddy's notion was that every captured soldier was a traitor and must be killed. Nice man!

You're obsessed with growing your firm based on three criteria: Increase gross revenue, headcount or number of offices/locations.

70-hour work weeks are the norm with 2-3 weekends or all-nighters every month.

Your set big, bold goals.

You believe more clients lead to more revenue.

You rather slit your own wrist than turn down a client.

Your firm has no MEL (Minimum engagement level)

Your firm has no objective client qualification criteria besides gut feeling.

Your main focus is on selling more project work with no regards for your tech team's schedule to deliver the service.

You run your firm as an equity business. You want to build up the business and sell it as soon as possible.

As a firm leader, you continually look for ways of making yourself more and more important. You become an operational bottleneck, but you enjoy your importance.

Hiring new people is a kneejerk, last-moment act without little or zero forethought.

You prefer to keep annual talent attrition over 25%: Bring them in, burn them out and kick them out.

80% of your professional development is about marketing and sales.

Your firm operates on a hand-to-mouth basis with credit cards and line of credit almost maxed out.

You have a very simple recruiting process, so you can have the new person earn money right away.

You tend to hire people even if you don't know what they will do.

Your headcount is about to reach 50, but there is no HR strategy in sight; not even in the plans.

You have no time to create a budget and a proper plan for anything because you're in so much rush to reach the next level of revenue, to open the next office and get it staffed.

Your firm runs on Machiavellian ethics: Any good end (according to you) justifies any means.

As a firm leader, you know what's best and don't need outsider clever dicks' advice.

Your hacking-driven operation is held together by duct tape, rubber band, bailing wire, spit and a prayer.

Your main client acquisition channel is responding to RFPs with under 20% proposal success rate.

On the surface, your firm makes a lot of money, but due to the low margins, keeps very little.

A project barely ends but your team is already on the next one.

Frugality is your firm's permanent watchword.

Your tech people are paid significantly more than your business development people.

In your marketing materials, you focus more on style ($100+ per hour graphics artist) and less on substance ($5 per hour writer from a Third World country on Upwork or Fiverr).

As a firm leader, you double up as operations manager.

Decision-making is pushed up to the big boss.

And Now Let's Look At Optimisers

Unlike maximisers, optimisers as seekers of delayed gratification. They care about long-term sustainable results, assessing short-term success against long-term consequences.

Before implementing new strategies, they ask some basic questions...

What can we gain?

What can we lose?

Can we live with the consequences of the losses?

Does the gain justify taking on the risks of the potential losses?

Let's also note that the bigger the potential gains are, in most cases, the bigger the risks you have to take on.

Authoritative leadership based on discipline, expectations and consequences. Authoritative firm leaders clearly communicate their firms' values, missions, visions, disciplines and expectations and the consequences of not meeting them. That is, people know from day one what to expect if they "misbehave". Optimiser firms believe in the military maxim: Every soldier deserves a highly competent commanding officer. Optimiser firm leaders expect loyalty to the firm's values.

Firm's structure: Leaders and followers in peer-level relationships.

Mindset: Predominantly strategic operations, based on doing less of something more effective, resulting in sustainable improvements. That is, chucking a small amount of spaghetti at the wall, measuring how much sticks, tweaking the spaghetti and only then chucking the next batch.

Operating system: "Sniper": Ready => Aim => Fire => Repeat process... until you get it right and reach your objectives.

Optimisers focus on several KPIs relating to gains, losses, risks, assets, liabilities, revenues and costs.

Example: Sun Tzu, the author of the Art of War was an optimiser of a military leader: "It is best to win without fighting" and "It is best to keep one's own state intact; to crush the enemy's state is only second best." And this approach stems from "The general who wins the battle makes many calculations in his temple before the battle is fought." That is, the better optimiser a general is, the more victorious his army is.

You're obsessed with growing your firm based on one criteria: Profit per employee. Although this is only one lagging KPI but it has several leading KPI contributors, and good firm leaders track the leading indicators.

The normal work week with an occasional "all hands on deck" once in a blue moon is enough to get everything done.

You believe fewer but better clients lead to more profit.

You build effective goal-achieving systems and processes.

You turn down less than ideal clients.

Your firm has a set MEL (Minimum engagement level) and buyers sub-MEL projects are turned down.

Your firm has an objective, multi-step client qualification process to pass before gut feeling is even used.

Your main focus is on leading your firm and helping out at business development, knowing your people can do everything else.

You run your firm as a lifestyle business. You want to build up your firm to its final size and then work on the perpetual improvement of its supply-demand ratio.

As a firm leader, you continually look for ways of making yourself less and less important in your firm's daily operation. Yes, you are there, but the firm can function without you too.

Every new hire is based on a strategic decision.

You prefer to keep annual talent attrition to the bare minimum. You know that high profitability and low attrition go hand-in-hand.

80% of your professional development is about leadership, teamwork and communication.

Your firm has hefty financial reserves, so it can easily handle occasional hard times.

You have a documented recruiting and talent onboarding process.

You carefully plan every position before you recruit for it.

You have a documented HR strategy which you regularly review and update.

Everything you plan in your firm is assessed for long-term impact and sustainability.

Your firm runs on ethical capitalism: Make as much money as possible within the legal, moral and ethical boundaries.

You work with an objective external professional (coach, mentor, advisor, etc.) and discuss strategic issues.

Your precision-driven operation is held together by a set of values everyone has accepted.

Your run multiple client acquisition channels, excluding responding to RFPs, with over 80% proposal success rate.

Your firm operates on hefty profit margins, so it can pay employees, contractors and suppliers well and on time.

Every project ends with a two-stage after action review: Stage one: External review with client; stage two: Internal review among team members.

Abundance is your firm's permanent watchword.

Although you pay your tech people well, you also know that it's your business development people who keep your firm in business, so they get paid more than tech people.

In your marketing materials, you focus more on substance (the best copywriter the firm can afford) and a decent, reasonably-priced graphics artist.

You have a dedicated operations manager in your firm.

Decision-making is pushed down to the firm's lowest competency level.

On Summary

In his book, True Professionalism: The Courage to Care About Your People, Your Clients, and Your Career, based on his extensive research among professional service firms, consultant and former Harvard Business School professor, David Maister, comes to a valuable conclusion regarding professionals' attitudes towards their clients and their work...

Professionals' attitudes towards their clients and their work Enlarge image in new window

Yes, I know. It's pretty eye-opening if you're at the professional end of the game.

But it's pretty scary if you are at the client end.

Many business gurus talk about that we should enjoy what we do, but don't mention much about liking our projects and truly caring about our clients. But the three go together.

Here too, there is a difference between maximiser and optimiser firms.

In most maximiser firms, the motto is to grit your teeth, get on with the project and earn money to make the boss rich.

In most optimiser firms though, everyone has a vested interest in firing on all four cylinders because everyone is rewarded for good work. Also, in optimiser firms, if clients misbehave, they get fired regardless of the amount of money they pay.

But you have to remember that this maximiser-optimiser concept is a continuum, and every firm is between the two extremes.

Maximiser-Optimiser Matrix

And if you examine the chart above, you can see that respected industrial authorities are about half-way between the optimiser (missionary) end and the maximiser (mercenary) end.

But they recognise that doing great work (cause) comes first and making good money (effect) is the result doing great work.

Pure missionaries ignore the money part and spend their lives sulking how their clients have ripped them off.

Pure mercenaries ignore the doing great work part and spend their lives figuring out ways of delivering less value and charging more for it.

It reminds me of Richard Milhous "Dick" Dastardly from the 1968 Hanna-Barbera Productions' cartoon, Wacky Races.

Source: http://clairehennessy.blogspot.com

Dick Dastardly

But I reckon, it reminds many Americans of a totally different Richard Milhous who was less of a race car driver and more of a, well, president.

But now both Richards belong to the past.

Although I have the cartoon version on DVDs and watch them regularly.

So, go through the above 35 points and see where your firm is on the Maximiser-Optimiser scale.

Realising that you can gain the highest level of notoriety, client satisfaction and make the most money in the top right quadrant of the chart, what can you do today to move your firm even just touch closer to that respected authority quadrant?

It's all well and good, but to apply it all, you need to know how your target market perceives your firm.

Is it a fungible IT vendor or a respected IT authority?

It's the market that hangs your brand around your neck based on the outside perception of your firm.

But you can also influence the outside perception by tweaking your firm's inside reality, that is, your culture, by consciously transforming your firm from vendor to authority.

In this peddler quiz, you can check whether your firm is more of a fungible IT vendor or a respected IT authority.

In the meantime, don't sell harder. Market smarter and your business will be better off for it.