Traction

INTRODUCTION

Overview

Owners who have achieved success often reach a point where effort stops working and old fixes lose their power. The business takes over their life and growth stalls. The same frustrations come back no matter what they try. The real challenge is learning to lead past that ceiling without forcing your way through.

You are not your business. It has its own life, and the work of reaching the next level is turning it into something that runs without you holding it up. A product, a service or raw determination will not get you there. What will: skills, tools and a system that improve how you handle people, processes, execution, management and communication, along with guiding principles that keep working day after day.

Five frustrations

Most entrepreneurs live with one or more of five frustrations:

1. Lack of control: your time, your market and your company control you rather than the reverse.
2. People: employees, customers, vendors and partners don't listen, don't understand and don't follow through, and nobody is on the same page.
3. Profit: there is not enough of it.
4. The ceiling: growth has stalled, nothing breaks through, and you feel overwhelmed and unsure what to do.
5. Nothing's working: strategies and quick fixes did not last, the staff has gone numb to new initiatives, and you need traction again.

A minority of owners avoid all five by running on core disciplines that arrange the moving parts of a business into a smooth-running machine, and some are naturals who do not realize they are doing anything special.

What EOS is

The Entrepreneurial Operating System (EOS) strengthens the six most important aspects of a business and brings them together into one framework. It works as a whole and keeps itself going, and its elements matter in combination rather than on their own. No theory is involved, and no passing fad either: these are proven principles that have held up across many kinds of organizations, and what is new is bringing them together into one complete system built to last decades.

Where it came from

Refinement took more than 20 years, through turning around and selling a family business, involvement in The Entrepreneurs' Organization, and many mentors. That includes more than 1,300 full-day sessions with leadership teams at over 120 entrepreneurial organizations in 11 years, over 10,000 hours of planning, teaching, coaching and problem-solving.

Typical clients are growth-oriented companies with $2 million to $50 million in revenue and 10 to 250 employees, willing to change and willing to be vulnerable enough to admit weaknesses and face reality. According to the book, those clients grow revenue by an average of 18 percent per year.

Here is what you get: faster decisions about people, strategy, systems and processes. Less needless complexity. Fewer distractions. Problems found and solved. And a team pulling together around one vision. Clients routinely say the whole thing is simple, and simple is not the same as shallow.

This expanded edition adds a chapter on implementing the tools, sidebars of later discoveries, more than 50 updates, and a no-cost online support platform for its community.

Key Takeaways

• Build the company as something that can sustain itself, and accept that the product, service or personal grit that got you here will not carry you to the next level.
• Identify which of the five frustrations you are actually living with (control, people, profit, the ceiling, or the sense that nothing sticks), since naming the right one is what breaks the cycle of fixes that never last.
• Take up the operating system whole rather than sampling its tools; its parts work in combination, and admitting your weaknesses is the price of getting any of them to take hold.
• Expect a long build rather than a quick turnaround: the system was refined over two decades and thousands of leadership sessions, and Wickman reports that companies running on it grow revenue by about 18 percent a year.

CHAPTER 1 The Entrepreneurial Operating System®: Strengthening the Six Key Components

Overview

Most owners carry a hundred worries at once. They are unsure which deserve attention and which are just noise. The business keeps pulling in every direction. Working harder does not produce clarity, alignment, or control. What would it take to run the whole thing with far less confusion?

Six Components

A business runs on a few basic parts. EOS identifies Six Key Components. Tracking them cuts the clutter. An owner who stops chasing a hundred scattered concerns and watches six finds the work simpler. They are Vision, People, Data, Issues, Process and Traction. Together they make up the EOS Model.

Vision

Successful owners hold a clear picture of where the business is headed. They can make everyone see it. Ask employees one by one what that vision is, and you will get a range of answers. People pull in different directions. Some row right, some row left, some hardly row at all. When everyone aims at the same clear target, they are far more likely to hit it.

In Focus, Al Ries contrasts the sun with a laser. The sun pours billions of kilowatts at the earth. It does no worse than sunburn someone standing in it for an hour. A laser needs only a few watts of focused energy to cut diamond. The Vision/Traction Organizer is the tool for becoming the laser. It boils strategy down to simple points: who the organization is, where it is going, and how it will get there. It also sets a ten-year target, a three-year picture and a one-year plan.

People

Great companies are not built alone. Leaders surround themselves with strong people. EOS sets aside labels like A players, platinum, 100 percenters and superstars. It focuses on the right people in the right seats. It also admits that some people on payroll are hurting the cause. The People Analyzer identifies who shares the core values. It simplifies hiring, firing, reviewing, rewarding and recognizing. The Accountability Chart fixes structure, roles and responsibilities. GWC supplies three absolutes for any hire:

• they get it
• they want it
• they have the capacity to do it

Data

Leaders who run on a handful of metrics escape managing personalities, egos, emotions and intangibles. The mentor Sam Cupp owned companies with over $300 million in sales. One of them was QEK Global Solutions, a worldwide fleet management company. He built it into a $100-million business and sold it. Of all he taught, the most useful was managing through a Scorecard. It is a weekly report of five to 15 high-level numbers. Weekly review gives a pulse on the business. It allows predictions and catches problems early. A financial statement shows them long after the fact.

Issues

Issues are the obstacles between a company and its vision. Success tracks the ability to solve them. Strengthening Vision, People and Data produces transparency. It creates an open organization with nowhere to hide. That brings problems into the open. The same handful of problems show up again and again in business. Spotting them becomes a skill. Most companies are busy with daily operations and never invest the time to solve problems properly. Yet time spent now saves two to 10 times as much later. The Issues List sorts problems by level and importance. The Issues Solving Track identifies, discusses and solves them for good.

Process

Processes are a company's Way of doing business. They are the most neglected of the six because most entrepreneurs do not understand how powerful they are. Applied correctly, process yields simplicity, scalability, efficiency and profitability. Keeping it in your head and winging it will not take a company to the next level. Ask whether everything is documented. Ask whether people know what to follow and why. Ask whether steps get skipped. The Three-Step Process Documenter captures each core process in a single document. It is the blueprint of the machine being built.

Traction

The most successful leaders have traction. They execute and bring focus, accountability and discipline. It is usually the weakest link, undone by fear and indiscipline. Most companies fail to turn their vision into reality. A vision that never becomes real is just a dream. Consultants routinely charge tens of thousands of dollars for multi-day planning sessions. They do not teach clients how to make the plan work. New EOS clients rate the accountability in their organizations around 4 on a scale of 1 to 10, the book reports. Two disciplines fix that. Rocks are the 90-day priorities that keep everyone on what matters most. A regular meeting rhythm at every level keeps people aligned and communicating. The Level 10 Meeting Agenda is built around tackling problems head-on and resolving them.

The Organizational Checkup

A 20-statement questionnaire rates the business from 1 to 5 on each element. It converts the total into a percentage. The ranges are 20 to 34 percent, 35 to 49 percent, 50 to 64, 65 to 79, and 80 to 100 percent. The middle range is normal, but normal is not the goal. Most organizations run below 50 percent. Clearing 80 percent is the target. The checkup is retaken regularly, with progress every 90 days.

Key Takeaways

• Score the business against all six components. Repeat the checkup every 90 days instead of treating it as a one-time exercise.
• Compress your strategy onto a single page. Cover who you are, where you are headed, how you will get there, and the ten-year, three-year and one-year horizons. Then confirm your team can state it back to you.
• Build the team around shared values and role fit. Verify that each person grasps the job, wants it and can do it. Settle structure and responsibilities with an accountability chart.
• Replace managing egos and moods with a short list of numbers reviewed weekly. Trouble surfaces within days instead of waiting for the monthly financials.
• Work through obstacles on purpose. Write them down, prioritize them and solve them so they stay solved. Then drive execution with three-month priorities and a steady meeting rhythm.

CHAPTER 2 Letting Go of the Vine

Overview

Most owners want the business to grow, but they stay in the middle of every decision. The real question isn't whether to let go. It's what happens if you do. Until you answer that, growth has a ceiling.

An entrepreneur hangs from a vine and is told to let go if he believes. He asks if anyone else is up there. Most owners can't reach the next level because they won't let go. Growth takes a leap of faith. One owner only started EOS because his head of sales and marketing begged him. He had his hands in everything. His leadership team was a sham. He worked 80-hour weeks and nodded off in meetings. He admitted he didn't want that life. He trusted the process. Two years later, he was a true leader with a solid team, more family time, less stress, and more profit.

If you're unhappy, you can live with it, leave it, or change it. If the first two are impossible, admit you don't want this life. Stop believing you are your company. Let it become its own entity. Four beliefs make you ready. Build and maintain a true leadership team. Hitting the ceiling is inevitable. You can only run your business on one operating system. And be open-minded, growth-oriented, and vulnerable.

A dictatorship or a true team can both work, but the healthy team approach is the book's philosophy. The team defines the vision with you. It holds clear accountabilities. It takes initiative over departments. It stays honest about issues. It fights for the whole company. Dictatorships exhaust the owner and prevent future growth. One person can make only so many decisions. Let others take sales, service, accounting, complaints, and follow-up. Department heads should be better than you in their roles, with clear expectations and a system for communication and accountability. Patrick Lencioni's first rule is to build and maintain a cohesive leadership team. Each member must agree the organization's problems are also theirs. The Issues Solving Track in Chapter 6 addresses this. As goes the leadership team, so goes the company. The team must present a united front.

Organizations expand by smashing through ceilings as an organization, departmentally, and individually. Growth is the only option. Without internal or external growth, you are dying. Most companies need internal growth before external growth. Schechter Wealth Strategies, founded by Robert Schechter in 1971, had strong sales, culture, and products, but operations were at capacity and chaotic. Marc Schechter and Jason Zimmerman pushed aggressive growth. Reorganization took a little more than a year. Then they averaged 50 percent annual growth over three years. The U.S. Small Business Administration puts failure within five years at roughly 50 percent. A 2005 Monthly Labor Review study by economist Amy E. Knaup found 56 percent die within four years. Michael Gerber's The E-Myth books say 80 percent fail in five years, and 80 percent of survivors fail between years six and ten.

Surviving the ceiling depends on five abilities. First, simplify. Use the KISS mantra. Streamline rules, communication, processes, systems, messages, and vision. EOS creates a new state of simplicity. Second, delegate. Delegate and elevate. Hand off outgrown tasks like opening mail, writing proposals, approving invoices, and handling complaints. Third, predict. Long-term prediction covers 90 days and beyond, working back from the 10-year target, three-year picture, one-year plan, and next 90 days. It's a decision about tomorrow based on today, not a crystal ball. Leaders must climb the tree so the road-cutting team doesn't zigzag. Michael Gerber advises working on the business, not only in it. Short-term prediction handles daily and weekly problems. Fourth, systemize. Identify core processes like human resources, marketing, sales, operations, customer retention, and accounting. Agree on them. Name them as your company's Way. Then simplify, apply technology, document, and fine-tune. When you follow your processes, letting go gets easier. Fifth, structure. Reduce complexity and create accountability. Most small companies are too loose or have no structure, governed by ego, personality, and fear. The Accountability Chart defines roles and responsibilities and supports expansion.

You need one abiding vision, one voice, one culture, and one operating system: uniform meetings, priorities, planning, terminology, and communication. EOS is that system. Two people may speak different languages: objectives versus goals, process versus procedure versus system, monthly versus weekly action items. Choose one. This book offers EOS.

Dr. David Viscott wrote in Risking that risk is required for growth and happiness. Be open to new ideas. Admit what you don't know. Ask for help. Know your strengths and weaknesses. Let more skilled people lead. One unsuccessful engagement failed because the leadership team was not growth-oriented and would not be vulnerable or open-minded. Little was accomplished amid constant battles over decisions and difficult issues. Let your guard down. Eliminate the facade. Invite honesty. Many say they want growth but are petrified by its turbulence and content at their current size. EOS is built to help you grow. Accept these beliefs and you are ready to let go. The next six chapters strengthen the Six Key Components, starting with vision.

Key Takeaways. Give up being the hub of every decision and build a real leadership team whose members treat the whole company's problems as their own. How well that group functions sets the ceiling for everyone beneath it. Assume a wall is coming, and expect to break through it by fixing what is internal before chasing outside growth. Simplify relentlessly, hand off the work you have outgrown, and commit to a single operating system for meetings, planning, language and processes. Running two competing frameworks leaves your team speaking different languages. Set a ten-year target and work backward through the three-year picture, the one-year plan and the next 90 days, so you are steering from above the tree line instead of reacting to today's fires. Then use an accountability chart so roles rather than egos decide who owns what. Accept that growth requires risk, openness about what you do not know, and letting people more skilled than you take the lead. Economist Amy E. Knaup found 56 percent of businesses fail within four years, and the ones that last keep changing how they are led rather than simply working more hours.

CHAPTER 3 The Vision Component: Do They See What You Are Saying?

Overview

Entrepreneurs usually see their own vision clearly. They assume everyone else in the company sees it too. That leaves leaders frustrated, staff confused, and great ideas never realized. So how does one person's vision become shared by everyone?

Clarifying the vision is where traction begins. It sharpens decisions about people, processes, finances, strategies, and customers. A technology company had stalled for two straight years. It had no central vision. It sold three very different services. Employees moved between unrelated tasks several times an hour. In two sessions the leadership team defined who the company really was and where it wanted to go. It dropped two of the three services. It focused on one type of client. Then it posted its best first quarter ever, a 125 percent revenue increase over the previous year's first quarter.

The Eight Questions and the V/TO

A vision does not need to run a hundred pages. The Vision/Traction Organizer (V/TO) reduces it to two. Answering eight questions with the leadership team's full agreement fills it in:

1. What are your core values?
2. What is your core focus?
3. What is your 10-year target?
4. What is your marketing strategy?
5. What is your three-year picture?
6. What is your one-year plan?
7. What are your quarterly Rocks?
8. What are your issues?

Core Values

Core values are a small set, ideally three to seven. They are timeless guiding principles that define culture. They draw like-minded people in. They weed out those who do not fit. They should govern hiring, firing, reviews, rewards, and recognition. Jim Collins and Jerry Porras found, researching Built to Last, that enduring companies defined theirs early. Values already exist inside an organization, buried under daily chaos. The work is rediscovering them.

1. Each leader lists three people they would clone.
2. The team names the qualities those people embody.
3. Narrow the long list to between five and fifteen.
4. Debate down to three to seven.

After a 30-day simmer and a final sign-off, the values are delivered in a speech that illustrates each one with stories. Then they are built into hiring so candidates hear it before their skills are weighed.

Core Focus

Core focus has two halves: why the organization exists, and its niche. The purpose, cause or passion has to satisfy eight conditions:

1. It fits in three to seven words.
2. It uses simple language.
3. It is big and bold.
4. It creates an "aha" effect.
5. It comes from the heart.
6. It involves everyone.
7. It is not about money.
8. It is bigger than a goal.

The niche should stay simple: do one thing better than anyone. Together the two halves filter every decision that follows.

Broder & Sachse, a real estate management company, put $1 million and a year and a half into an engine powder-coating venture. It closed after three months, $300,000 down. A buyer later paid almost what they had invested, but the lost time and focus could not be recovered. In their office, they now call shiny opportunities CCTs, after Capital Coating Technologies.

Image One, a $7 million laser printer company, shut its networking unit once its focus was clear. It grew 30 percent a year on average and sold at high multiples to a publicly traded buyer.

The 10-Year Target

In Built to Last, Jim Collins and Jerry Porras found that enduring organizations set massive 10- to 25-year goals, which they call BHAGs. Price Pritchett's You2 says to focus on ends rather than means, holding a crystal clear picture of where you intend to land. Ten years is the frame most EOS clients choose. Once a team is three years from its target, that target moves into the three-year picture and a new one is set. Teams rarely agree on the first attempt, so start by asking how far out the group wants to look.

Marketing Strategy and The List

Marketing strategy has four elements:

1. The target market, or The List
2. Three uniques
3. A proven process
4. A guarantee

Defining the target market means describing ideal customers demographically, geographically and psychographically, and swapping a shotgun for a rifle. In one company's turnaround, the ideal market proved to be presidents and CEOs of North American real estate organizations with 200 or more agents who saw the value of outside sales training. The List held 525 names. 30 trainers worked it, and more than half became clients.

Every name on The List belongs in one database, so the sales and marketing manager can confirm that both efforts stay aimed at those prospects. Referrals are the most common route to a clarified target market. Once that clarity exists, the effort snowballs until new business generates itself.

Three Uniques

Also called differentiators or the value proposition, the Three Uniques are what make a company stand out. Against ten competitors you might share one or two, but nobody else should hold the same combination. The usual mistake is competing across too many sectors, markets, services or product lines and trying to be all things to all people. Southwest Airlines runs on low fares, on-time flights and having fun. It offers no frills and does not appeal to everyone. To choose, include the sales team, list what might be unique, ask ideal customers in a ten-minute call, and eliminate down to three.

The Proven Process

Show people rather than tell them. A company already delivers its work the same way every time. Capture that in a one-page visual, name it, and lay out three to seven major steps from first contact through follow-up. Schechter Wealth Strategies settled on six steps in about three hours. The process gives prospects confidence, sets the company apart from competitors who never illustrate how they work, and shows each employee how their step matters.

The Guarantee

FedEx staked its name on overnight delivery. Domino's staked theirs on thirty minutes. Hospital emergency rooms now guarantee waiting-room times. Half of EOS clients have no guarantee, and no business fails for lacking one, but a company reaches its vision faster with a guarantee. Image One co-owner Joel Pearlman guaranteed printer service of "four hours or it's free," and the company has used it for more than eight years. A guarantee needs a tangible penalty behind it and must win more business. When the word is uncomfortable, call it a pledge, commitment or promise.

Issues get added to the list as they surface, with solving deferred to a later stage. With the eight questions answered, the Vision/Traction Organizer is complete.

Employees Have to Be Told

Employees rarely share a vision because nobody told them what it is. A Harris Interactive/FranklinCovey poll of more than 23,000 employees found that 37 percent did not understand their company's priorities. Only one in five was enthusiastic about its goals, and only one in five saw how their tasks connected to those goals. Everyone has to hear the vision and understand it, because energy aimed in one direction compounds. Challenges and questions should be welcomed rather than feared, since involvement deepens commitment. Not everyone will share the vision regardless. Those who understand it, want to be part of it and act on it are sharing it. The rest stand out, and most leave on their own.

Three Events Communicate the Vision

1. A company kickoff meeting that unveils the V/TO and includes the first delivery of the core value speech, with time for questions.
2. A state-of-the-company meeting every 90 days, no longer than 45 minutes, covering successes and progress, the V/TO, and the quarter's Rocks. Its agenda has three parts, each filled with three of the most relevant data points: where you've been, where you are, where you are going. Delivered consistently, it is the most effective discipline for buy-in.
3. A quarterly departmental review of the V/TO as Rocks are set.

Seven Times

People need to hear a vision seven times before it lands. The first telling gets an eye roll. The second gets less of one. By the fourth or fifth they see it is real. By the seventh they are on board. So the leader counts the repetitions left rather than resenting them.

How Companies Share It

• RE/MAX First: each member of the seven-person leadership team taught 12 employees one-on-one, 84 in total, and quizzed them on the Three Uniques.
• One company passed a weekly $20 gift card to an employee who demonstrated a core value. The previous recipient chose the next and emailed everyone the name and the value. The card crossed departments and could not repeat a recipient until all had received it, spreading 52 core value stories in 52 weeks.

Full potential arrives when the leadership team agrees on the eight answers and everyone shares the vision, wants to be part of it, and lives it out in what they say and do.

Key Takeaways

• Run the eight questions past your leadership team until every answer has full agreement, then commit them to the two-page organizer, because a vision only one person holds cannot steer a company.
• Audit your core values against a recent hire and a recent firing. If they shaped neither decision, the values are still buried and you have more digging to do.
• Name the one thing you do better than anyone and walk away from the side ventures that pull against it, since the time and attention they consume cannot be recovered later.
• Build one list of named ideal prospects and make sure sales and marketing both work from it, so your uniques, proven process and guarantee land on buyers who actually fit.
• Schedule the kickoff, the 90-day state-of-the-company meeting and the departmental V/TO review before you need them. Count the tellings rather than resenting them, because the vision takes several passes to land.