As Entrepreneurs, our list is one of our most important assets.
The second most important asset is one that I find missing in 9 out of 10 Entrepreneurial businesses.
Yet, it’s a vital piece to not only sustaining a business, but in growing and scaling it too...
Standard Operating Procedures (a.k.a. SOP)
I’m sure you’ve heard this term before. A SOP is a detailed documentation of instructions (written or visual) that describe each step of a process or task.
The purpose of SOPs are to increase efficiency and deliver consistent outcomes each and every time.
In many cases SOPs are used to ensure compliance with operational practices.
Why are these so important?
Processes that aren’t documented leave room for errors and mistakes.
Clear enough, right?
Now consider these reasons that may not be so obvious…
When people on your team have a SOP to follow, they are more productive, as they have exactly what they need to complete the task at hand.
Without clear instructions, oftentimes, time is wasted searching or looking for instruction and guidance.
Again, also pretty straightforward.
The truth is, everyone who works for you wants to do a good job. They want to succeed as much as you want them to succeed, so why not give them all the tools and resources they need to do their job to their best ability?
I call it setting them up for success. When they win, you win.
Everyone is happy.
Now when you don’t set your team up for success, negative consequences start to build, including: frustration, disappointment, delays, mistakes, etc.
And as we already know, unclear instructions and lack of direction long term not only causes all of the above, disconnection and resentment start to fester. After that happens, shortly down the road, either that team member moves on, or you end up letting them go.
Not many Entrepreneurs are aware of this, but the total cost of losing an employee or team member can range from tens of thousands of dollars to 1.5 to 3 times their annual salary (equating to hundreds of thousands of dollars).
Don’t believe me?
Let’s break it down…
- Cost of hiring and onboarding a new person (hiring, training, management, time). Note: If you don’t have SOPs in place, training will take even longer.
- Lost productivity (a new person may take 1-2 years to reach the productivity of that previous person), especially if the previous person was super efficient and productive.
- Lost engagement (other employees who see high turnover WILL disengage and their productivity decreases. Especially when they know the change was not performance-based).
- More errors and mistakes (new team members take longer to acclimate, and are often less adept at solving your company's problems because they aren’t familiar with your company yet).
Here again is where SOPs can help to speed up the learning curve AND decrease the chances of mistakes and errors.
- Training cost (over 2-3 years you likely invest 10-20% of a team member's payroll or more in training, so they can become more invested in your business and learn how to do new things, etc). When that person leaves, they take that investment with them.
- Cultural impact (whenever someone leaves, others question "why?"). We have to remember that people are what we call an "appreciating asset." The longer they stay with an organization the more productive they get. They learn the systems, know the products/services inside and out, and they’ve learned how to work with the rest of the team very effectively and efficiently.
In a mass destruction scenario, what if the team member who leaves is responsible for things you don’t know how to do, but must do?
What if what they were responsible for was directly related to your revenue stream?
Or operations to keep the business running?
Quite a predicament you’d be facing.
Bottom Line: Standard operating procedures are crucial, so start making them for your business.
Yes, they take time, and I think that is the biggest deterrent. Most likely why 9 out of 10 businesses are without them. But in the long run, can you see now how invaluable they really are?
Not only when it comes to protecting your business; but for growing and scaling it too.
Taking the time to create SOPs will help you build a solid foundation for your company. Solid foundations allow companies to grow and scale at accelerated rates.
Lastly, a friend of mine shared a great idea with me after we had discussed everything I have just conveyed to you about creating these for his business.
Instead of typing up written SOPs, he decided to record video SOPs. Whenever a team member asked him how to do something, instead of just showing them, he decided to record a video and then shared it with them. He kept a library of all his videos, and within a year, he had every single SOP completed within his organization. Pretty smart!
To your success,
David
Business Nitrogen
