Capability Matching For High Margins

Greetings Operators!

I’ve been heads down in 3 new operations over the last month. I’ve noticed that momentum is one of the best initial targets for a new business.

If I can get everyone to see and expect change… then the change starts to come in faster and from more directions. Individuals jump on board because being better, and winning, is exciting and magnetic.

If you aren’t sure where to start right now in being a catalyst for change in your company, start with just momentum.

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Level Up

• 📖 New feature with goals setting and tracking in Confluence - very cool

• 📺️ Rob Walling on his B2B Content Strategy for 2024. I found a lot of useful nuggets in here for industrial and home service businesses.

• 🎙️ If you want to build an elite business, you need to start with an elite mindset - I’ve just finished this book and there so many helpful takeaways in both transforming how I think, and how I shape the mindsets of my team.

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I only have 2 more openings for coaching business owners on building a scalable operation. If this is something you are interested in, reach out by responding to this email!

MAIN ISSUE
Capability Matching

As a business owner, you're always looking for ways to grow your company efficiently. Capability matching is a strategy that can help you do just that. Let's explore how this approach can benefit your business.

What is Capability Matching?

Capability matching means using the right resources for the right tasks. It's about making sure every part of your business is working as efficiently as possible. By doing this, you can:

• Increase sales without increasing costs at the same rate

• Improve your profit margins

• Provide better service to your customers

Applying Capability Matching to Your Team

Your employees are your most valuable asset. Here's how to match their skills to the right tasks:

1. Make a list of all the tasks in your business

2. Note the skill level needed for each task

3. Look at what your employees are currently doing

4. Reassign tasks so that each person is working at their highest skill level

Practical Example: Imagine you have a highly skilled programmer spending time on data entry. This is not an efficient use of their skills. Instead, you could:

• Have the programmer focus on complex coding tasks

• Hire a junior employee or use software to handle data entry

By doing this, you're making the best use of your programmer's skills and potentially increasing your company's output.

Optimizing Your Equipment and Resources

Capability matching also applies to your equipment and other resources. Here's how to approach it:

1. Look at all the different jobs your business does

2. Check what equipment you're currently using for each job

3. See if you're using equipment that's too powerful (or not powerful enough) for certain tasks

4. Consider investing in a range of equipment to better match your needs

Real-World Application: If you run a delivery service, you might be using large trucks for all deliveries. But is this always necessary? Consider:

• Using large trucks for big, heavy items

• Using smaller vans for medium-sized deliveries

• Using cars for small, urgent deliveries

This approach can save you money on fuel and maintenance, while still meeting your customers' needs.

Capability Matching in Manufacturing

If you're in manufacturing, capability matching can be especially powerful. Here's what to do:

1. Look at each product you make

2. Note the specific requirements for each product (like precision or volume)

3. Check if your current machines are the best fit for each product

4. Consider investing in different types of machines to better match your product needs

Practical Tip: You might have a high-precision machine that you're using for all your products. But do all your products need this level of precision? If not, you could:

• Use the high-precision machine only for products that need it

• Use standard machines for products with less strict requirements

• This can save you money and increase your overall production capacity

The Secret Sauce

Here's where the magic happens. By matching capabilities, you can purchase lower capability assets for cheaper that take on some of that sales capacity. Think about it - every sale should make a margin. To maximize that margin, you need to lower costs without sacrificing quality.

One way is to ensure that every part of your value stream uses the lowest cost possible resource that can still deliver the required quality. This doesn't mean cutting corners. It means being smart about resource allocation.

The Impact on Your Business Growth

When you apply capability matching across your business, you can:

1. Take on more high-value work

2. Increase your revenue without increasing your costs as much

3. Improve your profit margins

4. Grow your business more efficiently

Example Scenario: Let's say your business currently makes $500,000 a year with five highly-paid employees. By applying capability matching, you might be able to:

• Increase your revenue to $700,000-$800,000

• Add a few lower-paid employees for simpler tasks

• Keep your highly-paid employees focused on high-value work

• Improve your overall profit margin

How to Start with Capability Matching

1. Choose one area of your business to start with

2. Look at how you're currently using your resources in this area

3. Identify any mismatches (like high-skill employees doing simple tasks)

4. Make small changes to better match capabilities

5. Monitor the results

6. If it's working well, apply the same process to other areas of your business

Remember, capability matching is an ongoing process. As your business grows and changes, you'll need to keep adjusting to stay efficient.

To make this work, you need to embed it in your business DNA. Here's how:

1. Regular Process Reviews: Schedule quarterly reviews of your key business processes. Look for tasks that could be reassigned or streamlined.

2. Skills Development: Invest in training to help team members grow into more complex roles. Create a talent pipeline.

3. Technology Assessment: Regularly evaluate new technologies that could help automate simple tasks, freeing up human resources for higher-value work.

4. Customer Segmentation: Analyze your customer base and their needs. This can help you tailor your capabilities to different market segments more efficiently.

5. Flexible Hiring: Consider a mix of full-time employees, part-time staff, and contractors to match your fluctuating workload more closely.

By applying capability matching, you're setting your business up for smarter, more profitable growth. It's about making the most of every resource you have, from your team to your equipment. Start small, measure your results, and watch your business efficiency improve.

THIS WEEK
A Few Things You May Have Missed

MACRO WATCH
Increasing Liquidity

Over the last few decades, the markets, our feeling of wealth, and thus our ability to spend as a nation, have been largely tied to what is known as the liquidity cycle.

In short: The more money there is available, the more money we all have, the more we spend.

Below is a chart I follow showing liquidity changes correlated to the Manufacturing PMI. Liquidity due to central bank policies, rates, and and the high level of spending the US has been doing are leading to more money floating around the system

This tends to correlate to the need to produce more goods to be bought, which means jobs and overall consumer well being (more jobs, more stuff). This usually lasts until enough money is out there that the prices start to get bid up… which we call: inflation.

In short - there seems to be return to liquidity among central banks, and not just our own country, but multiple countries:

While this doesn’t mean expansion times are here again, and caution is warranted - it does mean that you should begin planning for what if scenarios.

1. What if leads or inbound increased 10%

2. What if prices increased 10%

3. What if supply dropped by 10%

Thinking through these might push you to review your quoting costs and models, get your hiring and onboarding smoothed out and posted, and review supply chains with vendors.

Every part of the business cycle affords massive opportunities to prepared business owners.

• Recessions allow a slowdown to rebuild process and strength operations, to grab marketshare, to find people who can help at a later time, and assets available at better prices

• Expansions allow a company to profit from its increased customer base, its stronger operations, and to maximize its assets. It allows a business to build a cash buffer which it can then deploy in the next recession to repeat the process.

For this reason, its important to monitor a few key aspects so you know when to hire and when to cut poor performers, when to lean out inventory, when to invest and when to stockpile.