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Capability Matching For High Margins
How to use a simple resource allocation method to increase margins and work output.
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.
Inside This Issue:
Read | Watch | Listen
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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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:
Make a list of all the tasks in your business
Note the skill level needed for each task
Look at what your employees are currently doing
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:
Look at all the different jobs your business does
Check what equipment you're currently using for each job
See if you're using equipment that's too powerful (or not powerful enough) for certain tasks
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:
Look at each product you make
Note the specific requirements for each product (like precision or volume)
Check if your current machines are the best fit for each product
Consider investing in different types of machines to better match your product needs
Optimizing Capability
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:
Take on more high-value work
Increase your revenue without increasing your costs as much
Improve your profit margins
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
Choose one area of your business to start with
Look at how you're currently using your resources in this area
Identify any mismatches (like high-skill employees doing simple tasks)
Make small changes to better match capabilities
Monitor the results
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:
Regular Process Reviews: Schedule quarterly reviews of your key business processes. Look for tasks that could be reassigned or streamlined.
Skills Development: Invest in training to help team members grow into more complex roles. Create a talent pipeline.
Technology Assessment: Regularly evaluate new technologies that could help automate simple tasks, freeing up human resources for higher-value work.
Customer Segmentation: Analyze your customer base and their needs. This can help you tailor your capabilities to different market segments more efficiently.
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
A veteran football coach once shared what the ideal halftime talk was in the locker room:
1. What went right in the first half
2. What went wrong
3. What we need to change
4. What we need to do to change itThis is also the ideal framework for
- daily huddles
- weekly meetings… x.com/i/web/status/1…— Josh Schultz 🏭🚀 (@joshuamschultz)
8:34 PM • Oct 19, 2024
THE STATE OF PRIVATE EQUITY IN 2024 (WITH DATA):
My oh my has this been a fascinating year. LOYAL readers of my work will have remembered that I was somewhat concerned about a few things in the market...namely the weird confluence of dry powder, longer holding times, higher… x.com/i/web/status/1…
— carried_no_interest (@carrynointerest)
3:22 PM • Oct 15, 2024
The biggest impediment to growth, is bureaucratic creep.
So what do you do?
In order to scale you NEED to create structure, responsibilities, and accountability.
While this allows a divide and conquer among a united small team, it creates massive negative consequences of
-… x.com/i/web/status/1…— Josh Schultz 🏭🚀 (@joshuamschultz)
3:50 PM • Oct 15, 2024
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:
Global Central Bank Update:
-ECB cut rates for the 3rd time this year, 25 bps move down to 3.25%.
-Philippines cut interest rates for the 2nd time this year, 25 bps move down to 6.00%.bilello.blog/newsletter
— Charlie Bilello (@charliebilello)
1:57 PM • Oct 17, 2024
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.
What if leads or inbound increased 10%
What if prices increased 10%
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.
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