It’s not luck, and it’s not the amount of cash that is poured into the business at the start. Both luck and money will eventually run out if the business is not being managed well!
What sets the most effective businesses in the world apart is continuous improvement – the tendency to consistently search for better ways of doing business.
Any business can apply a process of continuous improvement and see great results.This might include:
- Changing the products or services provided in response to the needs of the customers
- Introducing new, complementary products and services
- Changing the way that work is done within the business
- Changing the way customer service is done
- Changing marketing methods
In great businesses, this process of innovation is occurring constantly.
The people running these businesses are continually asking:
“How can we do this better?”
“What can we do to be more appealing to our customers?”
“What can we do right now that would have the biggest impact on profit in the long term?”
The good news is that any business can apply a process of continuous improvement and see great results. In the rest of this article, I’m going to show you the steps that you need to follow in order to create continuous improvement in your business.
How to do continuous improvement: small, measurable changes all the timeThe process of continuous improvement in a small business should go like this:
- Measure again.
Continuous Improvement Step 1 – StandardiseThe first step is to standardise the way you run your business. This is an essential starting point, because unless you run your business consistently you won’t be able to measure a set of “normal” results – your success will vary all the time because your approach always varies.
Write down your business processes.I recommend that a good way to standardise your business processes is to write them all down! You’ll then end up with documentation, describing the way you do business. This is useful for two reasons:
- First, by documenting the way you work you can understand what you should focus on when creating continuous improvement
- Second, if you ever want to hire someone to run the business on your behalf (for example, if you wanted to sell the business), it will be extremely useful to have documents to pass onto them, containing everything they need to know in order to work effectively
Continuous Improvement Step 2 – Measure (part 1!)When you have got a standard way of doing business, the next step is to measure the results you’re getting.
Measure how your business normally performs.Any outcome that is important for your business can and should be measured – number of enquiries, number of sales, operating costs, customer satisfaction, and anything else.
Here’s a trick you can use, to make sure that you’re measuring the right things in your business:
- Start with the big question: “How is the business doing?”
- Make a list of questions you would need to answer in order to properly answer the big question. For example, “How many new customers are we getting each month?” “How much money do we have to spend on marketing in order to get one new customer” “What percentage of our revenue is profit?”
- Everything you measure should relate directly to one of the questions in your list. These are the numbers you are going to try to improve through a process of experimentation (as described below)
In the next stage, we’ll see if we can improve some aspect of the business in order to improve those outcomes.
Continuous Improvement Step 3 – Experiment
Identify a small change you can make in your business.Once you know how well you are performing, you should perform an experiment. To do this, you need to identify a change you can make in your business that is likely to improve performance.
Once you have identified a change you can make within your business, don’t suddenly change the way you do business – instead, perform an experiment on a small scale.
In other words, don’t radically change the way you work (just in case this has a negative effect on your business). Instead, you may choose to change the way you work with a small number of your customers and see if you get better results in those cases.
Here’s an example:
Let’s say you have a new strategy for selling your products or services. You’ve thought of some new benefits you could emphasise in your sales pitch, when you talk to potential customers.
The old sales technique works fine, but you wonder whether you could do better selling in the new way.
In that case, you should do an experiment. You might use the new sales approach in one out of every five sales meetings you go to and see whether it seems to be more successful.
If our new approach really was better than what we were doing before, then the experiment was a success and we can start applying the new technique all the time.
However, it’s easy to decide that a new way of working is better even if it isn’t – this is called confirmation bias [link]. In other words, we often see what we expect to see! This does not help us to create continuous improvement. To avoid this, we need a scientific way of deciding which of two methods is better.
Here’s how you can do that:
Continuous Improvement Step 4 – Measure again
Use an online tool to measure your experiment.Assuming that you have measured how well your business usually performs, this next step is about measuring whether a new approach (an experimental approach) delivers better results.
We’re going to use an online tool to tell us how likely it is that one approach is better than another approach, based on the results we achieve.
It’s designed to measure whether one webpage creates more sales than another, but it will work fine for any situation when you want to work out whether one version of something is better than another!
The tool we are going to use is here: http://getdatadriven.com/ab-significance-test
Lots of similar tools are available – just do a Google search for “split test calculator”. I like this one because it clearly explains what your results mean. Here’s how to use it.
First of all, draw a table like the one below and fill in the information you have gathered in your experiment. You can do this in a spread sheet tool (like Microsoft Excel) or on the back of an envelope with a pencil!
You should then go to the tool and transfer the information from your table. Row A represents the old technique, whereas row B represents the new technique. “Visitors on this page” is the number of times you tried the technique, whereas “The number of overall conversions” is the number of times you were successful with each technique.
Here’s how I would fill it in using the information in the table above:
When you enter this information, the results are shown on the right.
The tool says: ‘Test “B” converted 86% better than Test “A.” We are 99% certain that the changes in Test “B” will improve your conversion rate.‘
In a scientific setting, we would usually aim to be at least 95% certain before making a decision. However, in business we may have to make decisions before we are as certain as that.
In business, if you wait until you are 95% sure of something before you make a decision, you have probably waited too long. It is necessary to take risks and to keep moving forward.
For that reason, you can decide on what level of risk you’re willing to take on based on the circumstances.
Decide on a level of risk that works for you.If the change you’re considering won’t make a big impact on your business, and it will be easy to switch back to the old way of working if necessary, you might be happy with 60% or 70% certainty.
If the change you’re considering is high-risk (e.g. you’re planning on changing the services you offer in a way that will be hard to undo) then you might want to aim for a more scientific level of certainty.
I’ll let you decide what level of risk you’re happy with!
Using the tool above, you will be able to come to one of two conclusions. Either:
- The new way is better! You should change your business process documents (from step 1) and always use the new method
- The old way was better. You should make a note way that didn’t work as well and try something else.
For a systematic approach to doubling or tripling the profitability of your business, take a look at The Small Business Multiplier – a training programme for small business owners.