How Do You Measure the Value of Implementing EOS?
“EOS” or the Entrepreneurial Operating System is a business management and leadership framework developed by Gino Wickman and discussed in his best-selling book, Traction. It has been implemented in tens of thousands of companies - from small startups to companies with tens, hundreds, or thousands of employees. As a comprehensive system, it addresses the six key components common to every business.
The companies implementing EOS examine their vision, structure, and every person in every role. They work to measure the business and set targets. They optimize fundamental processes and use new methods to interact with peers and the people that work for them. Companies learn to handle the challenges and seize opportunities of the business along the way.
Change is hard and expensive. Especially today, as we face the challenges of our public health crisis and the impact on the economy and our companies, we must be prudent with our investments. We must measure the return on those investments and the time spent implementing them. In this post, we will examine the value of EOS and how it affects three things:
The Valuation of the Business
Your company is unique. Each of you will find different answers to the value proposition of EOS. It is not for everyone. Some companies will find a return of tens or hundreds of times their investment. Others should not implement EOS at all. How will you measure the value of implementing EOS?
If you are an entrepreneur or business owner, you know the numbers. Most businesses fail. It varies by business sector, but generally, 50% fail in the first five years and 70% fail within ten years.
The reasons vary. An article on SuccessHarbor gives their top 50 list of why businesses fail. Some factors on the list EOS can’t help. Do you have a viable product that connects with customer’s needs in the market? If not, a framework can’t fix that. Do you have adequate working capital? EOS might be able to help you quantify how much you need, but it won’t raise the money for you.
The article states the top three reasons why businesses fail are: Lack of Planning, Leadership Failure, and No Differentiation. All of these factors are specific conversations in the first three days of EOS.
When we have the leaders in the room on the first day of EOS, our first topic is “Hitting the Ceiling.” Companies and their leaders do not grow in a straight line. They grow until they get stopped by something. It looks like the ceiling at the time. Once they face that test, one of three things happens; they fail, they flatline and don’t grow past that situation, or they breakthrough. EOS teaches specific management tools used to break through the ceiling. What is the value of that transition to the next level?
Risk is a pass/fail test. Pass and stay out of the 50% or 70% failure group. Yet you might be able to quantify success because as Rick Pitino said well, “Success is not a lucky break, success is a choice.” The gains from passing the “risk” test will be measured as operational benefits and in the increase in the valuation of your business.
Learn more about why businesses fail: SuccessHarbor - 50 Reasons Why Some Businesses Fail While Others Succeed
Entrepreneur.com - 10 Reasons Why 7 Out of 10 Businesses Fail Within 10 Years
Undertaking a transformational project like EOS is all about change. Let’s talk about that in three major categories and look at how to quantify the value in each category.
· Leadership, People and Culture
· Sales and Marketing
Leadership, People and Culture
What you do as a business leader and leadership team matters. The decisions you make to position the company for long-term viability and your day-to-day decisions either create profit or loss. EOS presents the opportunity to examine how you make those decisions. Are they based on fear or greed? Leadership and culture based on data instead of emotion can have a real return on investment.
During the EOS implementation, you will look at where you want to be in 10 years, a 3-year picture of what it looks like to move in that direction, a 1-year plan of what it will take to meet the revenue and returns for the fiscal year, and finally, 90-day goals, called Rocks are broken down by company and department. Individuals responsible for the Rocks report on them weekly to ensure they are completed by the end of the Quarter.
And that means having the right people…
Turnover is expensive. According to a study by the Society for Human Resources Management (SHRM), hiring the wrong person could cost up to five times a bad hire’s annual salary. The more important the leader, the higher the cost to be wrong.
Many factors may affect how EOS returns a measurable value in this category. By establishing a set of core values for the organization, you have a tool to determine who is the right person for your company. Then, the issue is; is the person in the right seat? Do they understand what it means to fulfill that function? Do they want it enough to do the difficult things necessary to get it done?
During the EOS journey, the leadership team establishes the key roles/functions for every job in the company then applies measurables to each job. The Operational Benefit will depend on how well you are doing this now. Are you conducting employee surveys at least every six months? Do you have a scorecard for every job in the company?
You have probably heard the ole saw, from management guru Peter Drucker, “Culture eats strategy for breakfast.” Your culture will deliver financial performance in a lot of ways. Perhaps the best measure of value is your own gut feeling about your culture. How would you rate it 1-10 with 10 being nearly perfect? If it is not a verifiable 8, there are dollars here.
Resources to learn more about valuing culture:
Forbes - 8 Ways Company Culture Drives Performance
SHRM - The Cost of a Bad Hire Can Be Astronomical
Sales and Marketing
The top four reasons companies succeed or fail in the Entrepreneur.com article above were all sales and marketing related; 1) deliver real value, 2) connect with the target market, 3) convert leads into sales, and 4) create a robust sales funnel.
Measurable value? Absolutely. The metrics are easy:
· Increased sales over the prior period
· Pipeline value by sales stage
· Average sale by product/service
· Conversion rates
· Customer retention and loss analysis
· Cost of sales
· Etc., etc., etc.
The scorecard will vary for each company. What EOS suggests you must do first, is examine what your purpose/cause/passion is, know your niche and your target market, what makes you unique, and what is the process to engage, sell, and support your customers. Instead of spending tens of thousands of dollars with a myriad of marketing/sales companies first start with the people that know your company best - your own leadership team. Not that outside experts won’t be helpful, but the operational benefit is to start with your own team.
More on Sales and Marketing:
Hubspot - The 5 Most Important Sales Performance Metrics Every Rep and Manager Should Track
McKinsey - Measuring Marketing's Worth
Stay tuned for Part 2:
How Do you Measure the Value of Implementing EOS?
We have not yet quantified what EOS means to Operations - the execution side of your business. That may be where you have the greatest expenses and the greatest benefits. Then we will examine the Valuation of the Business where you as business owners or stockholders realize the return on investment in stock value and the ultimate transition event.
We will show you some of the tools to examine specifics about your company and the areas you might see value. Finally, we will give some simple guidelines on the value of using professional EOS implementors.
Can't wait for Part Two... Schedule a chat with Jim or get the book Traction by Gino Wickman here to find out more about EOS:
ABOUT THE AUTHOR
Jim Brewer is principal for Brewer Leadership and a Partner with Mastery Partners. Brewer Leadership is a consulting practice that helps business leaders thrive by coaching the principles of accountability toward tangible goals, alignment around values, and corporate culture enhancement. Jim is a Vistage Chair and is also an implementation coach for EOS - The Entrepreneurial Operating System. Connect with Jim on LinkedIn or schedule time with him by visiting his website. (brewerleadership.com)