Why SOPs are Harming Your Business

Perhaps one of the most common things I hear that business owners want to achieve is standardization of the business. We want consistency, efficiency, ultimately to bring about scalability. And what scalability is, is that you have a few consistent inputs that bring a high level of output. It's a leverage technique. And the standard approach is SOPs. What I'm going to do in this session is talk about why SOPs and the standard approach is actually harming your business. I'd argue it's one of the worst things you can do. And I want to give you a new approach that is far more efficient and far more effective. Now, I don't want to bash SOPs because they were successful in the past, just with the modernization of business, if you're still using this approach, it's going to pull your business back. So let's talk about SOPs. Refer to my notes. I also have some scientific research that's been done to share some evidence around this new approach I want to reveal to you. Why do we want SOPs in the first place? Well, we have to understand is when we have a desired outcome, something we want to achieve in our business, and we look at the measurable result of that process, if the desired outcome and the actual outcome is not the same, that means there's something wrong with the methodology. Let's start off with the desire. The The first thing we desire when it comes to business efficiency is standardization of the business, meaning we consistently have a similar or consistent output. Secondly is we have quality control. This plays to not just manufacturing, of course it plays there, but also to professional services. At the end of the day, every business effectively is a manufacturer. We have raw input and we have an output and we want consistency. Our reputation will be Based on that, we want to have scalability. I mentioned that earlier. Sailability. It's like different than scalability. Sailability is a plug-and-play business. The most attractive businesses are ones where the acquirer can simply insert it absent the owner. I'll talk about sailability in a future release that we're gonna do, but let's dig into the SOPs. One of the most common refrains I hear is about McDonald's. I wanna have a McDonald's type business. We look at someone is flipping hamburgers there, cooking fries, and the output's consistent. If they're reading at McDonald's, you can literally go anywhere in the world and it's the same hamburger served over and over again. It's very consistent. You see standardization perhaps in the Amazon experience, Toyota, other manufacturers are known for this. They have absolute consistency. There was an old joke, it's no longer as relevant, but it does speak to this. Consistency of SOPs, it's about car manufacturers. US car manufacturer, they put a door on the car during the process, and if it fits well enough, fine, that's good. In Germany, when they manufacture a car, they put a door on, and if it fits well enough, pick the next door until finally the door fits perfectly. But in Japan with Toyota, they pick a door, it fits the first time. Now things have changed, but that was kind of historically accurate, and that points to the power of SOPs. There's great resources on this. One of my favorite books, and I know you've probably read it, it's called E-Myth by Michael Gerber. I had the opportunity to do a presentation with Michael Gerber back in 2015. Actually, maybe it was even earlier than that, 2010. We both keynoted at the same event in Mexico. We went out for dinner. He shared one interesting insight that I really feel compelled to share with you, 'cause I think it'll be a game changer when you understand this. I said, Mike, your thesis is so powerful. Go from working in the business to working on the business. I said, but how many entrepreneurs actually make this leap? And he said, it was kind of funny. Most entrepreneurs don't because we think it's a flip of the switch. That one day if we work hard enough in the business, that one day the business will run automatically. He goes, it's a throttle. We need to systemically, consistently extract ourselves from doing stuff to letting the business operate on its own. It's a throttle, not a switch. In fact, that's why I did my research and wrote Clockwork about how we extract ourselves out of the business. But one of the biggest challenges is SOPs and how we're approaching it. So let's talk about the standard approach. I'll tell you why it's not working, or at least not working well. And then a new approach that perhaps it sounds contrarian, but I wanna show some proof why this approach is far more efficient, far faster to do, and way stickier. It works way better. So what's the standard approach? We try to document everything. And what we do is we record a process in detail on a piece of paper typically, or maybe now it's online, but we go through it step by step. And there's even sometimes flowcharts, if this, then that statements in this flowchart. I was visiting my publisher, Penguin Books, and I remember going into my editor's office. His name was Kauschik and sat down with him and on his shelf, he had all these books piled up. And I asked him, I said, hey, those look great. There's that one book there. It was kind of covered with dust. It was super thick. I thought it was like the first printing of the Bible or something. I'm like, what book is that? Whose is that? He goes, oh, that's our SOPs. And he picked up and blew off, blew off that dust. I'm like, don't you read that? He goes, no, no, you learn on the job here. That's one of the major problems with SOPs. It's an overwhelming book, Bible for the business, if you will. And therefore many people aren't referring to it. We're learning on the job, which means we're learning different procedures and it can modify and change over time, which is actually inherent to a lack of consistency. So one of the major problems with SOPs is the consumability. It's too dense, too much, too long. It's not human nature to refer to the documents. We follow the path of least resistance, kind of like the flow of water. That's a challenge with SOPs. The other thing is SOPs, the inputs can change. I have a personal story. I was setting up an SOP, this is quite a few years back, about shipping books. To give context, with our books, I have a distributor through my publisher, which is Penguin. They handle the distribution. Occasionally we ship out books directly, so we have to have a shipping procedure. I spent a good 2 days documenting this, how to package the book. I took pictures of the special packaging. You need special packaging 'cause books can get damaged if it's in flimsy packaging. Corners can get bent up and so forth. How to ship through UPS. You gotta process the order a certain way, adhere the label, mail it out, tracking, confirm receipt, all that stuff. Took me quite a time to write this SOP, but at the end, I felt I had this pinnacle document. I put it down on Jackie's desk. She was my assistant at the time, and said, "This is what we're gonna follow." And I felt that that was no longer my plate until she came back the next morning and said, oh Mike, one problem with the SOP. What is it? UPS has changed this entire website. This isn't accurate anymore. Oh my God, redo it. So another challenge is these external dynamics that you build an SOP that's contingent and dependent upon external parties, and if they change some of their componentry, can overwhelm you. So SOPs, time-consuming to create, they're overwhelming to consume, and they dynamically change. And That is the reason I think SOPs in the traditional sense are no longer of value to us. I want to introduce you to a new model, and this is what I call the capture process. It's simple, and I hope you find it profoundly simple. And there's an element to it though that you perhaps are not aware of, and yet it's the most important part. And that's where I want to put our emphasis today. So what's the process? The capture is whatever it is you're doing is to record it. Now there's 3 forms of input or operations in a business. Computer, and for most businesses, we spend the majority of our time there. Physical is the movement of something or someone or something, moving a box, for example, or some form of verbal communication or explaining, telling someone something. All three of those can be captured through video recording and audio recording. Actually, it's probably in your pocket. Your smartphone can capture all three of those if you wish. You can just set it up to record what you're doing on the computer, or you can do it, record a movement or conversation. There's also, of course, screen capture software, which can watch the different tabs or areas you're working on while recording your voice. Even video of you explaining things. I'm not linked with in any way, but Loom is a great recording platform for this. So maybe you wanna consider Loom for some video recording and look into others too. So here's what we do is we record the process as we do it with a voiceover. This hopefully is not hot for you. When I meet with an entrepreneur and say, "Do you have any systems for your business?" Many will say, "No, I don't. I do it all in my head." Well, the reality is you have all the systems you need. They just happen to be in your head. So we simply need to extract what's already in your mind and document it, codify it. So as you go through your process, don't just record what you're doing, record what you're thinking about what you're doing. That's actually how you extract the systems. So maybe it's an accounting system and I'm documenting my process. When I make a decision or take an action, I simply explain, here's what I'm thinking right now and why I'm doing what I'm doing. So record the video explaining it. If it takes me 5 minutes to do a certain process in my accounting system, Maybe this video will be 10 minutes or 15 with the explanation, but now the consumer of this, which is the person I'm going to assign this SOP to, now knows all the logic behind it. So you've just captured a best practice, an established practice. Perhaps you know this, and hopefully you're already doing this, but here's another step. This is the one that most people miss on. When you assign to the next person, have them follow this protocol, but within a near or short-term time period, have them record a video teaching the process, the same SOP with maybe they have their own variants. This is the reason why, because The best student is always the teacher. An SOP, a new standard, is only transferred when the person is capable of teaching it because they know inherently. This is rooted in a concept called the protégé effect. A classic case study was documented in the journal called Science by Micheline Chi in 2007. What they studied was students who expected and were explained to, but were expected to teach what they learned exhibited greater learning and greater understanding greater recall of what they were about to experience or they experienced in learning because they were gonna teach it. When there's a compulsion to teach, or in this case, when you're required to teach, you will learn it more deeply. That's the key. So the lesson here is don't do SOPs in a documented standard. Instead, do it as a capture, record the video, explain what you're doing, the process, and then when you assign it to the person to do it, have them record the new SOP. Now there's a second benefit. I did this with Jackie, as referring to earlier with the book shipping. When I had her record the process, it was now permanently saved to her new standard. She had found new ways to do this more efficiently, better packaging to use, and we stored it on our system. When we did this, Jackie actually left the organization to start a family. She left, her knowledge didn't leave. So you are able to retain the ongoing and growing knowledge of an organization by doing the process this way. We store the files, these video files, in a G drive. We use a folder system, but there's other great tools out there. I'm not endorsed by any of these folks. I'm not associated with them, but you may want to check out Trainual, T-R-A-I-N-U-A-L, so like manual training, Trainual, Process Street, SuiteProcess. Those are the three of the ones that I commonly hear that are designed to record and store these and make them easily accessible. I want to end this summary SOPs and the new approach captures by giving you a couple action items. First, identify one thing that you will bring about in this new capture, this new SOP. Now here's the challenge: pick something that you do repetitively, that's obvious, but secondly, you like to do. This is also another contrarian opinion. I'll actually probably do a video dedicated to this, but when you assign out something you like to do, you are now forcing yourself to stop doing the things you shouldn't be doing. So there's a behavioral trick here. It actually is the better form of delegation. Classic teachings say assign out something you hate to do, and that often results in abdication. We don't monitor and control it. So something you actually like to do and do repetitively is the best thing to assign out. It'll force you to perform at a higher level of leadership. The next thing I want to share with you is if you want to dig in even deeper, besides doing one task, have your team members maybe do this with a fellow team member so you can build redundancy. One team member does a capture of a process, teaches it to another, then records it again so they've proven they understand it. And now you have 2 team members capable of doing a process. That builds some redundancy. That's the bigger step. I always believe this, and I'll conclude this video this way. Start slow and let it grow. Hopefully you have a new perception, a new profound idea that you can deploy in your business, but do not know anything until you do something. I remember my son coming to me saying, "I know that, Dad. I already know that." But he wasn't doing it. So I said, I don't know if you know it because you're not doing it. And that's true for you and me and all of us. So I want you to take the bite-sized piece and pick one self, one thing that you do yourself, assign that out by recording yourself, recording your thoughts, capturing it, giving someone else. Make sure it's the thing that you do repetitively and it's the easiest thing to do. You'll start this process of improving your business, no longer using SOPs.