Sunday, June 12, 2011

Business lessons from a paper route: Managing growth

When I became a paperboy, I had between 30 and 40 customers on my route. That was a manageable number. I usually could put all of my papers in my bag or in my bicycle’s baskets. When the weather was good and the papers were small, I could finish my route in under an hour. Bigger papers required several trips, and on the days when the papers were larger, the route took longer. When the weather was bad, the route did not take longer, but it seemed longer.

One of the things I learned fairly quickly as a paperboy was that my income was limited by the number of papers that I delivered. I did my best to get the papers to customers on time and delivered where they wanted them. Paying attention to whether the paper went on the porch or behind the screen door or under the mat made a big difference in how big a tip customers added when I collected. However, I was still limited. It did not take me long to figure out how to make more money. I had to grow.

Now that I know something about business, I know that the two main ways to grow a business are:
  • Organic growth
  • Acquisition
Then I knew that my options were to hustle for new customers or to take over another route. I knew that some of the older paperboys had 70 or 80 or more customers. I was already busy selling subscriptions to new customers. I started planning how to get a new route. Paperboy turnover was fairly high, so I knew that I would get an opportunity.

As luck would have it, the next available route was the one adjacent to mine. I would be able to add 30 or so customers simply by agreeing to add them to my route. I had just learned my first lesson in growing a business. Acquisition is faster than organic growth. Unfortunately, that was not my only lesson in growth. I was about to learn about capacity, customer management, and ultimately failure.

As it turns out, one of the reasons that the older paperboys had larger routes is that they were bigger and stronger. They could carry more papers, and they could travel longer distances with heavier loads. Once I added extra customers, I could rarely finish the route without making two trips, and it often took me three. I was rarely able to finish the route in less than two hours. It took me so long to deliver the paper when I was collecting payments each week that I had to separate my collections into two days.

These problems with the route quickly became customer service problems. When I could deliver the paper in an hour, it was easy to deliver the paper on time. Once the delivery time crept up to two and three hours, the papers were late. Another thing that happened is that I began losing track of customers. It was easy to manage 30 or 40 customers. I had a simple card system, and since I saw each customer once a week when I collected, I could make notes about starting and stopping the paper or other requests. It was much more difficult to manage the process with 70 customers. I began learning ways to manage larger numbers of customers. Sadly, I did not do a very good job, so I also began learning how to work with unhappy customers.

Finally, I learned about failure. While I wanted to have a larger route so that I could earn more, I was not able to manage it. The result was unhappy customers. Unhappy customers meant fewer tips. Since tips were a large part of my income, I actually found myself working more than twice as hard and making just a little more money. The next thing to happen was that customers started complaining to the paper or canceling their subscriptions. In the end, I gave up most of my new customers, and it was not too very long before I gave up my paper route. (I started working a new route for a different paper, but that is another lesson.)

So what lessons about managing growth can a modern business person learn from a paperboy? The first is to have a clear understanding of your objectives and plan accordingly. What do you want to do? Do you want to grow slowly and steadily? Do you prefer rapid growth? Consider the two paths: Organic growth which builds an organization slowly or acquisition which can build an organization faster. I thought that acquiring an additional route would be faster and easier than growing by adding customers one at a time.

The next lesson is to understand capacity. Companies that grow organically generally increase their capacity as they increase the number of customers they serve. They may still be limited by capacity constraints, however. Companies that grow by acquisition should pay close attention to capacity. While they may think that systems are compatible, they may find that they have a larger customer base that they cannot serve because they are limited by their capacity.

Another lesson is to pay attention to logistics. While I was able to take over the route next to mine, part of the route was on the other side of a busy street. When I took over the new route, I had to figure out a way to make deliveries without crossing that street. I also had to figure out how to carry more papers over longer distances because my new customers were further away from the paper drop off.

What this means to you
If you are looking for ways to grow your business, take a moment to think about your objectives and how you might accomplish them. When you are planning, be sure to think about how you want to grow. Consider your capacity and logistics and how you might increase your capacity as you build your business.

It has been a long time since I was 14 and riding a bike with baskets full of newspapers or walking down the street with a canvas sack full of the day’s news. However, the more I learn about business the more I realize that I learned important lessons on that paper route. Who knows? Maybe the next time you hire someone to manage your business, instead of asking where they got their MBA, you should ask them about their paper route.

Saturday, June 4, 2011

Because there is more to life than just work: Vacations are good for you

I learned an important lesson early in my career. Mike, my sales manager, told me that vacations are important.  I did not believe him. It is counterintuitive that taking time off could increase your output and income. There are only so many hours in a day and the more of them that you use for work, the more successful you will be. That just makes sense doesn’t it?

Yes and no. All other things being equal, the more hours you work, the more you will produce. Checking your Facebook page when you should be working on a project will make you less productive. However, all other things are not equal, and production can be difficult to measure. I am a CPA, and in the simplest terms, I work (and bill) by time. Like many professionals, my productivity can be measured in terms of billable hours. Measuring my productivity becomes a little more complex when looking at the bigger picture. Consider the things that I do that are not billable. I study to keep abreast of changing regulations and to increase my knowledge. I take time to listen to my clients express their concerns in ways that may not relate directly to the work I do for them.  I am an active participant in my professional association. None of these things add to the bottom line. However, they do make me a better accountant, and they help me do a better job for my clients. In the long run, this will increase my value to my clients and to my firm.
What about vacations though? Can they improve productivity? If you take time off from work, will you actually be better at work? My sales manager thought so, and he was the kind of person that thought that a 60 hour work week was taking it easy.
In college, I raced bicycles. We rode our bikes every day, and we pushed ourselves. I was always tired. One of the people I rode with was an incredible athlete, and she was invited to the Olympic Training Center.  When she returned from the OTC, she shared her new training “secret.” It was simply that to be a better athlete, work harder. In order to work harder when you work, rest! We started taking rest days, and we began alternating hard riding days with easier days. The result was that I could ride faster and further.
This same concept applies to work. Time away from work gives you the opportunity to refresh your mind and body. It does not matter what you do for vacation. Whether you were sipping umbrella drinks on a beach, climbing a mountain, canoeing in the wilderness, visiting family, or simply staying home and hanging out around the house, when you return to work, it will seem easier, and you will be a better worker.
Does this seem too good to be true? Consider the French. With short work weeks and a lot of vacation, the French are often derided unproductive, and whenever the French economy slows, many people are quick to say that the French should work more. However, a 2004 report by the National Bureau of Economic Research pointed out:

Over the past 30 years, productivity growth has been higher in France than in the United States. Moreover, productivity levels are about the same between the two countries . . .  France's GDP per person stands at 71 percent of GDP per person in the United States, largely due to the French working two-thirds as many hours as their American counterparts.

That suggests that the French produce nearly three-quarters of the output of the US even though they only put in two-thirds of the work. Part of the difference is that the French assign a higher value to leisure while Americans assign a higher value to income.
Do you encourage your employees to take time off to refresh? Are you planning a vacation this year?