After 7+ years as the CEO of Jakt, I’ve begun to truly look at a company as a machine. A well-oiled machine is comprised of different systems that operate separately but are simultaneously intertwined.
If you run a service-based business (and this probably applies to other business models as well, but I based this on my experience running one), I have identified four main systems that you as a business owner, CEO, or entrepreneur will have to integrate and manage.
Throughout this article, I’ll continuously use the example of running a marketing agency. But this is the same way my service based business (SBB) Jakt, an NYC digital product studio, operates –and I’m sure your SBB does too.
At the end of the article, I’ll also touch on how to manage these four systems as you grow in revenue and people. So, let’s get to it.
System 1: New Business System
The New Business System is mainly focused on signing new clients. Here’s how it all works together:
The first step is to generate leads, which can be either inbound or outbound. I will explore this in more depth in the future.
Let’s use our example of a marketing agency. You can generate leads through a variety of ways: content marketing, PPC, Facebook ads, word-of-mouth, referral partnerships, etc. They all bring awareness to your company and, once people show interest in your services, they become a lead.
The New Business System is also in charge of qualifying those leads to make sure they’re a good fit to your business. If your agency only works with realtors, being approached by physical trainers is not worth much.
But the industry is not the only component.
Other things you’ll want to consider are budget, project type (i.e. what the customer wants), customer size, timing, etc.
Qualified leads move into the next step of the system –closing them. You can’t feed your family or make payroll with leads, feel me?
Think of the sales engines as a funnel: leads → qualified leads → clients. In a separate article, I will go much more in-depth into it and talk about how to optimize it —click here so I can let you know about future posts before anyone else.
What happens after you sign a new client to your business? Let’s move to the next system.
System 2: Production System
The Production System includes all processes, tools, and people that help you deliver your offered services to your clients.
The transition from the New Business System needs to happen as smoothly as possible, and you’ll want to connect both systems to make it a cohesive experience.
Let’s go back to our example. If the terms of the contract are that you’ll provide Facebook ads for XYZ Company, the Production System will be in charge of that. Your Facebook ads guy or gal (or yourself, more on this later) are part of this system. They will be the ones now engaging with the client –or an account manager that represents them– and doing the daily work.
One of this system’s focus should also be to increase your client’s lifetime value (LTV). It’s much cheaper to extract more revenue from current clients than finding new ones.
But how can you do that?
One option is to renew their contract. For example, if you signed with them for three months, you can renew the contract when it’s up. (Sidenote: much easier to do this when you deliver exceptional work).
Another option is to cross-sell another service. If you identify another problem that your business could help solve, you can sell that to them. For example, you could offer to now run their PPC in addition to the agreed upon Facebook ads management.
However, there’s a fine line between selling an additional service just because you can and staying focused on your core offering. Staying niche’d down and focused is important – but that’s outside the scope of this blog post.
The third option is upselling a service to them, which is not the same as cross-selling. If cross-selling is offering PPC after FB ads, upselling would be offering a $4,000/month FB ads package instead of the $2,000/month the initially were looking for.
And fourth and final option [I’ll cover in this post] is to expand your services with more of their products or divisions. This normally applies to larger companies. For example, if you’re running Facebook ads for one brand, but the parent company has other brands, you can try to land another of their brands as a customer.
Renewing, cross-selling, upselling, and expanding are great ways to build a solid revenue floor. Any new business then goes on top of that –which stops you from having a leaky bucket. You don’t want to add new customers just to lose previous deals because you then won’t increase your top-line revenue.
System 3: Back-Office System
So far, we have covered 1) how the New Business System brings clients, 2) how the Production System delivers the work.
But you already know that there are plenty of other elements that are needed to run a business.
The Back-Office system covers accounting, finance, HR, legal, rent, administrative work, executives, etc. The truth is, all of these tend to be overlooked because they’re not sexy. It’s cool to talk about marketing strategy and closing deals, right? They’re important, don’t get me wrong. But the Back-Office System can also make-or-break your company and is key to operating the machine and to your business growing and scaling.
How does this look in practicality?
For our marketing agency, this system will cover accountants to file taxes, lawyers to draft contract templates, HR people to hire new talent and set up payroll, finance manager to help with financial reports and analysis etc. Note: if you’re small, you might be handling a lot of roles yourself. But it doesn’t mean they don’t need to get done.
Everything else that helps you run the business belongs in the Back-Office. It works as the thing that supports everything else and makes them happen.
System 4: Financial System
And you might be thinking, doesn’t the Back-office overlap with the Financial system? I originally did have the Financial System as part of the back-office, but I decided to remove it and have it stand on its own legs because of its influence towards the survival of the machine.
The Financial System will be focused on ensuring the financial health of the company, which is mutually dependent on the other three systems.
Simply put, there are three elements to this system.
It can come from closing deals through the New Business System or from upselling/renewing through the Production System. The monthly payment from the client that your agency runs FB ads for goes here.
The second element is expenses.
There are three main expense buckets: sales and marketing (New Business), cost of services (Production), and operational costs (Back-Office).
Hiring a writer to produce marketing content or a Facebook ads specialist, or paying rent are all expenses from these systems.
And finally, this system is also concerned about Profits. That could be a 10k-word article by itself, but let’s just say for now that it comes from a simple equation: Profit = Revenue – Expenses. There’s obviously much more to it, so if you’re interested, here’s an article I wrote on cash flow and profit management.
Since I started Jakt, having a strong knowledge of finance and accounting has proven to be crucial to running a profitable and healthy business. That’s why we are now offering Accounting + CFO as a service so that agencies can have better quality service for less than a full-time hire. If you are an agency owner, you can find more information about it here.
4 Systems Takeaway:
For the machine to work, all systems need to operate together and separately. Here’s a visual representation of them:
Something that I do want to mention is that the people in charge of each system will evolve as you grow. When you are just starting up, you might be the one looking for clients, closing them, doing the work, etc. Later on, you might hire a salesperson or a specialist to take over one system. And with time, you might have a full team of people for each one (or even for each step inside of every system).
It’s part of the transition from working IN the business to ON the business. Want to learn more about how to architect a perfectly well-oiled machine? Sign up to my newsletter on the form below.
- If you want to see how all systems work together, you can download this chart I’ve prepared for you here.