Section 1: Why Create Standard Operating Procedures
What Is a Standard Operating Procedure?
A Standard Operating Procedure is a set of instructions used to train and onboard your employees to complete a task. Standard Operating Procedures are the foundation of building a business that can thrive without you which gives you the freedom to work when and where you want.
Standard Operating Procedures allow you to provide your customers with a consistent experience and minimize your time spent problem-solving. Standard Operating Procedures help you train new employees, so you avoid repeating yourself every time you have someone new join your team. Standard Operating Procedures also help train existing employees, so they feel more confident in their jobs.
The ultimate benefit of creating Standard Operating Procedures is that when your company can thrive without you, it’s worth more to a buyer. Finally, Standard Operating Procedures allow you to avoid (or minimize) an earn-out.
Let’s explore each of these reasons to create Standard Operating Procedures in more detail.
Standard Operating Procedures: The Foundation of a Business That’s Built to Sell
Why did you start your business? Was it because you had an idea? Were you striving to become rich? Or maybe it was out of necessity?
While these are all common inspirations for starting a business, most people choose entrepreneurship because they want freedom. Freedom is one of the most fundamental human desires. Freedom is the choice to do what you want, with your time and energy.
Starting a business offers the chance to build a life of independence but just starting isn’t enough. Most companies are dependent on their founder so paradoxically, many owners have less freedom than if they had opted for a 9 to 5 job. When you work for someone, you put in your time, and then – unless you have a very senior job – you clock out. You go home and enjoy your free time.
Most small business owners never really leave their business. They are the ones opening in the morning and often closing in the evening. When owners are away from their business physically, most are never far from their company mentally.
When Tim Ferriss, the bestselling author of The Four-Hour Work Week was asked why he sold his business that was taking just a few hours per week to run, he said, “my brain felt like a computer running antivirus software in the background. Even though the company didn’t take much time to run, it was consuming more than 10 percent of my mental energy.”
That’s the contradiction of entrepreneurship. The career path that has the potential to offer you the most freedom is also the least likely to offer it in the beginning.
Most businesses start when the founder has what Michael Gerber, the famed author of The E-Myth, refers to as an “entrepreneurial seizure”. Gerber was describing someone who has a technical skill and decides to start a business. The problem is, when you are the one with the expertise, you are required to make your business function. It means that most small companies never become more than a job for their founder.
For example, if you look at the statistics in the United States[1], you’ll discover the Small Business Administration claims there are more than 30 million small business owners in America. That sounds like a big number but if you look closer, you’ll see that roughly 23 of that 30 million do not have a single employee. They are self-employed individuals with a skill. They are copywriters, and plumbers, Uber drivers, and lawyers. They are freelancers who only get paid when they work. They are held hostage by their business and have much less freedom than if they went to work for someone. At least as an employee, they could clock out and go home.
If freedom is your goal, Standard Operating Procedures are essential. A Standard Operating Procedure allows you to train your employees to handle a task the way you want it done. This means your employees are trained to do things your way. You are essentially replicating yourself and allowing your business to run just as smoothly whether you are there or not.
How David Jondreau built American Sign Language to Sell
Frederic Jondreau started American Sign Language in 1987. If you have ever watched a politician give a news conference, you likely noticed a sign language interpreter over their shoulder. That person was probably hired through a staffing agency like American Sign Language.
Frederic was a legend in the sign language industry and had relationships all over the country. When an event organizer needed a sign language interpreter, they called Frederic who relied on a massive network of interpreters he had on speed dial.
Tragically, Frederic died of a heart attack in 2004 leaving his son David and daughter Jennifer to pick up the pieces. It was a very difficult period. Not only were David and Jennifer mourning the loss of their father, but they were also trying to piece together a business that resided mostly in Frederic’s head.
Frederic relied on his charisma and connections to build American Sign Language, but David and Jennifer were wired differently and neither had the industry connections of their father. David and Jennifer had to find the phone numbers of the interpreters their father had used in the past. They needed to gather contact information for event organizers and event producers.
It was a mess.
Over time, David and Jennifer started to cobble together their systems for running the company. They developed a database and created Standard Operating Procedures for placing translators. They developed a Standard Operating Procedure for bringing on a new interpreter and a Standard Operating Procedure for placing an interpreter at a location.
David also replaced his father’s charismatic sales style with a Standard Operating Procedure for responding to Requests for Proposals which are the standard way government organizations and school boards hire interpreters.
The business started to become successful again. Thanks to his Standard Operating Procedures, David and Jennifer won the largest contract in the company’s history from the New York City school board. It doubled their business and led to an acquisition offer from New Language Capital, a private equity company rolling up translation businesses.
Standard Operating Procedures: The Secret to Happy Customers
Satisfied customers are the lifeblood of any business. When a customer is pleased, they are likely to come back. They are also inclined to tell their friends and colleagues about your company which creates organic growth through repeat customers and referrals.
Now ask yourself who among your employees offers the best customer experience. For most smaller companies, the founder is the person that most consistently delivers for customers. You have the most knowledge of your product or service. You have the most experience to share with your customers and you are the one who cares the most.
That’s why most customers would prefer to deal with the owner of a business. If you’re customers demand that you look after them, your business is going to require you to work all of the time. Most founders can’t or won’t do that, so they empower employees to interact with customers.
It’s only natural that employees usually care less and lack your level of industry knowledge. Therefore, the experience of buying from your company suffers and customers want you to stay involved. This means the growth of your company will usually stall at a few hundred thousand dollars in revenue because there are only so many hours in any day you can personally devote to serving customers.
The secret to getting your employees to offer an owner-like customer experience is to document your expectations of them through Standard Operating Procedures. A Standard Operating Procedure will show an employee how you want them to handle a specific task which enables employees to treat customers the way you would want them treated without having to look over their shoulder.
A Standard Operating Procedure also means that your customer will receive the same experience regardless of which of your employees happens to be serving them. This consistency across your front-line employees means customers know what they are getting when they do business with your company which allows you to build a brand in the mind of your customers.
Standard Operating Procedures: Minimizes Your Time Spent Problem Solving
In his global bestseller, The 7 Habits of Highly Successful People, Stephen R. Covey provides his instructions to readers who want to emulate the number one habit of the most successful people in the world: “Be Proactive”. Covey describes the importance of picking your priorities and goals and relentlessly carving out time and energy to proactively focus on your “Big Rocks”.
The opposite of being proactive is spending your day reacting to situations. The least successful people in Covey’s research let others dictate how they invested their time and spent their waking hours fighting fires.
Standard Operating Procedures allow you to pre-empt most questions your employees will have so that they don’t come to you with problems. The more issues you can anticipate and document in a Standard Operating Procedure, the less likely you will be called in to fix a problem.
Most importantly, when you invest time in creating Standard Operating Procedures, they act as instructions for your employees when you are not there. They can operate independently which frees you up to focus on your most important projects. In other words, to be proactive.
Standard Operating Procedures: Help You Train Confident Employees
Take a moment to reflect on how you like to spend your time. If you’re like most entrepreneurs, you enjoy thinking of new ideas and problem-solving. You are energized by the life of a founder, and you love the fact that no two days are the same.
Have you ever stopped to think about what your employees like? Or how they may be wired differently? Unlike founders, most employees do not like uncertainty. Instead, they want a sense of mastery in their job. They love the feeling of doing good work, pleasing customers, and generally feeling confident in their professional life.
This difference between what makes an entrepreneur thrive and how their employees excel is why many founders have a blind spot when it comes to training employees. Most founders learn by doing. When they get a new piece of furniture to assemble, they throw out the instructions and start experimenting, but your employees need instructions.
They crave instructions.
They want the recipe card for doing their job right. That’s why Standard Operating Procedures can be so important for training your employees. They give your people clear instructions for mastering the main tasks that make up their job.
Standard Operating Procedures build confidence from the instructions you provide, and that confidence becomes contagious. Your other employees, suppliers, and customers like being around confident people so the more you can document an employee’s job into a set of Standard Operating Procedures, the more confident and infectious they become.
Standard Operating Procedures: Help You Train New Employees
If you like the entrepreneurial lifestyle where every day is different, you probably hate repeating yourself.
For someone who likes variety, there is nothing more annoying than being asked the same questions again and again which is another reason you need Standard Operating Procedures.
Standard Operating Procedures allow you to document your instructions for new employees once, then every time you hire a new team member, you can simply point them to your Standard Operating Procedures for getting things done.
Having Standard Operating Procedures for new employees is critical to ensure new employees know your way of doing things. As your company grows, you will get further and further away from your front-line employee and that means your message for how you may want things done is diluted or muddled. You need only play a game of broken telephone to know just how distorted your instructions may become through a few layers of management.
With Standard Operating Procedures, you can talk directly to new employees on their first few weeks on the job and explain exactly how you want things done. This enables you to standardize your customer experience and grow your business without losing your soul, diluting what made you successful in the first place, or creating chaos along the way.
If you have a spike in demand and need to hire a few employees all at once, Standard Operating Procedures also help you manage an influx of newbies without overwhelming your time.
Most importantly, Standard Operating Procedures for training new employees means you can stop repeating yourself which is a tantalizing prospect for most founders.
Standard Operating Procedures: Make Your Company Worth More
When a financial acquirer evaluates your business, they are trying to understand how much profit your company will make in the future.
Acquirers use a modeling technique called Discounted Cash Flow (DCF) to estimate what they are willing to pay for your future stream of profit. Rather than get into the math behind the calculation, you simply need to know that the riskier they view your future cash flow, the higher the discount rate they will apply, leading to a lower valuation of your business.
Standard Operating Procedures give an acquirer confidence that your business will continue to succeed after you leave. They will see your future profits as less risky and therefore apply a less punitive discount rate leading to a better valuation.
Financial acquirers are also looking to understand how well your company would perform with a substantial injection of new capital. They want to understand if your business has the structure to handle the increase in volume their money could provide. If your business is duct-taped together with a few rules and loosely understood guidelines, they will see the equivalent of a house of cards.
By contrast, if you have invested time to build out your Standard Operating Procedures, an acquirer will assume your business is built on a solid foundation — a 24-inch pad of concrete to extend the housing metaphor. They will know that an injection of fresh capital should directly translate into a larger business rather than topple a shaky structure.
Standard Operating Procedures: Help You Avoid an Earn-Out
When you sell your business, you are likely going to have to participate in a transition period where you work for your acquirer for a while. If your future projections seem shaky to an acquirer, or they view you as the lynchpin for making their investment pay off, an acquirer will put some of their offer in an “earn-out” which is a set of targets you need to hit in the future as a division of the acquirer’s business.
Standard Operating Procedures help you minimize the proportion of your acquisition proceeds that are at risk in an earn-out by making the case your business does not depend on you.
Most owners will tell you that an earn-out feels like a jail sentence. They toil in the bowels of a giant organization where every decision they take is dissected by management.
The alternative is to take your medicine upfront. Spend a few weeks documenting your processes for doing things in your company so that you can make the argument to an acquirer that your company can thrive without you. That in fact, there is no need for an earn-out.
That’s exactly what Jodie Cook did.
Cook is the founder of JC Social Media which she built to around 20 employees. She was keen to see her company succeed without her, so she positioned a staff member as her company’s spokesperson for media interviews. She kept a log of every time an employee asked her a question and set about transferring her tacit knowledge to her team.
Cook also created Standard Operating Procedures. She identified approximately 50 recurring processes and wrote down her instructions in a set of Standard Operating Procedures. She explained everything from how to answer the phone to how to run payroll.
As things changed, Cook updated her Standard Operating Procedures. When employees asked a question, her automatic response was to point them to a Standard Operating Procedure.
With Standard Operating Procedures in place, JC Social Media started to thrive without Cook overseeing things day-to-day.
In 2020, Cook decided to sell and thought her business could be worth 5-7 times EBITDA.
Cook’s first offer was for five times EBITDA with approximately 20% of her potential proceeds tied to a three-year earn-out. Cook realized she had failed to make it clear just how well her company ran without her.
Cook continued to market her company to buyers, but this time went out of her way to explain how well the business ran without her involvement thanks to her Standard Operating Procedures. She showed acquirers her Standard Operating Procedures and explained the lengths she had gone to make herself redundant. She received two additional offers and accepted one at the top end of the range she was hoping for.
She left two weeks later.
If the idea of an earn-out sounds like a jail sentence, take your medicine upfront. Invest a few weeks in the painstaking process of documenting your Standard Operating Procedures so that an acquirer will be able to run your company without you, enabling you to ride off into the sunset, cash in hand.
Section 2: What to Document in Your Standard Operating Procedures
The power of Standard Operating Procedures is clear. The question you may be asking yourself now is “What processes should I document in my Standard Operating Procedures?”
One of the most common misconceptions about Standard Operating Procedures is that their creation relies on a grand strategic plan and requires months of thoughtful planning.
In reality, the people who work in small businesses need practical, tactical advice for getting tasks accomplished rather than a theoretical, grandiose strategy which is something the late Bernie Goldhirsh understood.
Goldhirsh got his start in magazine publishing as the founder of Sail Magazine where he published practical articles for sailors who relied on the magazine’s hands-on tips for maintaining their vessels. Goldhirsh’s vision for Sail was to be the new yachtsman’s owner’s manual for his boat.
As Goldhirsh taught himself the business of magazine publishing, he realized there was no owner’s manual for running a small business. Like first-time sailors, new entrepreneurs also needed down-to-earth advice on how to set up, run, and maintain a business. Goldhirsh decided he would start Inc. magazine in 1979 with a vision to become the small business owner’s user manual for their company.
Inc. became the most successful small business content platform in the history of entrepreneurship. Inc. also spawned the world-famous Inc. 5000 list of the fastest-growing companies in America.
Small businesses do not have a need for grand strategic theories – instead, they need hands-on advice. Where big businesses need strategic plans executed by Six Sigma Black Belts, small businesses — and the people who work for them — need practical tips, actionable guides, and how-to manuals.
Therefore, when it comes to documenting your Standard Operating Procedures, stick to tactical instructions for getting things done inside your business.
Avoid the temptation to provide protracted systems better suited for a large enterprise. Don’t get buried in a 36-step process suited for an ISO 9000 factory. As the old saying goes, don’t kill a mosquito with a sledgehammer. A good Standard Operating Procedure in the hands of your employees today is worth a thousand great Standard Operating Procedures in your head.
At a minimum, consider creating a Standard Operating Procedure for each of the following items:
Your Way Of Serving Customers:
- Standard Operating Procedure for your front-of-the-house: Restaurants refer to the “front-of-the-house” as the place where the customer experiences their food. Regardless of what industry you’re in, you probably have a way you want customers to be treated in your most common interactions with them. Create a Standard Operating Procedure for your most important moments with your customers so employees know how you want customers treated.
- Standard Operating Procedure for email communication: brands are built on consistent communication so if there is a specific way you want your employees to create their email footer or font you want them all to use, create a Standard Operating Procedure.
- Standard Operating Procedure for using your company logo: like reputations, brands take years to build and seconds to destroy. That’s why it’s critical your logo always appears in the same way whenever your employees use it. Create a Standard Operating Procedure to show them how you want your logo displayed.
Behind The Scenes Functions:
- Standard Operating Procedure for entering a customer into your database: it is important that critical customer information is kept organized and formatted consistently which is why you should create a Standard Operating Procedure for creating a new customer in your systems.
- Standard Operating Procedure for billing your customers: cash is king for any small business so consider a Standard Operating Procedure for generating invoices or billing customers so that anyone can follow your process when your bookkeeper is away.
- Standard Operating Procedure for collecting cash: like billing, if you give your customers time to pay, develop a Standard Operating Procedure for collecting receivables.
- Standard Operating Procedure for onboarding a new employee: first impressions matter for customers, and they are even more important for your employees. Nail the first few days of their time with you and you’ll create a loyal employee. Create a Standard Operating Procedure for how you will onboard them considering things like how your team can set a new employee up in your payroll and employee benefits systems.
The Standard Operating Procedures above are not intended as a comprehensive list but rather as a tonic for your brainstorming. Keep thinking about what questions you get when onboarding new employees and your list of Standard Operating Procedures will likely grow.
Avoid Generic Templates When Creating Standard Operating Procedures
Your business is unique so avoid generic templates that lump you in with everybody else. With limited resources, you set yourself apart by offering unique experiences to your customers.
Your DNA is what keeps customers coming back and what sets you apart from the better-financed giants you compete with. That’s why it’s important to avoid the temptation of leveraging a template to create a Standard Operating Procedure.
Templated Standard Operating Procedures by their nature are generic and can be used by lots of companies. With a Standard Operating Procedure template, you’re commoditizing who you are. You’re not looking to create a ‘me too” company. Instead, there is a special way you approach your business which is why leveraging templates to create your Standard Operating Procedures undermines your point of differentiation. Instead, create original Standard Operating Procedures that illustrate how unique your company is.
Templates are also too long. They must account for every permeation and situation so by their nature, templates are overly complex. When it comes to creating and consuming Standard Operating Procedures, simpler is better.
Section 3: How to Create Standard Operating Procedures
By now you’ve likely started to turn your attention to how to create Standard Operating Procedures. You may be experiencing a sense of overwhelm and dread as you conceive of how long it will take to write your Standard Operating Procedures.
But before you start typing, consider your own preference for learning new techniques. Think back to the last time you purchased a new gadget, tool, or piece of technology. Did you read the instructions manual that came with the product? Maybe, but if you’re like most people, you went to YouTube first to see if someone has created an instructional video.
Consider the last time something broke around your house. Did you look for written instructions or start a YouTube search with “how to…”
YouTube has become the default learning center for most new products for a simple reason: it’s much easier to learn a new task from watching a video than reading instructions.
Remind yourself what it felt like to be in math class. Did you like reading the textbook or did you prefer watching a teacher show you how to solve a problem step-by-step?
If you were going to try and explain to someone where the city of Sochi is, would you write up a description or show them on a map?
They say a picture is worth a thousand words. If that’s true, a video must be worth an entire library. Rasmussen University reports there are four learning preferences:
Visual learners
Visual learners absorb information best when they can visualize relationships and ideas. Maps, charts, diagrams, and even essays work well for visual learners. When instructors illustrate or diagram their lectures on a whiteboard, visual learners may find they remember the information much better.
Haynes finds that visuals are pretty essential for all students when it comes to subjects like geometry. “I suggest that it’s a more visual approach, but it’s really more of a way to avoid making mistakes. I instruct students to always draw the shapes if they aren’t presented, fill in the pieces, etc.”
Auditory learners
Auditory learners are all ears. They tend to prefer listening to information rather than reading it or seeing it visually displayed. Auditory learners may speak and read slowly. They tend to be linear thinkers and may repeat things they hear out loud. When it comes to studying, an auditory learner might remember material best if they talk about it with someone else, since it will be easier to recall a conversation than a visual image of words on a page.
Kinesthetic learners
Kinesthetic learners are the most hands-on learning type. They learn best by doing and may get fidgety if forced to sit for long periods of time. Kinesthetic learners do best when they can participate in activities or solve problems in a hands-on manner. Sometimes even being physically engaged (tossing a ball, knitting) will help them retain information better. They tend to remember what they do best.
Reading & writing learners
Reading and writing learners are extremely comfortable with the written word. They prefer to consume information by reading texts and can further absorb information by condensing and rephrasing it. The traditional college textbook and annotation process work well for the reading/writing learning style.
Notice how written instructions only engages one of the four learning styles whereas a video engages the three most prevalent learning styles: With a video, a visual learner can see your directions on-screen, an auditory learner can hear your instructions, while a kinesthetic learner can learn by doing the task as you show them on screen.
That’s why employees are 75% more likely to watch a video than a read document, email, or other written source. Sixty-nine percent of employees say they would rather learn a new skill from a video than a written document.
These data points are compelling on their own, but consider the context your employees grew up in. If you have people under 40 on your team, they grew up in an era where YouTube is a far more dominant medium than the local newspaper.
Younger people today spend more time watching videos on TikTok than they do reading books or magazines. Video has become their dominant medium for consuming information. The average attention span of a millennial is about 90 seconds and by 2030, they will make up 90% of the workforce.
And it’s not just millennials who prefer video. Most of us would rather watch a quick video rather than pour over a detailed set of written instructions and viewers remember 95% of a video’s message compared with just 10% when reading text.
Even better, shooting a quick screen flow of you performing a task on your screen is infinitely faster than trying to create a written guide for employees to follow. Video is faster to create and easier for users to absorb which leads to higher adoption rates.
Therefore, instead of writing up your Standard Operating Procedures, use video as your primary medium for explaining how you want things done.
Keep Your Standard Operating Procedures Short
TikTok limits videos to 60 seconds. Twitter caps posts to 280 characters. We live in a time where less is more, and our attention spans have shrunk. Therefore, when creating Standard Operating Procedures, aim to make short videos of less than two minutes in length.
Show your employees how you want them to perform a specific task and if you need more than two minutes, break your instructions up into a few shorter video steps.
Standard Operating Procedures Should Be Available Where Employees Need Them Most
Gone are the days you could hand a new employee a binder and feel confident they will learn their way around. Many employees have moved to remote work permanently and most of your team likely work from home at least some of the time. This makes storing your Standard Operating Procedures in a binder impractical.
Ideally, your Standard Operating Procedures should be cloud-based and appear where your employees do their work so that they can access them just-in-time without having to sift through a massive Google Drive or Dropbox folder.
Footnote:
[1] While the numbers are different in every country, the proportion of self-employed to employer-based companies is roughly the same in virtually every Western democracy.
