EOS is just that, an Operating System

EOS is just that, an Operating System

Welcome to those unfamiliar with EOS, the Entrepreneurial Operating System. This system aims to bolster businesses by synchronizing six key components that optimize operational effectiveness. These components include:

  1. Vision
  2. People
  3. Issues
  4. Traction (meetings and goals or “Rocks”)
  5. Processes
  6. Data

I advocate for EOS, as every company should utilize a system that enhances its performance. However, through my experiences working with clients implementing EOS, I’ve realized that it serves primarily as an Operating System rather than a business model that creates an agile growth company.

As defined by Wikipedia, an Operating System is “the software that supports a computer’s basic functions, such as scheduling tasks, executing applications, and controlling peripherals.” In a business context, I describe it as “a framework that underpins a company’s essential functions, like establishing a vision, assembling the right team, refining meetings, setting goals (rocks), and so on.” Although I risk ruffling the feathers of EOS Implementers®, I contend that EOS meets these criteria to a certain extent but often falls short of empowering companies to construct a growth engine.

Let’s delve into what is required to create a growth company.

 

The Hedgehog Concept

In Good to Great, Jim Collins discussed the Hedgehog Concept named after Isaiah Berlin’s essay, “The Hedgehog and the Fox,” dividing the world into hedgehogs and foxes. The theme is based on an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.” Collins found that those companies that became great followed the Hedgehog Concept. Those companies which didn’t tend to be foxes never gained the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent. 

The Hedgehog Concept is based on the questions prompted by the three confluences of questions. 

  • What can you be the best in the world at?
  • What are you deeply passionate about?
  • What drives your economic engine?

The EOS Model® doesn’t focus on the hedgehog concept, so many companies using EOS have goals and strategies based on bravado rather than understanding what will enable them to be great.

Knowing your hedgehog concept will keep the organization focused on something that aligns its passion with what it can be the best at. Being good at something means you are good but indistinguishable from many others. If you stand above the crowd if you are the best at something. Finally, the economic engine keeps the company focused on a metric that drives profit.

Vision

While the EOS Method® works to develop a ten-year goal, I find that it is not as compelling as Jim Collins’ BHAG. A BHAG, Big Hairy Audacious Goal, is a clear and persuasive statement and serves as a unifying focal point of effort with a defined finish line. It engages people, is tangible, energizing, highly focused, and often creates immense team effort. People “get it” immediately; it takes little or no explanation. 

A visionary BHAG is a 10–25-year compelling goal that stretches your company to achieve greatness. It should be a huge, daunting task, like climbing Everest or going to the moon, which at first glance, no one in the company knows how on earth you will achieve.

As Collins noted, the best BHAGs require both “building for the long term and exuding a relentless sense of urgency: What do we need to do today, with monomaniacal focus, and tomorrow, and the next day, to defy the probabilities and ultimately achieve our BHAG?”

Profit/X = Economic Engine

The BHAG’s economic engine is the concept of Profit/X. In Good to Great, Jim Collins defines this strategic metric as “One and only one ratio to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?” Unfortunately, too many companies don’t have an economic engine, so they fail to deliver hoped-for profits. This metric is not easily identified; however, Collins noticed that the companies that took the time to discuss, debate, and agree on one key driver for their economic engine are the ones that went from good to great.

Profit/X is how you choose to make money; it is a strategic metric, not an operational one. This ratio is a key driver in your financial engine and when you decide how to spend money. When developing your Profit/X, you need to have one that is unique and not the industry average because if you choose the latter, everyone will be pricing and driving costs the same way to maximize it. Like the BHAG, a correctly defined Profit/X will promote teamwork as everyone can focus on their role to drive the metric, from how many people to hire, where to open new operations, etc.

Value Creation

“A Business That Doesn’t Create Value for Others is a Hobby.” So, what value does your organization create? Value creation is linked to what your company can excel at. However, businesses must identify the problem they aim to solve for their customers. Clayton Christensen defined this as “What is the job your customer is hiring you or your products to do?” Many organizations mistakenly define the job based on their activity rather than focusing on their customers’ needs. Identifying the job to be done can help target marketing and sales efforts toward addressing customers’ problems rather than simply promoting the company’s activities. The EOS Model® does not sufficiently address this essential question, which is critical for a company’s growth.

Core Customer

Understanding your company’s Core Customer is vital. If have found that many businesses cannot identify their Core Customer. Some of the key metrics of a Core Customer are one that pays on time, allows you to make a satisfactory profit, and refers you. Focusing on the wrong Core Customer can lead to misguided marketing and sales activities, reducing profitability and cash flow and ultimately weakening the company’s performance and growth.

Brand Promise

The EOS Model® does not address the question of Brand Promise, which is crucial for a company’s growth. Your Brand Promise is what convinces your target audience to buy from you, stands as a testament to your commitment, and serves as a measurable benchmark for your company’s performance. Some organizations have a Brand Promise, but if it’s not quantifiable, it becomes “valueless” because nobody knows if you’re delivering on it, rendering it useless to prospects and clients.

Value Delivery

Value delivery is essential for understanding how customers perceive your organization’s performance. While the EOS Model® discusses various metrics, value delivery does not receive adequate attention. Companies must determine whether their customers are satisfied with their performance. A CEO might assume that their customers are “Very Satisfied,” but they may be overlooking the reality of customer dissatisfaction and lack of recommendations without measuring it.

Critical Number and Counter Critical Number

The EOS Model® effectively deals with goals (Rocks) and meetings but fails to align Rocks with the long-term goals of the company, Rock should be tied to the quarter’s Critical Number, which drives the organization toward its long-term goals. Tying Rocks with the Critical Number maintains organizational focus. In addition, a Counter Critical Number is crucial to prevent the critical number from overwhelming the company and causing unintended consequences.

Focusing on a Critical Number and Counter Critical Number during the 13-Week Sprint is crucial for developing focus and alignment within the organization.

Team Alignment

While the EOS Model® effectively addresses having the “Right People” in the “Right Seats,” it does not consider alignment among the leadership team and employee satisfaction. Assessing the alignment of leadership and employee satisfaction is necessary to ensure everyone is working in the same direction and committed to the company’s success.

Conclusion

While I appreciate the EOS Model®, I believe it fails to address many aspects required to develop a healthy agile growth company. By incorporating additional elements from the Gravitas’ 7 Attributes of Agile Growth® model, businesses can create a more comprehensive system that promotes agile growth while maintaining smooth operations. The 7 Attributes of Agile Growth® focus on Leadership, Strategy, Execution, Customer, Profit, Systems, and Talent.

If you are interested in transitioning to an agile growth company with the help of a certified Gravitas Agile Growth coach, please feel free to reach out to me.

Copyright (c) 2021, Marc A. Borrelli

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A Dramatic Introduction and Swift Collapse

Last week, the world of football experienced the dramatic birth and collapse of the European Super League (ESL). Living in Atlanta, the defeat reminded me of the Falcon’s 2017 Superbowl and Greg Norman’s 1986 Masters. On Sunday evening, the formation of the ESL was announced, consisting of 12 “founding clubs” from England, Spain, and Italy. Three other unnamed clubs were soon to join, along with another five teams that would qualify annually for the 20-team competition. However, within 48 hours, the ESL was dead.

Financial Motivations and American Influences

The ESL was introduced with a promise to “deliver excitement and drama never seen before in football,” and it surely delivered, albeit not in the way they had intended. The main motivation behind the formation of the ESL was money. The fifteen founding clubs were guaranteed a place every year, bypassing the need for qualification and relegation and enabling them to secure a larger share of revenues with less risk. Broadcasting rights were expected to generate €4bn annually, nearly double the €2.4bn brought in by the Champions League in the 2018-19 season.

The American sports industry is known for its effective money-producing cartels. Professional sports leagues in the United States act as monopoly-like structures that distribute wealth evenly among a self-selected group. These leagues ensure that teams remain in the league regardless of their performance, challenging the American ideal of meritocracy. The European model, on the other hand, is more capitalistic, with club owners taking risks and investing in the potential for rewards. The ESL sought to impose an American-style cartel on European football to reduce risk and transfer more money to the club owners, similar to the recent restructuring of Formula 1 under Liberty Media’s ownership. As Martin Baumann put it, “We can sell just about anything to the Europeans. Why not our hyper-capitalistic cartel-based pro sports system?”

Hubris, Value Creation, and Fan Backlash

Hubris

The collapse of the ESL can be attributed to hubris. The founders neglected the sport’s business model and Ben Horowitz’s sage advice, “Take care of the People, the Products, and the Profits— IN THAT ORDER.” Their arrogance led them to believe that they could easily impose the American sports system on European clubs without considering the cultural differences and deep-rooted traditions. This hubris resulted in the creation of a league that generated widespread contempt, proving that the incompetence of a few powerful individuals should never be underestimated.

Value Creation

The league’s criteria were not based on being the best in Europe but rather on the wealth of the owners, leading to a lack of value creation. The ESL claimed to be an exhibition of elite football, but without the need for qualification, teams would not have had to try very hard, reducing the value of the competition. Furthermore, the selection of clubs based on their owners’ wealth undermined the very essence of what it means to be the best in Europe. For example, Arsenal, a once-powerful club, is currently struggling in the Premier League and would not have been considered one of Europe’s top teams based on their on-field performance. The ESL destroyed any pretense of value creation by focusing on wealth instead of merit.

Fan Backlash

The European model places emphasis on the fans, the players, and the managers, with club success being the primary focus. The ESL completely disregarded this fundamental aspect of European football, leading to fierce backlash from fans who felt betrayed by their clubs. Protests erupted at stadiums and training grounds, with fans burning effigies of club owners and demanding change. Fans were also united in their disdain for the ESL, with a YouGov poll finding that 79% of British football fans opposed the league, and 68% of them “strongly.” This overwhelming response from fans made it clear that any league that does not prioritize the interests of its supporters is destined for failure.

Its founding members’ swift abandonment of the ESL left the American owners no choice but to follow suit.

The Aftermath and Potential Regulation

The outcome of the ESL debacle led to apologies from club owners and even JP Morgan, who underwrote the league’s formation. However, the real threat now lies in regulation. The British government has launched a review into how football is run, and there is pressure for British clubs to adopt the German community-ownership model, where fans own 51 percent of the club.

As the dust settles, it is clear that football is anything but boring.

Copyright (c) 2021 Marc A. Borrelli

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Clarity is a repeated theme of mine and The Disruption!, whether in regards strategy or how you make money. Listening to Josh Kaufman discuss his “Five Parts of Every Business” and the need to define your business model while presenting this information clearly magnified the point.

 

What Are The “5 Parts of Every Business”?

Kaufman says in every business model there are “5 Parts of Every Business,” each of which flows into the next:

  1. Value Creation: A venture that doesn’t create value for others is a hobby.
  2. Marketing: A venture that doesn’t attract attention is a flop.
  3. Sales: A venture that doesn’t sell the value it creates is a non-profit.
  4. Value Delivery: A venture that doesn’t deliver what it promises is a scam.
  5. Finance: A venture that doesn’t bring in enough money to keep operating will inevitably close.

 

Value Creation

Kaufman defines Value Creation as “Discovering what people need or want, then creating it.”

Most customers don’t know what they need or want. As has been pointed out many times, people wanted a faster horse, not an automobile. However, whatever they want, in reality, they are just seeking a solution to a problem. Therefore, the critical issue is determining “What problem you are trying to solve?” Or, as Clayton Christensen said, “What is the job the customer is hiring you or your product to do?”

Defining this is often hard, as many companies don’t know what job their clients are seeking them or their products to provide. I have discussed this before. However, as the adage says, “people aren’t buying drills, they are buying holes.” This is a vital part of your business model.

So, working with your team to determine “the job to be done” and your “Core Customer” is well worth the effort because you can better describe what you do, and all your employees will better know what you do and how what they do impacts it.

 

Marketing

Kaufman’s definition is “Marketing is defined as attracting attention and building demand for what you have created.”

In today’s digital world, with Google, Facebook, Linked In, and Instagram, marketing separating yourself from the masses is hard, especially if people don’t understand the product and service. Therefore, by focusing on the job to be done or the problem you are solving, it easier to stand out among the crowd.

Also, as you identify what the “job to be done” is, you can better identify your Core Customer. Remember a Core Customer is:

  • An actual person with needs and wants. If you sell B2B your core customer is still a person because you have to convince a person to buy.
  • Who buys for the optimal profit.
  • Who pays on time, is loyal, and refers others.
  • Has a unique online identity and behavior; and
  • A customer who exists amongst your clients today.

Build Direct started as a company supplying contractors. However, it soon realized that while contractors were a key customer component, they were not the company’s Core Customer; instead, Build Direct’s core customers were young female DIYers interested in the products and education. Build Direct focused its marketing according to that recognition and started providing much educational content for young female DIYers. This specific marketing drove much better brand recognition and engagement.

Also, South Shore Furniture in Canada identified their core customer as “Sarah.” Sarah is so vital that there is a mannequin of Sarah in all meeting rooms, so no one forgets whom they are seeking to serve.

Besides, marketing to the correct demographic is easier and more fruitful if you know your Core Customer. Without this information, the marketing section of your business model is just hope, not a strategy!

 

Sales

Kaufman defines sales as “Turning prospective customers into paying customers.”

However, as Jeffrey Gitomer, put it “People don’t like to be sold, but they love to buy.” So the key is how do you move prospects into customers? Businesses have to earn their prospects’ trust and help them understand why it is worth paying for the offer. Another way of looking at this is, “What is your brand promise?”

Companies need to know what their brand promise is. For example, Starbucks is “Love your beverage or let us know and we will always make it right.” Some organizations may have supporting brand promises to prove more definition of the brand promise. Your brand promise must be measurable, because as Peter Drucker said, “What gets measured gets managed.” So if it is measurable and measured, the organization can ensure that it meets its brand promise, which provides more assurance to the prospect. Finally, with a clearly defined brand promise that is measurable, the organization ends up saying “No” more than “Yes” to opportunities and ideas since they will damage the brand promise.

Since no one wants to be taken advantage of, Sales is about educating the prospect to identify what is essential to convince them you can deliver on your promise. A clearly stated brand promise that is measured and quantified increases the ability to persuade the prospect to purchase from you. It amazes me how many business models don’t have a brand promise.

 

Value Delivery

Here Kaufman defines Value Delivery as “Giving your customers what you’ve promised and ensured that they’re satisfied.” With this, I have no issues. Anyone who doesn’t deliver what they promised is effectively a “scam artist.”

To ensure you that make the customer satisfied, you have to exceed the customers’ expectations. A popular way to determine customer satisfaction is through Net Promoter Score scores which we see more and more (if you are looking for help with NPS surveys of your customers, contact me). You want more promoters and detractors. However, the NPS score tells you what the customer thinks after experiencing the service or product. Companies need to develop systems that ensure the service or product is exceeding expectations.

A great example is the Ritz Carlton’s policy whereby any Ritz-Carlton employees can spend up to $2,000 per incident, not per year, to rescue a guest experience. This policy ensures that the customer is getting a great experience because it empowers employees to fix problems and provides the customers’ concerns are solved quickly. As David Marquet says, “Move the decision making to where the information is.” That is what Ritz is doing, and it is empowering employees and making customers happy.

Companies that have outsourced many functions to cut costs, so any customer has difficulty reaching the people they need or have to spend five minutes going through a phone tree to contact some is already failing at this.

Ensure your business model tracks customer satisfaction and you have ways to ensure that customers are happy.

 

Finance

Kaufman defines finance as “Bringing in enough money to keep going and make your effort worthwhile.”

As I have pointed out, this is key, and many people don’t realize the situation because of flawed analysis and lousy modeling. However, the key for any organization must be a well-defined “Profit/X.”

Many organizations don’t have a well-defined Profit/X, but there is a lack of discipline that ensures good financial performance without it. Profit/X is some unit of scale, and profit can be gross profit, net profit, EBTIDA, or EBIT. Examples that I have seen are:

  • profit per airplane
  • profit per job
  • profit per customer
  • gross margin per delivery
  • profit per employee

There is no correct Profit/X, just the one that works with your business. One organization that did deliveries chose Gross Margin/Delivery, which focused on reducing the cost of delivery to maximize profit. Once Profit/X is selected, the entire organization must seek to meet or exceed it; thus, everyone needs to understand it and how they drive it. With that focus and discipline, the organization is more likely to meet its financial goals and objectives.

 

Summary

In summary, the organization needs to be able to define its business model by the following:

  • Define the problem its products or services solve or, more precisely, what job they do.
  • Who their Core Customer is so they can market to them effectively?
  • What is their brand promise, and how is it measured?
  • That their customers are satisfied, returning and recommending.
  • That they have identified their Profit/X so that they are profitable.

Doing this work is an excellent exercise for any leadership team to help bring clarity to your organization. If you need assistance doing it, contact me. Good luck, and may your business grow.

 

 

Copyright (c) 2021, Marc A. Borrelli

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