The Plumbing

The floor has three layers and they are now built. What holds them together is not a fourth layer but the plumbing: the tools the business runs on and the data that comes out of them. I call it plumbing because nobody admires it, everybody depends on it, and when it goes wrong the whole house is unusable. The numbers in your model have to come from somewhere, and if they come from six places that disagree, the model is a guess with a spreadsheet around it.

Here is what the plumbing looks like in most owner-led businesses I meet. There is accounting software, which the bookkeeper uses and the owner opens twice a year. There is a payment processor, which has its own idea of what revenue was. There is a customer list in a CRM, or in a spreadsheet, or in the owner's email, or in all three, and none of them agree on how many customers there are. There is a project tool, a calendar, a form builder, a newsletter system, a website with its own analytics, and a dozen subscriptions that were started for a reason nobody can now remember and that renew themselves every year. Each was added to solve a problem. Together they are the reason the owner cannot answer a simple question about her own business without an afternoon of reconciling.

The cost of this is not mainly the subscriptions, though those add up. The cost is that the numbers cannot be trusted, and numbers that cannot be trusted do not get looked at. The monthly review from the operating plan falls apart in the second month because the revenue figure from the accounts does not match the one from the payment processor and nobody knows which is right. The owner, quite reasonably, goes back to the bank balance, because at least the bank balance is a single number.

I have seen this in companies with technology budgets in the millions and in businesses run from a kitchen table. The problem is the same. More tools were added than were ever removed, and nobody was in charge of making them agree.

The response is to decide which system is the source of truth for each number, and then to cut everything that does not feed it.

Start with the numbers in the operating plan. For each one, name the single place it comes from. Revenue comes from the accounts, not the payment processor, and the processor reconciles to the accounts, not the other way round. Customers come from one list, and if that list is a spreadsheet, so be it, as long as it is the only one. Pipeline comes from wherever proposals live, and they live in one place. Hours come from the diary. Write the source next to each measure in the plan, and if a measure has no reliable source, that is a plumbing job to do before the next review, not a reason to drop the measure.

Then go through the subscriptions with the bank statement open and ask, of each one, which number in the model it helps produce or which piece of the business it helps deliver. If the answer is neither, cancel it this week. Most businesses can lose a third of their tools without anyone noticing, and the ones that remain get used properly because people are not spread across alternatives.

Finally, make someone responsible for the plumbing. Not for using the tools, which everyone does, but for making sure they agree, that the reconciliations happen and that a new tool is not added without an old one leaving. In a larger business this is a finance or operations role. In a small one it is an hour a month for whoever does the books. Either way, it has a name next to it, because plumbing with no plumber leaks.

Tomorrow the floor is finished and we go up a level, to the product, which looks different once there is something underneath it.

Continue reading: Then the Product →

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