In the last edition, we learned all about building a successful franchise empire with Brian Beers in auto services and painting.

In this edition, we’re ditching the hydraulics and going digital.

Fast Facts:

Digital Operations is a new term and encompasses a new way to bring operational efficiency to business. 

It combines IT automation, process re-engineering, and the deployment of offshore labor to take costs out of the back office. 

The AI technology revolution will supercharge this trend going forward:

• The global automation software market revenue is expected to expand to $76.4 billion by 2030 with a CAGR of 16.5% from 2022 to 2030

• The major players in the IT automation market in the US are UIPath and Automation Anywhere

• In 2018 US overseas affiliates hired an estimated 14.4 million workers 

• Each year 300,000 US jobs are sent overseas 

• We can expect to see even further growth in this space due to low unemployment and high labor costs in the US and the advance of automation and AI technology

Charts:

• Unemployment dipped below 4% starting in 2019 

• After a brief pandemic surge, it went right back below 4%

• Early in 2023, wages began increasing faster than overall inflation so on average faster than businesses can raise prices

• Employers have no choice but to look at automation and offshoring to offset the increase in labor costs

Overview: 

• Michael Greenberg is the owner and CEO of Clickdown, a digital operations provider, and has been helping small and medium-sized businesses get more efficient for over ten years

• Clickdown helps companies document and improve their processes, automate the parts of them that can be automated, and makes recommendations on where labor can be offshored 

• This also increasingly involves implementing AI solutions using ChatGPT and other advanced LLMs

The Concept:

Most small businesses don’t spend a lot of time thinking about their processes. When you are sub $2m or so in revenue, you probably shouldn’t. You should spend your time selling more. 

The owner is involved in every aspect of the business at that point anyway so you have a handle on what’s happening.

But once you grow to that $3-5m mark, it’s time to add more management and more processes. You have to have a consistent way of doing things so you can deliver a consistent service or product to your customers and so you can train new people to be effective members of the team.

Most owners don’t think much about how to do this efficiently and for a long time, they didn’t need to.

If you needed a process, you documented what you had. If you needed management help, you hired managers but the world is starting to change.

I was recently able to attend a presentation by Greg Crabtree of Simple Numbers who maintains a financial model that aggregates the performance of 100 of their small business clients from across industries and across the nation. 

His financial model has revealed that starting in late 2022/early 2023, overall labor costs and particularly management labor costs are now increasing faster than revenue.

I have seen this in my own business.

That, as Greg says, is a math problem for businesses. Profitability is eroding and those businesses experiencing the worst of this trend might not survive.

That makes capturing the benefits of digital ops all the more urgent. You can save substantial management and administrative costs by automating processes and hiring offshore talent.

If you are a smaller company and growing, instilling an automation and offshore-first culture will be easier as there are fewer vested interests and ways of doing things to overcome.

For companies who have already surpassed that $5m mark, this will be a big culture change. 

It’s almost inevitable that employees will view automation and offshoring as threats. I disagree with that view. In a growing company, automation and offshoring set you up to scale profitably and efficiently. It’s seldom going to be the case that you need fewer people. 

It’s more likely that you’ll be elevating your current onshore talent with the support of that cheaper offshore talent.

That said, a lot of this is new and very few business owners are in a position to implement these changes on their own. 

That’s where firms like Michael’s come in. 

Digital ops needs to be delivered as a managed service and as it increasingly bleeds into AI capabilities. Companies need a partner who can keep them up to date.

In most cases, the efficiencies a company gains will almost immediately pay for the managed service. 

But this is a new area and companies are going to need to experiment and look for new vendors and suppliers.

Unfortunately, until the business matures, there will be unqualified providers, charging too much, but the rewards for the companies that preserve and successfully implement these changes will be immense.

The winners will cut 30-50% out of their management and administrative costs.

This will allow them to simultaneously cut prices, pay their best people more, and make more profit. 

When a competitor can do that, they will crush you. 

So please take this seriously and do the crushing rather than being crushed.

📅 Next Week:

Next week we are going to deep dive into Julie Lopez the CEO of Viva Partnership. We will go into more detail on the world of trauma-informed clinical practices. 

Keep growing,

Alan

P.S. 

The most recent episode of The Small Business Mentor Podcast is live. My guest this week was Clint Fiore. We went into a lot of detail on his entrepreneurial journey in the small business brokerage world. 

Check it out here: 

• Apple: https://bit.ly/3HiB6qq

• Spotify: https://spoti.fi/3O2fK4g

P.P.S. 

Do you have a small business growth story and want to be featured? Ping me on X @apentz, or submit at http://www.fame.so/sbp-story