12 People

People

Learning Goals

• To consider the importance and need for leaders and or managers in your business plan and organization
• Understand how to conceive of a production plan
• An introduction to budgeting labor for your business venture

https://openstax.org/books/entrepreneurship/pages/12-2-building-the-entrepreneurial-dream-team

In reality, no one works alone. As an entrepreneur, you have the luxury of searching, soliciting, and selecting your own team. Entrepreneurial success depends on who is included on that team, and who is excluded from the team. In this section, we discuss advisors and cross-disciplinary teams.

Building a Cross-Disciplinary Team

Rarely does an entrepreneurial venture start or function due to the effort of only one person. “Birds of a feather flock together” may be a popular saying, but it is a very poor organizational strategy for building a team to start a successful business. Diversity is a key feature of successfully managed organizations. Compatibility and collaboration are also important, as each employee is duty-bound to work with, support, and assist other employees when necessary. Having staff with complementary skills and who get along improves the likelihood of success for a new business.

A new restaurant provides a great example of how employees with assorted talents, expertise, and responsibilities are assembled to make a bustling organization profitable. For a new owner, the first hire is a manager. Hiring a good manager with experience means a larger payroll expense but produces better financial dividends over the long term. A good manager oversees all staff as well as all operational functions such as scheduling, buying, pricing, marketing, health code compliance, and business support functions. Perhaps the second key hire is the chef, who is responsible for creating the menu, distinguishing the restaurant from its competitors, and creating repeat customers who want high-quality, tasteful meals.

Front-house employees—the hosts/hostesses, servers, and bussers—play critical roles as the faces and voices of a restaurant. The first experience in a restaurant will leave a lasting impression, so those at the front are obliged to appear and act professional at all times. Servers, who have the most direct contact with customers, are the sales force of the business and the liaison with the chef. Servers’ incomes depend on tips and turning tables, so it is essential for them to have tables cleared quickly and properly prepared for the next group. Servers, therefore, rely heavily on the bussers for those important tasks. In many restaurants, bussers receive a portion of the tips left for the servers, establishing a codependency between those two key positions.

Other positions in a restaurant are the bartender, dishwasher, custodian, payroll clerk, bookkeeper, and so on who must perform their duties accurately and efficiently. Subpar service in any one of these functions jeopardizes the viability of the restaurant. Every employee at each and every level is crucial, individually as well as collectively.

A very common organizational structure for a new venture is the flat organization, consisting of family members, friends, or professional colleagues who take responsibility for different tasks. The bond that brings this group together in launching this new business is unlikely to bring to the table all of the skills, talents, personalities, perspectives, and viewpoints that can lead to long-term success. Therefore, expanding the team’s human resources beyond the founding members who also manage the business is crucial. Although they do not have to become employees, access to them is as vital as having key personnel on your payroll.

An entrepreneur with a creative or big-picture mindset may not want to be bothered by day-to-day activities. If that is the case, then someone else in the business needs to be the analytical, linear-thinking individual who can process information and data to make sound decisions. After carefully considering a situation, collecting information, and studying all relevant facts affecting the business, a problem solver can recommend what action the entrepreneur should take, to whom should the tasks be assigned, when to implement the solution, and how much money to dedicate to solving the problem. In other words, the problem solver becomes a lead advisor to the entrepreneur, the manager. If the creative entrepreneur is one side of the coin, the problem solver is the other side. When those two minds work in tandem, good things can happen.

In contrast, an entrepreneur may be a functional expert or licensed professional who is obliged to perform the tasks personally—for example, an HVAC technician, dentist, or professional driver. In that case, a business manager is needed to run the business side of the company. Rules, regulations, and deadlines for business activities are beyond the functional entrepreneur’s scope of interest, but they must be complied with accurately and in a timely manner, or the business may close. Like the creative founder who hires a day-to-day manager, a performance entrepreneur needs to hire someone dedicated to business functions.

Successful business owners keep careful track of metrics. They categorize and track expenses and analyze profit margins, production performance improvements or declines, employee attendance, and other measurable activities. Accurately interpreting the financial and operational performance of the company by the numbers provides the management team the information they need to make sound decisions. Having someone on the team with an aptitude for working with numbers is critical. The numbers must speak for themselves. Personnel must remain inside the box when they draw conclusions from data.

However, solutions to problems are not always inside the box. Nonlinear thinking, also known as creativity, or “thinking outside of the box,” is sometimes needed to solve problems (see Creativity, Innovation, and Invention). Creativity is the source of many new ideas, products, and processes. With companies facing shorter times of competitive advantage, the entrepreneur needs to be constantly reinventing both self and company.

Over time, as the business grows, the entrepreneur makes the transition from owner-operator of a startup through the small- business phase to being the owner-operator of a mature business. Entrepreneurs eventually need to make the cognitive shift from working in a state of ambiguity to performing methodically in a predictable environment. A business model where routine, repetitiveness, and predictability occur is more appropriate for established businesses because it brings stability and confidence to employees, customers, lenders, and investors alike. Using time-tested business methods and learning from previous experiences, an entrepreneur may avoid pitfalls that could doom a startup company in the early stages.

Every organization—whether a for-profit, not-for-profit, political, religious, or social organization—relies on revenue. For-profit businesses rely on sales as their main source of revenue. Nonprofit organizations, such as community organizations, political groups, or religious groups, depend upon donations, contributions, gifts, and grants. Some nonprofits, such as youth sports leagues, community performing arts groups, or scouting groups, bring in cash through fundraisers or through ticket sales for events. Governments customarily depend on various taxes as sources of revenue. Some local governments receive funds through block grants from their state and federal governments. Having multiple revenue streams improves cash flow and increases the prospects of long-term success.

Recruiting the person who will generate income for the organization should be a high priority during the earliest stages, perhaps even before formal operations, of the business. For a salesperson, grant writer, donor coordinator, or any other title referring to an income-generating position, a startup organization may have to offer a sweeter-than-normal compensation package. If the person can produce revenue and generate cash flow in excess of their total cost of employment, then he or she is worth the costs of higher commissions and bigger bonuses.

Trying to improve short-term financial performance and increase profits by reducing a key employee’s compensation is likely to be detrimental over the long term. Losing a good sales rep may make the company vulnerable to losing very important and profitable customers. Failing to retain an effective grant writer could be the beginning of the demise, or at least a major downfall, for a nonprofit. Smart entrepreneurs pay their revenue producers appropriately, even if it means paying them more than the entrepreneurs pay themselves. As the old proverb states, “Never bite the hand that feeds you.”

Leadership and or Management

https://openstax.org/books/entrepreneurship/pages/12-3-designing-a-startup-operational-plan

Leadership

Terms commonly associated with a leadership position include owner, manager, supervisor, team lead, leader, and boss. Many of these terms are used interchangeably, even though they have some minor differences in meaning, but normally one person will function as both leader and manager in a small business. Some entrepreneurs may be able to switch between these two roles flawlessly and fluidly so that their followers and even they themselves are unaware that the roles are being filled simultaneously. Nevertheless, some traits and behaviors are associated more closely with leadership than with management.

A key difference between leaders and managers is their role in initiating action. Management is typically concerned with administering and directing an organization’s activities. This includes planning, scheduling, coordinating, overseeing, and inspecting tasks performed by staff. The manager ensures that employees who have been hired to perform duties perform those duties as expected and at a level of quality and quantity acceptable.

A leader, on the other hand, instills within others a desire to perform. This is more of internal motivation, a psychological approach, which the leader develops via words and actions. As the results of the manager’s approach, the results of motivation will be evident in the employees’ performance. The difference lies within the minds and souls of employees.

Employees will work for their manager because they are obligated to on the basis of assigned roles and positions of authority. Employees will work for a leader because they want to achieve the same goals and accomplish tasks to satisfy themselves as well as their leader.

You can find many lists that describe either characteristics or qualities of a good leader. Only a few have been included here. Descriptions of good leadership can be divided into the following categories: personality, competencies, locus of control, and style.

Personality describes the characteristics of a person as shown by their actions and words. Effective leaders typically are easy to get along with, have a positive attitude, engage others, and display self-confidence in their skills. When entrepreneurs begin looking for employees, working very closely together necessitates that they get along and enjoy each other’s company.

Working for someone who does not know what they are doing can be very difficult, if not impossible. Therefore, good leaders know what their competencies are and are very good at what they do. Employees as well as competitors and regulators recognize high job-performance skills. Sometimes, a very skilled leader becomes an industry expert with a reputation throughout the industry and gives training at conventions, conferences, and trade shows. Good leaders are also keenly aware of the skills they lack and readily admit their incompetence in those areas. Hiring a skilled employee who compensates for your shortcomings is a high priority.

Locus of control is the belief that you have or do not have control over events that occur in your life. If you have an internal locus of control, you believe you have significant control and influence over events that occur in your life. An external locus of control—the opposing view—means you believe you have very little control, if any, over events that occur in your daily life. Effective leaders have an internal locus of control and feel certain that they influence and control events, situations, and people in their lives and, specifically, in their business. When crises arise, effective leaders take charge and begin making decisions to get control of events. Employees, customers, and others connected to your business will rally around you if they are confident that you can take control of the situation and directly deal with the challenges.

The three common leadership styles are autocratic, democratic, and laissez-faire. Each of these approaches to leadership is effective but can also be ineffective. The approach that works is best determined by the industry, structure, environment, and requirements of the job.

Autocratic leaders make decisions by themselves and view employees as subordinates who must follow instructions without hesitating or questioning. Autocratic leaders are necessary in situations where decisions are needed quickly, the leader is highly trained and skilled in the work requirements, and the outcomes can be very serious. Democratic leaders engage their staff and seek input before making decisions. This approach works well if the organization or industry is complex, many different departments or employees are affected by the decisions, and a broad range of information is needed to make good decisions. Laissez-faire leadership allows staff to work independently, mostly without supervision or direct input from the leader. This approach works best when the employees are highly educated and skilled, tasks among employees are not closely interrelated, and staff are self-motivated.

Leadership has been studied for many centuries, and the debate continues. You can find examples of good and bad leadership in many organizations including the military, sports, government, and business. Leadership traits are like hands in a poker game—they are all good and bad. The difference is the situation. For an entrepreneur, knowing the industry, the market, the competitive environment, the customer base, and the employee pool are starters for determining which leadership traits and style would be effective. If you decide you are not matched to the environment or situation, then you could engage someone who does possess the traits and skills that better match your current needs.

Production Plan

Budgeting Labor

http://solr.bccampus.ca:8001/bcc/file/390f5e1a-8ec4-45cf-9caf-b692536add2d/1/Basic-Kitchen-and-Food-Service-Management-1602891011.pdf

cc By

Controlling food costs is an important component of ensuring the profitability of your foodservice operation. However, food costs are only part of the picture. It is also necessary to control labor costs and forecast labor demands accurately if your business is to succeed. If you have more staff than is required, your labor costs will be too high and the company will lose money. If you have insufficient staff for a particular time period, customer service will suffer. Your goal in planning staffing needs is to match labor supply with customer volume so that you can provide quality service without excessive cost. The food service industry is labor-intensive. It is critical to be able to forecast the number of customers you will have, the peak customer periods, and the staffing needed to provide service to those customers. Sound human resource management policies can increase the productivity of staff. You must first choose qualified, interested, and trainable employees. Once these employees have been recruited, they must go through an orientation period in which they learn about the job and their responsibilities, the company’s way of doing things, and the required level of product quality. During this initial period, the employee’s productivity might be low. Accurate job descriptions, a good orientation to the job, adequate on-the-job training, and good supervision with lots of feedback about job performance will assist employees in becoming productive as soon as possible.

Factors Affecting Working Performance

In addition to sound human resource management, other factors influence the required amount of labour. These factors include:

• Menu items

• Use of convenience foods or products

• Production demands

• Facility layout and design and production equipment

• Work environment and number of hours worked

Menu Items

The number and complexity of menu items affect the production hours needed. If you have a menu with many items requiring difficult production techniques, you will require more preparation time per item. If your menu consists of a limited number of items requiring minimal preparation, you will require less time.

Use of Convenience Foods & Mixes

Foods prepared on-site require more preparation than similar menu items made with convenience food and mixes. You can reduce your labor costs by using convenience foods. However, you must consider three other factors: convenience foods can increase your food costs, may affect the quality of your product, and should be aligned with your brand. Convenience foods and mixes made with high-quality ingredients and prepared exactly as recommended by the manufacturer can provide uniform portions and ease of production.

Production Demands

The volume of products the business produces will affect the amount of labor required. Each bakery/ pastry shop will have a minimum staffing level without which it cannot operate. If it serves fewer people or products than this minimum staffing level can handle, the labor costs will be very high.  Different product categories will usually mean a larger number of items, affecting labor.

Productivity Standards

A first step in determining staffing needs is to establish productivity standards. These standards must take into account the amount of time necessary to produce food of the required quality. The standards are based on procedures dictated by standard formulas. Productivity standards are measured in labor dollars or labor hours. Labor dollars measure productivity in terms of the number of dollars that must be paid out in labor to generate a certain revenue. The advantage of this approach is that budgets and financial statements are also expressed in dollars so comparisons can be easily made. However, it can be very time-consuming to calculate the labor dollars given different wage and salary scales. Labor hours must still be calculated because the number of hours determines wages. Labor hours indicate the number of hours of labor needed to produce a given number of products or generate a certain amount of sales income. When you use labor hours as a standard, it is less time-consuming to calculate. As well, some simple tasks may take the same amount of time to complete, whether they are performed by a baker, pastry chef, or dishwasher.

Determining Requirements

The productivity standard is determined by comparing the number of labor hours scheduled to products made to sales income generated. It can be produced by a department, by shift, by position, or by position and shift. More detailed standards make it easier to pinpoint problem areas and take corrective action. The most detailed is to prepare productivity standards by position and shift. This allows you to examine the efficiency of each staff member.

The labor hours can be converted into labor dollars to establish standard labor costs. The staffing guide serves as a tool for planning work schedules and controlling labor costs. The labor hours in the guide can be converted into labor dollars and standard labor costs by multiplying the labor hours for each position by the wage scale for that position. The staffing guide should be based on the performance of good employees. When scheduling new employees who have not completed an orientation training period, allowances will have to be made for their lower productivity. This form of staffing guide is much more useful than industry guidelines that do not take into account the specific factors which affect productivity in your workplace. It may still be useful to compare your staffing guide to other properties in order to assess how competitive you are.

Fixed Labour Costs

One factor that must be considered before developing a staffing guide is fixed costs. Fixed costs refer to the costs of running the operation that does not vary depending on the volume of business. For many businesses, the cost of the building, heating, lighting, insurance, and other similar costs are fixed. They do not change if the bakery is busy or half empty. In fact, they continue even when the restaurant is closed.

Factors Affecting Working Performance

Some labor costs are also fixed. If a bakery has salaried employees, these costs are fixed and do not change depending on the volume of business. The business must pay the salary of these employees, even if the bakery is not busy. In most bakeries, management positions, are salaried employees.

Variable Labour Costs

Variable costs must also be accounted for. Variable costs are costs that change based on the volume of the business. Food costs are the most obvious example of variable costs. Provided that the bakery has not overstocked food, food costs will increase in a direct correlation with the volume of business. Labor hours above the salaried staffing levels are also variable costs. As the volume of business increases, hourly labor costs will increase proportionately.

Peak Periods

When the staffing guide is used to develop a staff schedule, the supervisor needs to consider the peak periods.

Scheduling Staff

The scheduling of staff is based on the labor hours needed to meet the projected sales volume. The supervisor also needs to keep an eye on labor dollars by considering whether staff on a lower wage scale could be scheduled. For example, on holidays or other times when overtime rates must be paid, it would be less costly to bring in a new employee who is not eligible for statutory holiday pay. Other factors to consider when developing schedules include the following:

• Staggered work schedules can be used to meet the demand over peak periods without incurring additional labor costs throughout the full shift.

• Part-time staff can be used to work short shifts of four or five hours to reduce overall labor costs.

• Full-time staff are usually used to cover all key administrative positions; sometimes full-time positions can consist of a mix of supervisory and front-line tasks in order to make up a full-time job.

• Temporary employees can be used to meet labor needs that are temporary in nature such as, employee illness, or vacation relief.

• Legal considerations must be kept in mind.

• Staff capabilities should be taken into consideration; some employees may thrive in a stressful rush while others perform well under less stressful situations. Some employees may have additional skills (e.g., hosting, bartending), which can be used effectively when sales volume is low if collective agreements or staff policies permit.

• Employee’s preferences should also be accounted for in the schedule. Policies should be in place for requesting shift preferences or exchanging shifts between staff members. No matter how well you have planned the schedule, problems can arise. A staff member may call in sick or fail to show up without warning. The volume of sales may be lower or higher than anticipated. You must have contingency plans to deal with these problems. You could have a staff member (or a casual employee) on call in case he or she is needed. You also have to know the capabilities of your staff. On a day when you have mostly experienced, capable employees who can handle stressful situations, you may be able to get by with one fewer staff than your staffing guide calls for. When demand is lower than expected, you must know what limitations there are on sending staff home early, while still maintaining the minimum staffing needed to remain open.  Staying within Budgeted Labour Cost A comparison of actual to budgeted labor costs can be used to plan future expenses. If your labor costs are higher than desired, you need to find ways to reduce them. One method of analyzing the labor costs is to look at the actual and budgeted labor cost percentage. The projected labor cost percentage is calculated by dividing labor dollars by the projected volume of sales. The actual labor cost percentage is the actual labor dollars spent for a given time period divided by the actual volume of sales.

One of the best ways to improve productivity is to continually review and revise performance standards. Use the problem-solving process to identify the problem, generate alternatives, evaluate the alternatives, choose the best ideas, and implement them. Some questions you might ask yourself are:

• Can a particular task be eliminated?

• Is training needed to improve the skills of staff?

• Can a task be reassigned to a person who is not as busy (e.g., could the dishwasher assist with some pre-preparation of items early in the shift)?

• Can slow periods be utilized more effectively to prepare for high-volume times?

• Does the menu need to be simplified?

• Do menu or volume changes require changes in facility layout?

• Would convenience items reduce costs without reducing the required quality?

• Are the activities of another part of the operation affecting the performance of this department (e.g., the catering department has opened a new conference room some distance from the kitchen which requires food service)?

• Have there been changes in volume and peak times that need to be considered?

After considering all of these factors, you may still not be able to reduce your labor costs. You may have to raise your menu prices to improve the profitability of your operation. Of course, you need to consider the price the market will bear and the prices charged by your competitors before taking such an action. It is often useful to look at both your food costs and labor costs when deciding whether a price increase is needed. If your labor costs are a little higher than anticipated and your food costs are lower, there may not be a problem. Some companies use a figure of 70% to 80% as a target for the sum of labor and food costs. Another strategy is to have lower contribution margins but increase your volume. This makes sense because the more volume you have, the more money is contributed toward meeting your fixed costs of doing business.