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Businesses are made of people. The person who answers the phone when a customer is upset. The bookkeeper who closes the month. The crew that packs the order. Every day, each of them either creates value for the business or quietly destroys it.

Owners know this, and forget it anyway, because systems are easier to look at than people. A process can be drawn on a whiteboard. A person has to be understood.

First who, then what

Jim Collins spent five years studying companies that went from good to great, and one finding held across all of them. Their leaders did not start with a vision or a strategy. They started by getting the right people on the bus, and only then decided where to drive it. Collins called it "first who, then what."

Gino Wickman, whose Entrepreneurial Operating System now runs inside thousands of small companies, reduced the same idea to four words an owner can act on: right people, right seats. The right people share the values of the business. The right seat is one the person gets, wants, and has the capacity to do.

Peter Drucker made the point from the other direction. Executives, he observed, spend more of their time on people decisions than on anything else, and they should, because no other decision lasts as long or is as hard to undo.

So when I look at a small business and ask how to create value, three questions come before any spreadsheet:

Who is on this team.
Are the right people in the right seats.
Is the business set up so that the people in it can actually do good work.

A business can have excellent systems and still stall, because a system is only as good as the person running it and the environment around them. The right people in the right seats is the first constraint. Until it is cleared, nothing downstream compounds.

What a revolving door costs

I recently worked with a company that had cycled through close to eight managers in one critical role over two years. Each lasted about three months: long enough to learn the job, not long enough to change it. Each left for the same reason, too little support and too little authority to act.

Count the cost. Momentum reset eight times. A team that stopped believing the next manager would stay. Search fees paid eight times over, on top of a replacement cost commonly estimated at half a year's salary or more once lost productivity is counted. And customers who felt every gap, because the function that served them never had a leader long enough to build the structure it needed.

Gallup's research puts a number on the mechanism. The manager alone accounts for roughly seventy percent of the variance in how engaged a team is. Change the manager every quarter and the team's engagement, and the service the customer receives, resets with it.

None of this shows up as a line item. All of it shows up in what the business is worth.

People and process, in that order

At first principles a business is a set of people and a set of processes. Value comes from the two working in harmony, and the order matters. Process without the right people is a manual nobody follows. The right people without process is heroics that stop when the hero gets tired. A business that can create value for a decade needs both, and it needs the people first, because they are the ones who will build the process and keep it.

This is the part that is easy to say and hard to do, which is why it is worth saying plainly: people matter. Not as a slogan. As the first bottleneck, the one that decides whether everything else you build will hold.

It is a strange thing that a rule taught to children could decide whether an enterprise outperforms or languishes. Treat the people who do the work the way you would want to be treated in their seat, give them the support and the authority the seat requires, and the business tends to take care of itself. I am a betting man, and that is the bet I keep making.

Sources: Jim Collins, Good to Great (2001). Gino Wickman, Traction: Get a Grip on Your Business (2007). Peter Drucker, "How to Make People Decisions," Harvard Business Review (1985). Gallup, State of the American Manager (2015).

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Insights on Value Creation for Small Business Owners

Value Creation Starts with People