I’ve met many people in the cannabis industry that consider themselves experts in their field. Most would claim that they know what they are doing ‘better than other people do,’ especially if they have perceived success in the practices they have built. This unfounded confidence has allowed for routinely making gut-based business decisions with 50/50 success at best. I have witnessed this all-too-often. This is not to say that they haven’t been ultimately successful with the outcome of some of their decisions, but imagine how much more successful they could be if they just made better, more informed, and purposeful decisions. Imagine how many costly mistakes could be avoided if they just took the time to know more!
If I could narrow down how technology can help cannabis businesses the most, it would have to be the unique ability of technology to expose what you don’t know. Technology is uniquely capable of taking data and turning it into valuable information that can be used to make decisions. Pulling out your calculator to add up numbers on a paper sheet or creating formulas in spreadsheet cells is wrought with error, and at scale, becomes impossible to manage. Technology may not always tell you the exact answer, but technology can show you the truth. As I advise my business partners, you have to lean on reality over-speculation, and numbers don’t lie. As I touched on in my last article, the key to success is to reduce the risk in your decisions with facts and data. As a cannabis business, we have to move past the educated-guessing phase and move into maturity with data-driven decisions. The only way we can experience continued success in this business is by implementing Technology First!
Cannabis businesses have to become more mature
How does one begin to figure out what they don’t know? Every cannabis business has to evaluate this for themselves and determine their own best path to success, but there is some good news: There are robust and established methods for doing this in business that we can leverage from other industries.
An excellent example of this is the use of maturity models – a standard tool used in technology. One of the most commonly used maturity models is the Capability Maturity Model Integration (CMMI). Although developed for the tech industry, it was designed to develop behaviors that decrease service, product, and development risks. It describes the current state of your business with the goal of all businesses reaching the highest level. The first step is determining where your business currently stands.
The five CMMI maturity levels are (with my added technology comments to help you determine where you fit):
- Initial. Processes are seen as unpredictable, poorly controlled, and reactive. Businesses in this stage have an unpredictable environment that leads to increased risks and inefficiency. Paper data collection or Google Sheets/Microsoft Excel. As soon as data is entered into a sheet, it is most likely wrong. Manual input and human error make even cell formula results incorrect. No consolidated reporting or no reporting at all except looking at the data currently in the sheets. Decisions are educated guesses based on what is visible.
- Managed. Processes are characterized by projects and are frequently reactive. There are projects to implement technology and applications for Finance, Manufacturing, Inventory, yet they are not complete or integrated. Sheets are now in Excel or Google Sheets with maybe some formulas and macros that provide the roll-up of numbers. Some basic reporting, most from individual applications, and only focused on that particular function. Answers to ‘what’ but not ‘why.’ Decisions are beginning to be based on data, but the business struggles to get it all into one place (or in a dashboard).
- Defined. Processes are well-characterized and well-understood. The organization is more proactive than reactive, and there are organization-wide standards that provide guidance. Technology has been implemented for all functions of the business. Each facet of the business is running in a dedicated application designed for that specific purpose. Sheets have been converted to databases. Reporting is available and customizable but not correlated by Business Intelligence (BI). There is a firm understanding of ‘what’ and some ‘why’ based on the combination and exchange of data between applications. An Executive Dashboard exists and is being updated regularly.
- Quantitatively Managed. Processes are measured and controlled. The organization is using quantitative data to implement predictable processes that meet organizational goals. Data from technology has been correlated and is being used in all decisions. Business Intelligence (BI) is in place and being utilized to make fact-based and data-driven decisions. The Executive Dashboard includes predictions based on Business Intelligence.
- Optimizing. Processes are stable and flexible. The organizational focus is on continued improvement and responding to changes. The business is utilizing its technology and data as a differentiator and a component of its operational success. Technology utilized is unique and being pioneered to exceeding goals continuously. Dashboards have been combined with external data and are being leveraged to actively grow market share.
But how does this supposed to help you know what you don’t know? As your organization moves up this maturity model, the implementation of technology will help mature the business and remove the unknowns. Let’s turn this into a ‘walk before you run’ activity and go back to the CMMI to define actions:
1. Initial. Define what is important to you. Sit down to evaluate each part of the business and define KPIs (Key Performance Indicators). A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. This is super important. If you don’t know what data is necessary to make decisions, you will not know what you need to do to get it. Don’t just focus on sales! Sales are only one small portion of what makes you successful, and sales numbers are not direct indicators of success or failure. Do poor sales numbers reflect bad management, bad salespeople, bad product, or all of them? You can’t know without more data. If you want to know your true cost of goods (COGS), then you better be tracking your time and waste per process (not doing so is just fooling yourself and giving you better than reality COGS).
Make sure that the sheets that you are using are recording the data that you need to get the KPIs you have defined. As an example, you can’t calculate yields if you are not recording input and output weights.
Shore up your compliance practices. It is literally impossible to implement management processes if your compliance practices are not established and in place. Reconciliation of your compliance system with your inventory system is mandatory and should match daily (in most states, this is required). There is no point in your Inventory sheet reporting product that your compliance system doesn’t have records of. This inaccuracy will skew all other processes and data and could cost you your license. The compliance system must be integrated with inventory practices and applications (both operationally and literally, if possible).
2. Managed. Try to get all of your KPIs rolled up into a master report. Some call this an Executive Dashboard. This can be as simple as a spreadsheet with multiple tabs that reflects each line of the business (Finance, Product, Inventory, Manufacturing, Processing, etc.). This will give you tremendous insight into how difficult ‘doing it the way you are doing it’ actually is. It will also expose you to data in other facets of the business that may be alarming to you. You may see some immediate cause/effect relationships. My suspicion is that this will be a very hard thing to do and consistently maintain without technology.
Work on getting every core practice of your business managed by a technology application and not relying on “old school” spreadsheets. There is a reason why business applications were created. Spreadsheets just don’t cut it anymore! If you are truly serious about maturing, invest in a consolidated application that manages as many facets of your business as possible. I hesitate to label this as an ERP application (Enterprise Resource Planning) because there are plenty of applications out there that consolidate the management of most, if not all, of your business practices. Just make sure that ALL of your practice areas are covered…which may result in investing in several applications (or an ERP). Sales require a Customer Relationship Manager (CRM), Finance requires an accounting application, Production requires a Material Requirements Planning application (MRP). Many avoid these consolidated approaches based on cost alone, but the reality is that the cost of maintaining five different applications and then integrating the data is MORE costly. If you are taking the separated approach, you might want to do the math and see which one really costs you less! I am a firm believer in Technology First, so I believe in an ERP first approach…even though it seems to cost more initially. I used to believe in integrating different applications to consolidate data as that was my specialty (background in API development)…but as I started to manage my own business, I realized the cost of separating was often higher in the long run (and harder to manage).
3. Defined. Roll the data from your applications into an executive dashboard automatically. This data should be real-time (or almost real-time). Leadership should be able to access this dashboard at any time to see the past and current state of the business to make decisions. If you have different applications, then this will require that you procure the staff or resources to programmatically integrate this data.
Forecasting and planning should be data-driven as a standard practice. All facets of forecasting in every aspect of your business (sales, budget, supply chain, manufacturing) should be backed by data. This starts with Sales and data from your CRM and pushes all the way back to Finance. If you can’t follow a path of data all the way, then you are still just guessing.
4. Quantitatively Managed. Invest in Business Intelligence (BI). Reporting is nice, but it only tells you what happened in the past. If you use only reporting to make decisions, you will only be guaranteed that you perform as well, or as poorly, as you did before. If you make decisions on reporting, then you are using your own brain as Business Intelligence. There are plenty of ways to do this. You can invest in the resources to add BI to your existing dashboards through custom development, or you can invest in many packages out there such as Microsoft PowerBI, Tableau, Domo, etc.
Forecasting and planning should be BI-driven as a standard practice. At this level, you should lean on the data and algorithms to provide you a prediction that can be validated against external market data.
Invest in Industry External Data. I know this seems late…as most of you have probably subscribed to Industry data sources (at least for sales) before this level. But what are you doing with it? If your goal is just to say ‘hey, we are doing well!’ or ‘hey, we are doing poorly!’ or to use it as bragging rights with your peers…then you aren’t using the data correctly. Market data should be combined with your operating data to help with the accuracy of your BI predictions. You should also be validating predictions against this data over time.
5. Optimizing. Develop your Operating System. This state focuses on continuous improvement. By now, you should have an Operating System that describes exactly how you do business from the ground up utilizing technology. This Operating System is a combination of technology and should be utilized every time a critical decision has to be made. Focus on improving your Operating System to be able to make these decisions faster and more efficiently. Document and train staff on this Operating System so that it becomes a tangible technology asset to the Company. This is the state where you have minimized and continue to decrease ‘what you don’t know.’ Data and technology are certainly helping the cannabis industry mature.
The reality is that 99% of all of the cannabis businesses I have worked with should be classified as either Level 1 or Level 2. They are either completely reactive or making progress yet frequently reactive. Most of them are running on paper data sheets in some capacity. If they aren’t still running on paper data sheets, they have started to use Google Sheets or Microsoft Excel in order to track their data. This is also characterized by the lack of technology in place to provide them the data they need to make them more proactive than reactive. They know that they need improvement but prioritize operational spending because it’s all they know.
If you are in this group of the 99% I have dealt with, your organization has gone too long without implementing these changes already. The longer an organization goes without improvement of its maturity level, the harder it becomes to make these changes. As your organization gets larger and your volume increases with scale, it becomes harder and harder to get staff to accept these changes. Interruption to your business, based on these changes, could also be more damaging as immature organizations are affected more by change. This is why I have always pushed the Technology First approach…an approach that embeds the technology practices into the organization from the beginning.
If you are just starting your organization, your goal should be to launch as maturely as you can! Realize that in order for a cannabis organization to move past initial success, it has to put in place methods to make fact-based decisions. The faster you get there, the better. Of course, prioritizing funds during startup is critical, but starting out higher on the maturity model will save millions and put you far ahead of your competition. Spending more time and money on maturity upfront will save you the pain of bad decisions that are often unrecoverable.
In future articles, I will focus on software and hardware solutions that I have found to work well with cannabis organizations and the positives and negatives of each of them. We will take the two theories I have now presented and turn them into actual application walk-throughs to show how they could help you mature your own organization. Each article will focus on a specific aspect of the business and allow you to decide which approach best suits your organization. In the meantime, I hope that this has given you some “food-for-thought,” and I look forward to the opportunity to show you how technology can lead the way to greater success.