5 steps to business performance measures that matter
Business success, the subject is the source of countless books but what does it mean, what do you need to do to meet it and why should you measure it. I’m not going to cover everything here, instead we will look at how you can measure success.
Before we get started. If your business links performance measures to 3 year, 12 month and 90 day plans, congratulations you are already one step towards business success.
Business success is often the result of a razor like focus. Focus on where the business is going, how the business is going to get there and the reasons for the business being there. Trouble is many businesses that have wonderful potential become undone with their reliance on the income statement as a performance measure, and specifically EBITDA.
While the humble income statement provides us with a consistent method, that has been around since the 1300’s, to measure a businesses profitability. The problem is once you know the results on an income statement you cannot change them. In other words, you are looking at lagging indicators that often take weeks of the CFOs team to produce.
Successful Businesses have realised this and created competitive advantages out of the way they measure their business. While other businesses struggle with figuring out the measures to use. With measures Customer Acquisition Cost (CAC), Customer Life-Time Value (CLV), Monthly Recurring Revenue (MRR), Net Promotor Scores (NPS), Cash at Bank, Debtor Days, Aircraft Turnaround Time and more, indecision reigns.
The good news is there are really no right and wrong answers, time will tell if you need to refine your measures. So how do you find measures for your business success — here is a 5 step process to help you find and communicate the critical numbers of your businesses success.
1. Have a plan to measure business performance against
This is a touch one, the moment you mention strategic plan, small businesses and startups alike duck for cover. Consultants are expensive, you’ve used the business model generator, implemented lean startup principles, and there just isn’t enough time with all the fires to put out.
Stop there. Here is the reality.
A strategic plan doesn’t need to involve expensive consultants and is often just one page. Your strategic plan simply documents your core values, why your business came into being, how you want your customers to perceive you and where your business is going. That is it.
A Strategic Plan brings together your team by focuses everyone on the same page and is a great tool to use when making decisions. Your strategic plan clearly documents what business success means and contains a series of goals to focus business. The goals in your strategic plan include as Jim Collins, from #1 best seller book Good to Great fame puts it, a Big Hairy Audacious Goal (your 10+ year dream for the business), 3 year goals, a 12 month goals and quarterly goals.
Your goals translate your strategy into actions.
Successful businesses often establish a strategy council to develop their strategic plan. What you call it really doesn’t matter, but you need to make sure the right people are in the room. We suggest at a minimum the executive team. Gather the team offsite for 1–2 days, work through the purpose and values, write your Big Hairy Audacious Goal and then work out the 3 year, 12 month and quarterly goals.
2. Define the numbers critical to measure performance
With the most important part completed, your values, how you do business and where you are taking your business. The next step is to ask each member of your strategy council to come up with 3 measurable numbers that they will be accountable for achieving against the goals. This will produce a list of measures, as a group find the measures that generate critical numbers for the business. That is numbers that set your business on the path to success. Your list should end in 5 to 7 measures that the business will focus on. Assign these measures to the most appropriate executive.
Just remember, to drive you to business success, assign one accountable person to each number — having 2 people responsible will mean no one will be accountable.
3. Communicate the performance measures to your team
Now that you have a clear, simple strategy document, you need to communicate it. The whole business needs to live by the core values and strive to meet your measures. All of your employees need to understand why they come to work each day (purpose) and how their actions impact the bigger picture. Don’t be shy, hold a kick-off celebration and launch your strategy, but remember your strategy is a living document, you need to constantly communicate it.
Communicate your plan by telling stories, celebrating wins in weekly meetings, and rewarding team members who live the values. Make sure you lead by example.
4. Accountability for each performance measure
So often businesses launch their strategic plan complete with numbers that define business success only to drop focus and return to fighting fires. Businesses that do this tend to hit the brick wall of growth and burnout their key people. The reason, the plan is often left to the executive team and accountability for the measures is missing.
To make everyone in your business accountable, you need to break down the measures of business success into small chunks. That way everyone has performance measures that relate to their work, they can see how achieving that measures helps the business and you can performance manage based on it.
For example, you may select Customer Life-Time Value as a measure for business success, a driver of the length a customer is with your business is happiness, so you may assign a response time measure for your customer support staff.
The importance, is to make sure everyone in the organisation, even the receptionist, in the are given measures that matter.
5. Review your performance measures
At least once every 2 weeks your executive team should come together to check the numbers. That is if performance isn’t meeting the measure, understand why performance is lagging and then put in place actions fix it.
Every quarter, your team should hold an offsite meeting to look at your plan, set goals for the next quarter and celebrate achievements. The same should occur annually, review the year, and set goals for the next 12 months, the goal is a live strategy not one that gets put in the bottom drawer, that is how successful businesses are born. Getting it right from the start will change your business, an outside strategy advisor, like a virtual CFO may be the solution for you.
Originally published at www.cfospot.com on October 17, 2015.