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Like the Old Adage ‘Measure Twice, Cut Once’? Now Apply It to Business

Professor Long’s 26 Rules of the Business Road — Rule #17

Photo by Alexander’s Images

This rule is often glossed over in businesses, and it’s a costly mistake. Too many CEOs look at what they want to see — they don’t measure things that can determine progress.

Rule #17 is “Measure everything of significance and keep track of it.”

This rule provides the answer to the question, “How are you doing?” You don’t know if you don’t know it’s important, you don’t track it, and you don’t report on it. Know what is important and measure it and admit to it — good and/or bad.

Know what to measure

The first part of this rule is particularly important — understanding WHAT to measure. Certainly, most quality entrepreneurs or senior management folks know it’s important to measure progress (or lack thereof!). But — what exactly do they measure?

I’ve seen some interesting statistics in my day. For instance, one entrepreneur came to me and proudly displayed his growth (in sales and revenue — good move), and then presented an odd graphic of sorts showing me “where all my employees came from originally.”

This CEO had various states represented and a bar graph indicated how many employees (current and past, mind you) came “originally” from each location.

“Why?” I had to ask him. “What is the purpose of these stats?”

“So I know where my best employees come from, and so I can hire more from that area!”

“Is this just where they were born? Where did they grow up? Are your best employees really ‘from’ a predominant state?” I had to ask. “How can you possibly hope to recruit only from that location, and what happens when you get a ‘bad’ employee from that particular area — doesn’t that improperly skew your statistics?”

Believe me, that CEO left my office more confused than happy!

So what should we measure? Sales are important — as is revenue. Those are two key indicators of your success, like it or not. I’ve met with more than a few entrepreneurs who indicated “sales are booming!” and thus they felt success was at hand. However, I recall one who, when asked about “net profit”, admitted they had no concept of “cost of goods sold” and thus were simply tracking gross sales. (It took a while to convince them gross sales are not the same as “profit.”)

“I don’t track sales, it’s too arbitrary a measure of success,” yet another business founder told me.

Uh, yeah.

Sales minus cost of goods sold minus other expenses (SG&A — look it up) equals PROFITS, and profits sustain businesses. Yes, I know there are non-profits and social benefit companies, but even these types of companies must hit the break-even point. It is a significant measure of success. After all — profit is what makes growth possible in the long run!

Then measure it

So the moral here is: TRACK THE IMPORTANT STUFF (and keep track of it)! Remember the quote, “Don’t sweat the small stuff — it’s all small stuff!”? Well, it’s NOT all small stuff in your business!

Your “running costs” of raw material, labor, manufacturing, T&E (travel and entertainment) — all your operating costs — are important items to note. For example, labor — people’s salaries, benefits, etc. — is typically one of your largest expenses.

To grow your business properly, you’ll need to balance your personnel needs with your income. As your business gets larger, you may need more people. (It depends on the type of business, of course. These days, manufacturing, for instance, relies on automation and robotics more than human resources. Not that automation and robotics are free, of course!)

I recently spoke to one founder who, while being quite successful in terms of sales and revenue growth, indicated she was exhausted. Her business had grown to 85 employees in only 18 months.

She was simultaneously doing research and development; supervising manufacturing (and often jumping in to demonstrate a technique to employees); managing packaging and shipping; she was directing marketing efforts AND she oversaw sales (while flying around presenting the products to potential licensees). She was also doing the hiring and providing financial oversight.

“Hire someone!” was my first comment to her, as you might suspect, “particularly someone in management.”

“I’m not sure of our financial position,” she responded, clearly reluctant to hire who she needed. (Most likely, she hadn’t had the time to properly track sales and costs.)

We jointly decided to bring in an accounting firm to go through everything, and she also agreed to “take the risk” and bring in a COO experienced in manufacturing, and a full-time accountant.

Six months after her hires, sales were better than ever and she KNEW her “numbers” — which made her happy (AND efficient).

And don’t forget to do this

This brings us to a final point: It is not sufficient to measure items of significance and track them, but it’s important to SHARE these facts and trends regularly.

Believe me, you don’t want to have a meeting with your company management only to have them disagree about sales and revenue numbers. I’ve even had a CEO and COO argue over the correct number of employees (turned out neither of them was correct).

Originally published on the IncubatorBlogger on May 12, 2022.

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UF Innovate connects innovators with entrepreneurs, investors and industry; incubates startups and growth companies; and fosters a resilient innovation ecosystem — all in an effort to make the world a better place.

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Mark S Long

Mark S Long

45+ year career in entrepreneurship education, business incubation, economic development and mentoring/advising/assisting startups - & lots of biotech/biomed!

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