Want your business to thrive and grow? Know your numbers
At the recent CT Business Expo in Hartford, I moderated a panel discussion on innovation and growth. The panelists were successful entrepreneurs. The audience was very engaged, especially when it came to learning the lessons applicable to building momentum and advancing a business to the next level.
Much of the discussion focused on the passion an entrepreneur brings to his or her business. It's passion that motivates someone to be working at 6 a.m. or 10 p.m. when others are sleeping, reading or watching TV.
But there was one question that took the discussion out of the world of emotional commitment and locked it firmly in the world of facts, figures and data. A participant asked the panel: “I'm considering investing more of my own money in my business. What can I do to protect my investment and ensure my business gets to the next level?”
A great question, one that entrepreneurs face every day. The response from each of the panelists was virtually the same: “Know your data and measure your results.”
Every business has one, two or three numbers that serve as clear indicators of how it's doing. Every successful entrepreneur knows what those numbers are and diligently tracks them.
Entrepreneurs should think of themselves as doctors. The numbers are symptoms, and if one or more numbers are not where they should be, then corrective action is needed.
Here are three examples:
(1) A contractor lives and dies by the gross-margin percentage on a job. It knows that if it can deliver jobs at a 60-percent gross margin, the business will cover all of its other costs and be profitable. To improve gross margin and increase profits, the business must become more efficient in how it does its work or find suppliers that can provide materials at lower costs. Every percentage-point improvement in gross margin should drop to the bottom line.
(2) A financial advisor strives to increase assets under management. The more money it oversees, the greater its fees. The activities that produce assets under management are sales and marketing. If a financial advisor's assets are flat, the corrective activity is to focus more on the sales effort. Be it relationship building, speaking, public relations, charity work or increasing referral sources, the advisor must get out there, make connections and build relationships.
(3) A technology services company can approach the market in a couple of different ways. It can be a volume provider offering services on a time-and-material basis, when customers need them. This is a good entry point into a new account. The next level of the business model is to become a technology partner to customers, managing all of a customer's information technology needs under a service contract. For this next-level business model, the key metric is the conversion rate: How many time-and-material customers sign up for service contracts?
If the conversion rate is low, the entrepreneur is most likely dealing with a segmentation and training issue. For example, a segmentation question would be: Are we focusing on the types of customers who would be inclined to convert? And a training question would be: Are our people skilled in building strong enough relationships with customers that they would trust us with all of their information technology?
In either case, knowing the conversion rate points the entrepreneur in the direction needed to grow the company.
Back to the panel and the question from the audience member: “What can I do to protect my investment and ensure my business gets to the next level?”
The answer? Know your numbers. Know what metrics are the key clear indicators of whether your business is healthy and growing. Know the activities that impact those metrics. Finally, evaluate whether you're doing the necessary activities to move the numbers in the right direction.
Ken Cook is co-founder of How to Who, which focuses on helping people effectively build relationships and building business through those relationships. Learn more at www.howtowho.com.
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