🔒The power of the right metrics

At the recent Connecticut Business Expo I moderated a panel discussion on innovation and growth. The panelists were all successful entrepreneurs. The audience was very engaged, especially when it came to learning the lessons applicable to building momentum and getting a business to the next level.

Much of the discussion focused on the passion an entrepreneur brings to their 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.

There was one question, though, 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 the following: “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?”

It's a great question and 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 are clear indicators of how that business is doing. Every successful entrepreneur knows what those numbers are and diligently tracks them.

Entrepreneurs should think of themselves as doctors. The numbers are symptoms. If one or more numbers are not where they should be, then corrective action is needed.

Here are some examples:

Contractors live and die by the gross margin percentage on a job. They know that if they can deliver jobs at a 60 percent gross margin, then their business will cover all of its other costs and be profitable. To improve gross margin and increase profits, the businesses need to become more efficient in how they do their work, and/or find suppliers who can provide materials at lower costs. Every percentage point improvement in gross margin should drop right to the bottom line.

Financial advisors strive to increase assets under management. The more money they look after, the greater their fees. The activities that produce assets under management are sales and marketing oriented. 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 needs to get out there, make connections, and build relationships.

Technology services companies can approach the market in a couple of different ways. They 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 business model is to become a technology partner to customers, managing all the customer's IT 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. Segmentation question: Are we focusing on the types of customers who would be inclined to convert? Training question: Are our people skilled in building a strong enough relationship 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?”

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 are doing the necessary activities to move the numbers in a positive direction. 

Ken Cook is the co-founder of How to Who, an organization focused on helping people effectively build relationships and building business through those relationships. Learn more at www.howtowho.com.