In part two of our series exploring SMB finance and barriers to growth, we’re taking a look at performance metrics, and asking the question: How can you succeed in business if you don’t know what success looks like?
The Problem: Poorly defined metrics
We’ve already looked at how businesses need a proper strategic plan if they are to target growth. But, in fact, businesses need more than this. Businesses need to be able to actively and definitively measure the growth they achieve.
Immediately, this shifts all focus to the quantifiable and the unambiguous. Business owners cannot talk in terms of “increased revenue diversity” or “growth in sales.” Instead, the language needs to be geared towards tangible improvements and benefits, covering percentage points and actual figures – things that can actually be counted and analysed. This is the only way growth can be measured.
But what’s so wrong with targeting vague growth objectives? If you employ these vague objectives, you will still be moving in the right direction, after all.
Well, yes, you will be moving in the right direction, but you will be moving inefficiently. How will you know when you reach your objective or your incremental mile markers? How will you know if you have achieved an acceptable level of growth within the time frame? Crucially, how will you know if the growth you have achieved is actually worth the investment?
You won’t – not unless you have metrics in place with which to measure your performance.
Don’t forget that measuring performance is an ongoing concern. Anomalous spikes do happen, as do unexpected and temporary dips in revenue. The only way you can make sure that these events are anomalous is to keep on top of monitoring and managing performance over time. This will give you the data you need not only to achieve growth, but also to take the actions required to keep yourself on the right track.
Without this data, and without the metrics required to source this data, there is simply too much guesswork involved. Guesswork is not something you can tolerate as you move forwards with your business.
The solution begins with a planning meeting. Your team needs to come together and decide on exactly what you are aiming for with your business growth. Put an exact figure to this target, and then attach similar figures to the mile markers on the way to this target.
Remember your budget while you do this. How much would you and your team consider to be an acceptable investment on the way to meeting your goals? Keeping your budget in mind is crucial if you are to achieve maximum cost-efficiency.
Finally, build a degree of flexibility into your plans. Circumstances change, plans evolve, goal posts shift. You need to be able to meet all of these challenges head-on, adapting your performance metrics as you go. You don't want to be encumbered by rigid measurement schemes if your situation does change.