What are you hoping for from your business? Survival? Something approaching high performance? Are you happy just being able to continue trading month-to-month, year-to-year? Or, instead, are you hoping for continued growth and improving profit?
For most, this doesn’t seem to be much of a choice. What business owner would say that they don’t crave growth or at least a decent return for their efforts? Why then, do many of these same business owners behave as though survival is as much as they can expect? In my experience, many SMEs could perform much better by applying a little discipline to analysing and understanding some key decisions and measures. Consider for a moment an analogy – the performance of the human body.
For some “human systems”, (people!) survival or “continued life” is all they ask of their body. The only inputs they “manage” (and often not very carefully!) are things like diet, sleep, and exercise. At the same time, most people measure only a few outputs. Possibly clothes size, sometimes weight, and perhaps even blood-pressure these days. They may also notice occasional performance problems like illness, or breathlessness with hard work. It would be unusual, though, for most people to monitor such problems systematically.
Now consider most serious athletes. Clearly, they also think about diet, sleep, and exercise. However, they also make a few more “critical performance” decisions. When to compete, what supplements to take, when to rest from training, and what kind of coaching to look for, will all be considered. Serious athletes also “measure” much more than the average person. They take great interest in a range of “key performance outputs” to help them decide how to make changes to the inputs – the critical performance decisions. As well as weight and blood pressure, they also monitor event performance, and things like VO2 max, cholesterol, body mass index, flexibility, stride length, cadence, and often much more.
Top athletes understand the relationships between the outputs and the inputs. They monitor the outputs closely so that they can modify and optimise the inputs for top performance. Their goal is to produce their very best in competition. Mere survival is no good to them – they crave the maximum their body “system” can deliver.
In our work with SMEs, we view the business performance in much the same way as top athletes consider their “body performance”. If we expect top performance, then we should figure out what the “key growth decisions” are, and which “key growth outputs” should be monitored. These outputs should then inform the key growth decisions – to help optimise and maximise growth. In our experience, however, many SMEs measure and monitor very little. They operate only in survival mode. Even when they do measure, often they are measuring the wrong things. Just as bad, they don’t use the measurement to optimise their key growth decisions.
Many owner/managers seem to have an aversion to measurement. One business-owner friend openly resists “over systemisation”, at the same time accepting that he is far from optimising his business’s key growth decisions. The result is an acceptance of survival, rather than optimised performance. It’s not unusual to ask business owners basic growth questions, (e.g. “how much does the average customer spend on your products?”) and get answers that turn out to be 300% wrong!
These problems are particularly evident in sales and marketing performance. Many SMEs are sub-optimising growth by ignoring data that could transform their sales and marketing efforts. This uninformed view of sales performance produces growth plans that cannot possibly be delivered! These same businesses, however, often have much greater growth potential than they realise – hidden growth potential that sadly might never be fully realised. In effect, many business owners actually don’t understand their business “system” in the way that a top athlete understands his/her body “system”.
Thinking about your business as a system can highlight how to make better business decisions – optimised decisions that can deliver reliable growth (an approach we call Data-Driven Business Growth). In business there is always risk and uncertainty, but we often accept more than we necessarily should. Even seemingly basic questions, answered with rigour and discipline can provide great insight for decision-making. How often do customers buy? How much should you pay to gain a new customer? What are your conversion rates from enquiry to sale? For many SMEs, these questions are either never asked, or answered with less than useful levels of accuracy. It is here that lies a great opportunity for growth.
I read recently that Audrey Baxter, CEO of Baxters Food Group, felt that they were suffering paralysis by analysis. What they needed, she suggested, was the return of a more entrepreneurial spirit. This may be true for some larger companies but in my experience, most smaller businesses are at the other end of that particular spectrum. Too much analysis is certainly as bad as too little, but a bit of thought can help determine a measurement and analysis regime that can pay for itself many times over.
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