By the Numbers

“The numbers in a business are just stories about people.”
– Jack Stack, CEO of SRC Holdings and author of The Great Game of Business

What are your company’s numbers, and how do you use them to assign accountabilities to departments and people?

Here’s the Great Game of Business approach:

1. Determine your main measure that defines success. We call it your Critical Number. In a small company, it’s likely profit. After all, you have to take in more than you spend. Set a specific target.

2. Visit with the people in each function or department. Ask them how they most directly impact that number. We’re looking for one to three “drivers” … the measurable activities that “drive” your Critical Number. In some departments – like sales – these will be easy to identify. Depending on what role a department serves, the driver may measure a supporting function and won’t necessarily be tied directly to the Critical Number. But every department should be able to define its contribution to success. Ask lots of questions and soon the drivers will emerge. Set specific targets.

3. Have those departments track their drivers on an ongoing basis, and meet weekly to review and discuss improving them.

Here’s how this might look in action:

ComputerFix is a small computer repair company. Their sales target is $1 million, and they’ve selected Profit Before Tax as their Critical Number. The goal: $100,000.

They have 6 service technicians and 4 support staff, including the owner, Pat. The techs generate revenue based on hourly billing. They have determined that if each team member can invoice for at least 75% of his/her time, the company will achieve its sales target. So their driver is Billable Time.

The support staff decides on these drivers for their main functions:

  • Dispatch: 98% customer satisfaction (measured via surveys)
  • Parts Purchasing: 100% on-time delivery
  • Finance: Accounts receivable outstanding < 45 days

The company selects 10 am every Monday for its weekly “huddle.”

At the first huddle, Pat explains that the employees create the numbers; accounting simply records them. Pat asks everyone for their best effort in keeping their drivers moving in the right direction.

When they get to receivables, an insightful discussion ensues. Jan in accounting talks about the importance of making new clients aware of the company’s payment terms. Alex in dispatch offers to send a “Welcome Aboard” email – including payment terms – to new clients. The techs will carry hard copies for new clients. All agree that clarity on payment terms will help customer satisfaction.

These huddles are nothing more than common-sense discussions about the employees’ impact on the numbers. This is the best way for them to learn the numbers, and to hold themselves accountable for them.

Running the business “by the numbers” is not just for the owner. It’s for everyone in the company.

Back to Business Basics

Another year has already come and gone? Really?

As you wrap up this year and prepare to start another, consider using the following list to guide your business activities. If you want to consider this a “New Year’s Resolution” list, that’s fine as long as you actually turn this list into reality and stick with it all year.

Set business goals, and have plans for achieving those goals.

Establish written plans for achieving your business goals. Be sure to assign accountability using the following formula: WHO will do WHAT by WHEN?

Run your business by the numbers.

It’s important to regularly review your progress and results. Your review should include:

  • Sales, broken down by product/service or customer segments
  • Gross profit, broken down the same way as sales
  • Major expense line items
  • Net profit
  • Cash balance and cash flow
  • Accounts Receivable, if you extend payment terms to your customers

Look at both month-to-date and year-to-date results, and compare to the same period from the prior year. It’s also a good idea to look at your P&L statement numbers as a percent of total sales. This allows you to spot trends early.

Use time wisely.

Your time is one of your most precious resources, so be sure you’re making the best use of it. Use a calendar and set aside time for planning and review.

“Hire hard” so you can “manage easy.”

Spend as much time as needed with the recruiting and interviewing process to build a strong team who will grow with your company.

Spend quality time with employees.

Rather than waiting a year to discuss performance with your team members, regularly visit with them informally. Get to know their talents, strengths and weaknesses. Praise them for their good work, and coach them when you see opportunities for improvement.

Delegate.

You can’t do it all yourself, so don’t even try. Continually ask yourself, “Is what I’m doing right now the best use of my time and talents?” If not, find a way to delegate those activities to employees or outside vendors.

Spend quality time with customers.

Find out the answers to these two questions:

  1. What’s important to you? (Quality, customer service, product mix, etc.)
  2. How are we doing in those areas?

Develop relationships with your customers.

Find ways to stand out from your competitors and to become the supplier of choice.

Make smart use of technology.

Technology has become so affordable and easy to use that even the smallest home-based business can afford to appear bigger and to level the playing field with larger competitors. Get tech savvy to reduce costs, improve communication, increase productivity and enhance customer service.

Create a winning culture.

Get everyone in your company on the success bandwagon, starting with you. Think and talk about growing, pushing through challenges and achieving goals. Be winners.

Implement these common-sense business practices, and go make the new year your best yet.

It’s Not My Fault!

“It’s not my fault!”

How many times have you been a customer and heard that line?

It usually happens right after you bring a product or service defect to the attention of someone at an establishment where you’re spending your hard-earned money.

I was on the receiving end of this statement recently. It was tempting to give a customer service lecture to the person in front of me, faultless as he may have been.

This particular situation involved receiving the wrong fast food order. I had ordered the medium Unrecognizable Chicken McParts and instead received – and was charged for – the aptly named Super Sized version. For a moment, I thought perhaps they’d brought me the entire crate of McParts straight from the walk-in freezer but they assured me this was indeed packaged for individual sale and consumption. (Disclosure: While I may find it amusing to poke fun at the fast food industry, that’s where I had my first job. Accordingly, I’m somewhat sympathetic to fast food employees. Even so, until they start putting the right stuff in the bag, they will be the target of my “how-not-to-do-it” business lessons.)

As a small business owner, I pay special attention to the way service is delivered when I’m the customer. Most folks reading this are probably equally aware of nuances that might be missed by others: The words that are said and how they’re said, body language, the care with which transactions are handled, and so on.

It’s almost unfair to use fast food joints as examples of how to (or how not to) conduct business. After all, they make it awful easy to identify faults.

So, let’s raise the bar and discuss another industry. In fact, let’s discuss your own company.

Have you had the “it’s not my fault” talk with your people lately? Have you ever had it?

Chances are, if nobody has had a direct discussion with your employees they don’t intuitively know that the customer doesn’t care whose fault it is. Even if the customer does know who’s to blame, “blame” isn’t on the agenda. Getting the problem fixed quickly is.

Here’s a good discussion to have with your troops:

  • Every company makes mistakes – including ours. The difference between companies isn’t whether mistakes are made, it’s how they’re handled when they occur.
  • When the inevitable error does happen to one of our customers, apologize. You represent the company, and you’re doing this on behalf of the company. It’s not admission of personal guilt or fault, and it doesn’t invite repercussions.
  • Take steps to get the customer’s problem resolved. If you can’t do this yourself, be sure it gets handled.
  • When you make a mistake – whether it impacts a customer or not – admit it. Learn from your mistakes and share it with others so we can all avoid that mistake in the future.

As business leaders, it’s important for us to shift the focus from fault and blame to learning and improvement.

Banish “It’s not my fault!” from your workplace. Replace it with confident, competent service that keeps your customers coming back.

7 Business Resolutions for the New Year

How is 2011 turning out for you? Check one:

[ ] Pretty rough
[ ] Fair
[ ] Great!

Even if you chose “Great”, it’s hard to be optimistic when unemployment is high and many of the most powerful people in our government seem determined to punish achievement via the tax code. Until fairly recently, entrepreneurs were celebrated and respected. It was all about the American Dream. Now … well, just listen to the words being used and the proposals being made. It’s clear that some folks don’t value what entrepreneurship represents: Pursuing dreams, hard work, jobs and a rising tide that floats all boats. When the dearly-held principles that made this country what it is today – including Capitalism – come under attack, it is difficult indeed to stay positive. Don’t fall for it. Here are seven resolutions for the new year to help you stay positive and improve your company’s performance.

1. I will not buy into the “the rich don’t pay their fair share” nonsense. The top 1% of earners pay 38% of all taxes. The top 10% pay 70% of all taxes. (This information is readily available on the IRS website.) You may not be rich but this ridiculous mantra is mutating into an indictment on all business owners. Get informed – immunize yourself against the negativity.

2. I will run my business by the numbers. It’s important to regularly review your progress and results, including:
• Sales and gross profit, broken down by product/service or customer segments
• Major expense line items
• Net profit
• Cash balance and cash flow
• Accounts Receivable, if applicable

Look at month-to-date and year-to-date results, and compare to the same period from the prior year. It’s also a good idea to look at your income statement numbers as a percent of total sales to spot trends early.

3. I will “hire hard” so I can “manage easy.” A bad hiring decision can haunt you for a long time. Don’t make a snap decision. Build a strong team who will grow with your company.

4. I will delegate. You can’t do it all yourself, so don’t even try.

5. I will connect with my customers. Find out the answers to these two questions:
• What’s important to you? (Quality, customer service, etc.)
• How are we doing in those areas?

Develop relationships with your customers. Find ways to stand out from your competitors and to become the supplier of choice.

6. I will make smart use of technology to improve my business. Technology has become so affordable and easy to use that no business has an excuse for not going high tech. Even the smallest home-based business can afford to level the playing field with larger competitors.

7. We will think like a growth company and will not participate in the poor economy. Get everyone in your company – starting with you and including all your employees – on this bandwagon. Think and talk about growth, pushing through challenges and achieving goals.

Be winners. Build on your successes and learn from your mistakes. Implement all these business practices, and go into the new year with the attitude that this will be your best year yet.