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One of the first rules of personal finance is to keep track of your expenses and income. That’s how you know where the money is. And where it’s going.
Knowing isn’t enough though. Nothing changes simply because you know that 18% of your money is going toward dining out. But without knowing that…you’re powerless to do much about it.
What your KPI’s? What key numbers are important to you?
Think about driving your car. Look at the instrument cluster on your dash. Do you pay equal attention to every gauge? Nope. Because some of them are unimportant. In fact, I’ll bet you don’t even understand some of them. Those are the ones you ignore completely.
Speedometer. It matters.
Fuel gauge. It really matters.
Check engine light. Yep, that one matters, too.
There’s 3. But we’re talking about your car, not your business. Both have more nuances that first meet the eye. In spite of the complexity of our cars, they’re mostly very simple to operate. That’s where the metaphor breaks down. Our businesses can seem simple, but we know how complex they truly are.
What are the three big measurements inside your business? The ones that really let you know what’s going on?
Sales / Revenues
Most owners will mention this first, and for good reason. No sales mean no customers. No customers mean no business. It’s the oxygen we need to keep our businesses alive.
There’s a problem. Sales and revenues don’t tell us how healthy our business is. Worse yet, these numbers can fool us into thinking things are okay. Even terrific. And merely tracking sales doesn’t necessarily reveal why sales/revenues are going up, or down. We just know it is what it is. Why is still a baffling question.
Profits
Gross. Net. Track both and now we’re getting a clearer picture of the health of our business. More is better, but simply tracking the number doesn’t indicate why it’s going up, or down. Again, the why can evade us.
Expenses
Tracking where the money goes and now we’re closing in the why of it all. Why is our cash flow being pinched? Expenses can tell us.
Why aren’t we keeping more profits? Expenses provide the answer.
What’s our customer acquisition cost? Without knowing our expense (investment), we have no way to calculate it.
Data is your friend, but you have to see it clearly. And for what it is. Tracking whatever matters is just the price you pay for the opportunity to improve the number. It shines a light on the thing (whatever THE THING is) so you can focus on it.
Track it, improve it centers on measurement, analysis and asking lots of questions…most of which revolve around, “What can we do about this?” Put another way, “How can we improve this?”
Improvement after tracking is an assumption we must make as owners. Don’t assume it can’t be made better!
Feedback
There are trackable things that have no gauges. You’re back behind the wheel of your car tooling to work at 60 miles an hour. Suddenly, a small vibration begins. You can’t tell where it’s coming from, but you know something is wrong. You slow to 50 miles an hour, but the vibration worsens. No warning lights go off on your dash. Nothing would indicate there’s a problem, but your senses don’t lie. Something is clearly wrong. So you pull off to the shoulder to have a closer look where you discover one wheel is loose.
Paying attention pays off. When we’re driving a car our eyes, ears and other senses help us navigate safely. It’s why developing autonomous vehicles has been slow coming. The human brain has an ability to process all the incoming data at unparalleled speed. Things that aren’t tracked – measured technically using meters or gauges – are instantly measured by the human brain. We adjust accordingly. That’s why you pulled your car over when that vibration began and didn’t improve.
So what’s the point? Brace yourself because I’m going to throw you a curveball. Track everything. I’m not saying make everything important, but give it to somebody to track. Solicit people inside your organization who love this sort of stuff. We need people willing (and happy) to track stuff – to measure it. If necessary, solicit as many people as you need. Why track everything?
Years of operating businesses with lots of moving parts has shown me that you don’t always know what’s important. Or when.
If everything is important, nothing is important. I started saying that decades ago because I learned as a young leader that priorities are needed if we’re going to grow great. I’ve not seen anybody grow great, or grow anything great by making everything equally important. But at the same time I’ve also learned the value of tracking everything. Not to make it a priority, but to keep an eye on it. To look for trends and patterns – which is largely what we’re doing as we operate our businesses.
Retailers and manufacturers know the importance of tracking inventory. The companies that can do it best tend to churn to the top. WalMart did. Now you’ve got to do something with that data. Just knowing it isn’t the key. WalMart stores know what items are best sellers at one store versus the other one 10 miles away. Stocking levels are adjusted based on the rate of sale. The power is in the doing, but the doing is sparked by knowing. It’s the pressure to always close that knowing-doing gap.
Can it be tracked? Track it. Give the task to somebody willing (and excited) to own it. Challenge them to make sense of it. To look for patterns and trends. Then to make suggestions on ways it can be improved.
Meet with these folks regularly. Get them in a room together regularly. Let them nerd out about it. Don’t muzzle them. Turn them loose. Challenge them to make sure they’re tracking accurately. Question everything. Then listen!
In short order you’ll figure out there are some new things you’re tracking for the first time that you can now improve – things you never thought of improving before.
Be well. Do good. Grow great!
RC