Are You Focusing On The Wrong Numbers In Your Business?
In business, numbers are important. But all numbers are not equally important. Quantitative data has a way of becoming confusing, chaotic and irrelevant if the right parameters are not set. This does not mean you need to stop looking at them. What you need is caution. Be cautious that the numbers you are concentrating upon really matter. One of the basic truths about why most businesses fail in the first year itself is that they are not looking at the right set of numbers, the numbers that really make a difference.
As Albert Einstein said, “Not everything that can be counted counts, and not everything that counts can be counted.”
Which Numbers Matter?
Let's look at golf for now. How long and far you hit doesn't matter. In how many shots you landed the ball in the hole matters. It's about gaining the right perspective. In business you need to ensure you have the right perspective. For example, take employee productivity. The focus should not be on how much work they complete rather on how much work they completed accurately. Even better would be calculating the ratio of jobs done to jobs done accurately. The combined figure is more effective in giving the true reflection of performance. The numbers on which you need to concentrate on are the last set and not the first two. This will help you identify the top players in your team.
Anomalies exist everywhere, numbers help drive the focus to rectify them. The right metrics will help in concentrating efforts in the most productive and efficient manner. A comparison of industry-wide metrics will help you identify areas where you need to do better. The only way to achieve that is by getting your methodology correct. What is important here is not the numbers but the way you achieved them. Chasing the wrong measures will result in performance issues and ultimately business failure.
Arriving At Numbers That Matter
1. Narrow Down The Focus - Every business plays in numbers and to make sense of them dozens of reports are prepared regularly. To be honest, most of them are really not needed. They are just a waste of time and effort. Companies need to narrow down their focus area. Measure only that which is really important, the rest can be done without. Think of your business as your personal car. Do you check its engine, measure mileage, air pressure, check the airbags, the condition of tires etc. every day? Obviously not. Some of these things you might be doing daily, some monthly and the rest annually. Similarly, in business, there is no need to focus on all things at the same time. Understand the industry standards and measure yourself on those. Gain insight into things that are not working for you and spoiling your metrics.
2. Metric Prioritization - Again think about your car. In order to keep it in good working condition, you need to regularly top it with gas and have the right tire pressure. Every so often, you get it serviced. What you are doing here is prioritizing the jobs based on your needs. The same stands true for your business. All metrics are not equally important. Some are more so than others. Accordingly, you need to concentrate your efforts on them. When you drive you don’t just look ahead. You also look in your side view and rear view mirrors. In business too you need to look ahead and behind in order to improve your past performance. Looking at side mirrors here means how your competitors are faring. Becoming one better than your competition should be your aim.
3. Motivation Through Measurement - Employees and customers both are equally important for a business. You have to motivate an employee to work and you have to motivate a person to buy your product and stay true to your brand. When this motivation is measurement based it is most effective. In the case of employees, it can be a monetary incentive for top performance. Remember it is not about meeting the benchmark here but going above and beyond what is required. Creating healthy competition will get quick and innovative solutions.For high rolling customers, long standing special offers will make your brand more appealing. New ones can be attracted by discounts and competitive pricing. In all this, numbers are used to motivate the relevant people and get the desired action.
4. Input Vs Output - Sometimes input is more important than the output. This is primarily because it governs the output. An output on its own is not the correct measure. Current output compared to the previous output gives a degree of comparison. Remember output comparison on its own is also not sufficient. What makes the numbers matter is a comparison between the current period input and output ratio as against that of a previous period. Now that you have these numbers you can forecast to the best of your ability.
To Wrap Up
In the end what really matters is having a clear picture of the numbers that really affect you. As a business owner, you cannot drive focus on all aspects of the business. You need to understand your strengths and weaknesses and prioritize accordingly. The numbers will show you how good you are performing on the given parameters. Therefore, begin by narrowing down your focus area so that things are manageable. Now prioritize them in the order of most important to least important. Begin with those that are most important. Find out the correct set of numbers that reflect its true picture. Again use these numbers to identify where the problem lies. Finally, correct the methodology and move on to the next important task. What it all boils down to is getting your perspective in order. Revisit your numbers and pick just those that really impact your working. Getting the right set of numbers is half the battle one. For the remaining half, you need to toil and become better and do business smarter.