Brad Farris

Article Summary:

Is Your Business in Good Health? Check your key performance indicators to find out.

Is Your Business in Good Health? Check Your 'Vitals' and Find Out!

A desperate business owner trudges into a doctor's office and says, "My business is not feeling well."

"What seems to be the problem?" the doctor asks.

"I don't know...my company is not making much of a profit, the employees aren't happy, we've got worker's comp cases left and right..."

"Well, it sounds like your company needs a full-blown check-up. Here is a referral for a great management consultant who can help."

Okay, this scenario may be a little unrealistic (and perhaps self-serving!), but the doctor did have the right idea in thinking this man's company needed some help. His company was not "feeling well," yet he didn't know why.

When you own or operate a business, you can't brush aside a little malaise. You need to know where the "pains" are coming from and how to prevent them from coming back. You can do this by looking at key performance indicators, or, more simply stated - data. Let's look at some key data that can indicate the health of your business:

- Sales (Daily). This is your business' pulse. It's the first place you look to assess the health of a business.

- Leads, Closing Ratio, Applications, Sign-Ups (Daily or Weekly). These are leading indicators for sales; if they are dropping, it's time to act.

- Gross Margin (Monthly) and Expenses (Monthly). These can be compared to your body's energy and body mass index. They can tell you how "fit" your business is.

- Customer Satisfaction (Quarterly). How does your business look from the outside? Does it have that healthy glow?

- Employee Satisfaction (Annually). How is your company feeling from the inside? A little acid reflux, perhaps?

- Safety (Monthly). Poor safety is often an indicator of neglect in other areas. Monitoring it closely shows employees you care for them, and avoiding on-the-job injuries will help your company's bottom line.

Stop for a moment and consider how easy, or hard, it is to get this kind of data in your business. Is it all in one place? In most businesses, this type of data is fragmented across a number of business systems and each department or functional area knows their own data. However, the whole team doesn't have access to all the data.

Jack Welch, former CEO of GE, used to say that "intelligent people, given the same information, generally come to the same conclusions." Assuming that you are hiring intelligent people (you are, right?), then the key to getting all your people pulling in the same direction is to arm them with the most accurate and current information - all of it.

If your entire management team possessed a regular report that contained all of these data points, you could use it almost like a heart monitor. When the "heart" of your business is beating too slowly, you investigate and troubleshoot. When it's pounding too fast, you compensate by using the necessary resources to fulfill your commitments. When you do this:

  •   The whole team is on the same page, and their priorities are in sync.

  • There are no surprises. When you have to ask the production team to work overtime this weekend, they will have seen it coming. They will know sales have been running ahead all month - and they may have already scheduled overtime without you asking!

  • People will understand why decisions are made. Since customer inquiries have outstripped capacity for two months, the marketing department may even volunteer to give up some of their budget to expand capacity.

But, when the data tell a disappointing story, there is a tendency to "blame the data" or conclude that the reporting system isn't right. Some people will be optimistic and say, "Next month will be better," while others will resign themselves to the fact that it's the region your company is in, or it's the current state of the economy.

These moments are the test of a true business leader. If the leader faces bad news head-on, seeks the needed information and digs in, the rest of the team will follow. If the leader covers up his mistakes, makes excuses and doesn't face the facts, the team will follow the same downward spiral.

People appreciate when you take the time to you care about how your business is feeling. Uncertainty is the enemy. If bad news is on the horizon, they want to see their leader face it, not duck and pretend it will go away (they're intelligent people, remember?).

Your staff is part of what keeps your company alive and moving. Data can be motivating to them and make them work harder. Even if they aren't playing a role in making changes, if they know the facts, they will understand your actions. They will go from being just "employees" to being compassionate people who care about the health of your business.

As an advisor to small businesses, Brad Farris comes alongside a business owner to offer them practical help for meeting their goals. He brings into that challenge 15 years of business leadership experience, with assignments such as General Manager and VP/COO. Much of this experience was inside of a large ($1B+) family-owned business where Brad lead a team charged with buying small and medium businesses into the family's portfolio. Brad's background includes significant experience in product development and patent prosecution and licensing. For more information, visit his website, Anchor Advisors.

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