Most small businesses start out relying on intuition. Their gut told them to do this thing they love for a living. Their passion circumvented the risks and challenges. They checked the bank account balance every day to be sure they have enough funds. But once a business gets going, it needs a Scorecard with the right KPI’s (Key Performance Indicators) to stay on track, hopefully grow, and react quickly to new scenarios.
Should we grade our business like school?
Not everyone enjoyed going home with their report card, but grades are essential to understanding performance, giving timely feedback, and correcting course. Let’s go back to 3rd grade when you were taught fractions and pretend you thought you understood the premise when the teacher explained it. You answer the homework questions and turn it in mostly sure you were right. The next day your homework is returned, and you receive a 33%. It was very clear you need to improve. If most of the students struggled with homework, the teacher also has immediate feedback their instructions weren’t sufficient and can spend more time teaching the concepts.
If the system were just set up to teach you concepts and never grade you and give you feedback, you would walk around in the world assuming you understand more things than you actually do.
What about Intuition?
Business owners know a lot, but one person cannot know everything. Intuition is simply the algorithm in the brain (subconscious) that has been collecting data points over the years, then creating forecasted assumptions based on your specific experiences. Our assumptions are limited to our experiences.
Emotions, like fear, anger, greed, and jealousy, can also get in our way in decision making. Data should be an objective, unbiased source of information. If you look at the data and your trusted advisors agree, a decision is very likely best. If the data shows a different story, then you need to be able to step back and pull the emotions out of the equation. Data should line up with your intuition. If it does not, dig deeper.
Scorecards help you get out in front
If you fully understand each segment of your business, such as profitability, productivity, utilization compared to external benchmarks, then you can react quicker to disruptions and opportunities. Once a client in Georgia was losing his most productive and profitable revenue generator; she worked 3 times as hard as the average medical provider and brought in almost ¼ of his region’s profitability. As soon as she planned to leave, we started looking at ways to improve insurance reimbursement for the rest of the business and other areas to grow. If we hadn’t been tracking that information all along, he would have likely been in a more reactive stance instead of a proactive position.
Why are benchmarks important?
If you only measured how fast you run a mile and never compared yourself to other runners who are entering the same competition, you could be very content with an 8-minute mile. If you do research and discover your competition runs 6-minute miles, you will have to regroup to decide if you want to compete, train harder or longer, and/or lookup methods to bring the specific results you want. Benchmarking allows comparison to top tier companies to identify areas to improve.
What’s the right level to measure?
Other companies have demonstrated the potential impact of monitoring KPIs at the right level. For instance, looking at customers by method acquired can yield actionable insights. Early on, Dropbox recognized that referrals led to a significant percentage of its new customers, so it refocused its acquisition efforts to maximize referrals. Referrals suddenly came bundled with added storage space, and it led to a big increase in signups.
How do you align a Scorecard throughout the company?
Data can help you find your niche and stay there. Southwest Airlines analyzed the market years ago and decided to focus on Operating Efficiency by getting more customers on fewer planes. This was achieved with low-cost pricing, on-time arrivals, and fast aircraft turnaround. They educated their crew as to how they contributed to the company’s success and offered a large employee stockholder program. The Southwest Airlines Balanced Scorecard is tracked closely by all employees at all levels and has contributed to their success, profitability, and agility in the face of obstacles. Southwest employees are the most satisfied in the industry, often breaking into song or sharing jokes with customers.
Where do I start?
Smart Spider is offering training through Ask a Pro in May. Attendees will be given a free tool to get started measuring success.
