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You Can't Manage What You Don't Measure. Data, Big or not, Can be a Difference-Maker in Small Business Success!

Every small business, no matter the size, generates data. If and how you track and manage that data can make the difference between whether your small business succeeds or not.

Key metrics for your small business
While data analytics and “big data,” have been around for more than forty years, for the prior twenty-five, it was mostly driven by a set of geeky folks who were, seemingly, always developing solutions looking for problems to solve. However, the book “Moneyball” by Michael Lewis, published in 2003 and the follow-on movie, with Brad Pitt, from 2011, really seemed to bring it into mainstream thinking not just in sports, but in business and most everything else.

Because computing power continues to grow through cloud-based services and applications, big data now touches almost every aspect of life. From personalization of marketing messages to specific target customers, to trying to predict elections (Nate Silver – 2008 election) to trying to harness and predict healthcare costs (IBM Watson Health), “big data” is all around us.

Entrepreneurs need to understand the data that is most critical to their individual business’ success. And more important, how to measure and manage it.

And for small business, while data may not be as big, it is no less important. But you can’t manage what you don’t measure. Peter Drucker, fabled management consultant and author of some greatest books on management once said: “if you can’t measure it you can’t improve it.”

Here are four key points to consider to make your data the basis for your success:

Know what the critical pieces of data that drive your business are.

Every business including departments within it has key data that drives it. For example, every business needs sales to succeed. But what drives your sales successes?

Is it the number of leads you need in your pipeline to close one? How long is your typical sales cycle? If you sell partly or solely through your website, how many visitors or pageviews, does it take for each successful sale? What percentage of revenue comes from existing customers? If you maintain inventory, critical data might be what your periodic turns are? Or safety stock levels? Economic order quantity for re-order manufacture, especially for your longest lead time items?

How about customer support? Critical data points might be how many support calls do you get over what period? How many get resolved over what period and how do you track follow-up? Which functions in your business are most critical? Start there and determine what key data you should track in those functions. And don’t get caught up in the “more data is better” trap - more useful data is better! And it’s, usually, readily available to be gathered from your website, your financial recordkeeping system or your CRM, if you have one.

Define success and determine how and who will track the critical data toward that success.

While there are lots of essential pieces of data, every core function has key performance indicators (KPIs) or critical metrics that drive and determine success for that function.

For example, in sales, if you know that for sales to grow, on a monthly basis, your close rate for new sales has to be greater than 20% and that sales from existing customers should be at least 50% of all sales, those are two key metrics you would track. If you know that variable labor costs (like part-time workers for peak manufacturing cycles) are a critical component of cost of goods sold and if you can keep them to a minimum, you can hit a targeted gross margin, that would be a critical metric you manage to on a weekly or monthly basis.

For each function define one or two important metrics to track. Know where the data is coming from and who will be responsible for tracking it. And, above all, how and when it will be reported. If you don’t have the data in a usable form promptly, it’s useless.

Carly Fiorina, the former CEO of HP, said it best, with the point being, to "turn data into information, information into knowledge and insight, and knowledge into a competitive advantage, and to do it in a matter of minutes or seconds, not days or weeks."

Make a firm commitment to using the data to better manage your business.

This has to be a company-wide focus, with each function having several key data metrics to manage over some period (from daily to monthly). But it starts in your chair (the owner, the CEO) with the commitment to USE the data to manage the business better.

Each KPI established should tie into an overall plan to increase revenue and profitability and make operations more cost-effective and the entire company, whether you have five employees or five hundred, more efficient.

Remember, no data for data’s sake. If they measure it, they have to manage it. And you have to manage what they manage, basing your decisions on their data and KPIs. And your KPIs are the financial and operational results of the company.

That’s what you are managing to, and it’s the company’s scoreboard. And the scoreboard is all that matters. And they should see it and know it. It has to be something that underpins the way you do business: now and in the future. No “lip service.” You need to “walk the talk,” every day.

Continually review, not just the data gathering, but whether it’s providing information…and knowledge.

Just because you put a “data mindset” into practice, in your company, doesn’t mean it’s perfect either in what you are tracking or how. The data has to be providing information, and the information has to be turned into knowledge to make decisions. To ensure this is happening you need to review your processes and your results continually.

Get feedback from employees, customers, suppliers. They are all part of your data ecosystem. Sometimes, the data points out issues that need to be resolved in how you do business. For example, in sales, if your close rate is up, but your average sale is down, is price becoming a driving factor instead of value? If support calls suddenly spike, was the new release of your product properly tested? A periodic review also helps flush out problems in data gathering or data integrity which are critical to turning the data into information and knowledge that can be managed.

You can’t manage what you don’t measure, and if you can’t measure it, you can’t improve it. Entrepreneurs need to understand the data that is most critical to their business and how they measure and manage it will be the difference-maker in their business success.

"The Entrepreneur's Yoda" knows these things. He's been there. May success be with you!

What important data do you manage for your small business’ success? Please share your thoughts in your comments. It can help another entrepreneur or small business owner.

If you like this post, by all means, share it with your networks and colleagues.


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1 COMMENT(S)

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