Five steps for better business decisions

Are you struggling to get your business where you want it to be?

Perhaps you aren't measuring the right things that will provide the road map to your destination. You as a business owner need to clarify where you are today, the gap between that and your goals, and the most cost-effective and efficient actions to close that gap. Here is a brief outline of some action steps:

Define what business you are really in

This is a key question that is simple but often overlooked: What is my real business? Norma Havens, co-founder of the University of Street Smarts, says everyone in a company from the chief executive officer to the janitor must know "What do you really sell?" Norma sold for a company that provided fuel to government and private enterprise. She knew she really didn't sell fuel. What her customers wanted to buy and what she sold them was control over their fuel costs, and employee waste and/or theft of that fuel.

Identify where you want to go

Once you determine what your company really does, ask "What are the simplest and most effective steps that will move my company from where it is today to where I want it to be? And, equally important, "How do I get everyone on board to make it happen?" Your goals should be specific and measurable.

If you want a truly successful organization, make sure everyone, CEO to janitor, knows and can clearly state what your company really manufactures, sells or provides, why you do it, who your customers are, and how each individual specifically contributes to the mission. Everyone in your business will be aligned with the company goals and feel more engaged and motivated to assure the success of the plan through their own behaviors. If not, they may not be the right fit for your company despite your efforts and may need to be "coached out."

Establishing performance measures

How will you know if you have successfully arrived at your business destination? What will success look like? Who will care? The most successful organizations measure quantifiable results and processes, not employees or behaviors. "To hell with excuses, get results!" says Frank Crow, Hoover Dam engineering supervisor.

Although measures are most successful when they are applied to results, this does not equate to ignoring the human component. People, your employees, customers, vendors and investors are the ones who are most directly affected by the processes you incorporate. When you involve them in creating the measures and the action steps you implement you garner support from the people who will be instrumental in producing your desired result.

Collect data for measurement

Compile the statistics and information central to your business, but make sure you ask why each element is pertinent to your company and what goal it will directly support. It is critical to collect the data frequently enough to provide you with solid information to track your progress in a consistent manner over time.

Don't limit the list of data fields to just your knowledge of company operations. Data norms may be available from outside sources including universities, governmental agencies, professional associations, and other public reports from companies in your industry.

Your vendors and customers are also a critical resource for the data you seek. I am constantly surprised by how seldom I, as a customer or client, am sincerely asked for my honest feedback and how defensive business owners are when I provide it in an effort to help them stay in business. The successful companies do ask and listen.

On a recent trip to a major produce market I responded in the negative when asked if I had found everything for which I was looking. The checkout clerk, instead of responding with the blank uncomfortable look that often results at other establishments, called the produce manager over so I could request the items I would like to see in the future and he explained to me why they were not available that particular day. I felt that my feedback was valued since it was solicited in a sincere, not rote, manner and immediately acted upon, thus making me a more loyal customer.

Analyze the data

Ensure your data is reliable by gathering information through random sampling, being aware of metrics that distort data and create the results you may want to see instead of the reality that can lead you to make effective management decisions. For example, survey questions I have been asked to respond to are often phrased with the intent to lead a respondent to a desired response instead of one which may have provided more accurate, actionable information.

Simple and straightforward calculations, such as dollar and percent changes for the same daily, monthly, quarterly, and annual period for current and previous years, averages and percentiles will highlight key trends, especially if they are presented in graphs and tables. Not all ratios and calculations are appropriate for every business. Continuing to ask the question of "Why is this important?" can identify your business' significant trends as well as those which are merely anomalies. For example, seasonal fluctuations may be accurate, but unimportant to your company, yet may mask an underlying issue that is of interest.

Often, the performance measurement process is an iterative one initially in order to achieve the most accurate metrics that will lead to decisions with greater long-term value. The process also will need to be repeated as your company shifts factors such as its product lines, customer base and short and long-term goals. However, as important as accurate, valid measures are, they must be combined with your knowledge of your business. As Henry Clay, a 19th century statesman, said, "Statistics are no substitute for judgment."

Teresa Martin is the principal of The Profitability Solution, LLC in Reno. Contact her at www.theprofitabilitysolution.com or 825-1568.