Better decisions, better business

What are the basic food groups for a healthy body? Did you eat your Wheaties today? What are the basic resources for a healthy business? What does your business eat for breakfast? If your business is not getting a balanced diet of key resources and direction, it simply is not going to be strong and healthy.

So what are the key resources for a business? As an MBA student, I learned that the key ingredients for a business were: men, money, machines and markets – the 4 M’s. That was more than 20 years ago and even though that was a simple list, it was easy to remember.  In today’s world, we immediately drop the gender bias and say people instead of “men.” Machines get expanded to include things like: intellectual property, processes and systems. Markets get expanded to include things like: value propositions, market positioning, responsiveness to market dynamics and timing.

Buried in all of this is a need to recognize that metrics are a critical component of success. Everything about how you use and deploy your 4 M’s must be planned, measured, and adjusted on a continuous basis. In fact, that’s at the heart of what management is all about: plan, implement, measure, adjust and then repeat.

Here’s the problem: most small businesses tend to skip as much of the planning, measuring and adjustment as possible. In fact, most technical experts that run a small business are at their best when they are problem solving and implementing – taking care of customers and clients. The rest of the job is often not done or is done in a very minimal way.

Companies that grow and thrive learn that using metrics is the key ingredient to success. Understanding and managing the 4 M’s requires it. Most MBA programs teach that: (1) if you can’t measure it, you can’t manage it, and (2) if you can’t management it, your results will be unpredictable and unreliable. This means it is more likely that you will fail than succeed if you don’t have well defined measurement and management processes. So how do small business owners and managers move down this track? Simply stated, everything about how you plan, implement, measure and adjust must include quantifiable goals and performance measurements. They don’t have to be complex, but they need to be written down, compared to actual results and redone on a regular basis. If you do not follow this measurement and tracking process you are basing your business on instinct. Though instinct may feel right, it does not allow for measured improvement and will hit a limit. Metrics are the basis for management and communication and need to be continually enhanced – which is key to growing a business.

Metrics are all about “how many per…”  Metrics are things like: how many billable hours per billable engineer, how many clients per account manager, how much revenue per employee, how many trouble tickets per engineer, how much profit per line of business… and the list goes on. All businesses should have a growing list of metrics that they watch every month. Every metric should have a performance goal and every month management should compare goals to actual performance and ask the questions: where did we miss our goals and what do we need to do to come closer to the goals. And when management has figured out how to hit the targets consistently, the next question becomes: how do I raise the bar? This is what growth is all about.

When performance stops improving and when the bar stops being raised companies become complacent and there is little or no chance that they will grow or be seen as a company of value in the market. Companies that hit and stay at their self-imposed ceiling are often referred to as “life style companies.” That means they are a company where everyone can relax and go with the flow. Though it is easy to be attracted to a more laid back management approach, such businesses are easily swept away when market conditions change – and all because they have not developed the management muscle it takes to be alert to what is happening, they have no ability to see operations with precise metrics, and they have no way to know what “levers” to pull for needed changes in direction.

With that said, let me encourage you to continually expand your library of metrics and develop the disciplines to track and manage your progress every month. When you do, you will find that your business can be much more rewarding and much more responsive to your wishes then you ever imagined.