Here’s a quick question…
What’s the number one reason most small businesses fail? If you said lack of cash flow – you’d be half right.
Believe it or not, the number one reason businesses fail is a lack of accountability from the top down.
You set goals for sales, revenue and profit. You know you need to do certain things to achieve your numbers. So you create your plans, communicate them to your team and tell them to get on with it.
Which is where many a business comes unstuck!
Why? Because you have no measurement system in place to make sure the right things are getting done consistently and as a result you can’t provide feedback and take corrective action where necessary. Action that keeps you heading towards your goals.
Which brings me to the very unsexy topic of KPI’s or Key Performance Indicators.
Put simply, KPI’s are areas of the business you want to focus on and monitor. Measurements that will tell you if you’re on track as well as keeping you and your team accountable to your priorities and promises.
Examples of KPI’s could be anything from keeping your debtors level below a certain threshold (and making your accounts people accountable for this), to knowing the number of sales proposals you need out there to hit your sales targets and measuring how many actually go out the door.
KPI’s need to be quantifiable and measure activities and outcomes within your control. For instance if you’re an exporter, you have no control over the exchange rate – so while it may have a great effect on your business, it’s not a KPI.
Delegation, not abdication…
Many business owners I come across are extremely busy. They know they can’t do everything themselves, put on staff, give them instructions and then leave them to it.
Then they get frustrated because stuff doesn’t get done. They wonder why and struggle with what to do about it.
I hear comments like, “Why won’t they take responsibility” all the time.
Well, the short reason is lines of responsibility and accountability have not been defined. And there are no KPI’s in place to tell both parties if they’re on track.
By setting meaningful KPI’s which act akin to milestones along a journey, every person involved gets feedback as to their performance.
Then if KPI’s aren’t being met, you can figure out why and take corrective action.
Without well thought out KPI’s which you monitor and hold people (including yourself) accountable to, you’re effectively delegating and abdicating responsibility. And then you only have yourself to blame when things don’t get done.
Here’s a very recent example of how rigorously monitoring KPI’s directly contributed to a client having their best sales month ever!
I won’t tell you the industry for confidentiality reasons, but suffice to say they are “normally” a highly successful service based business in a difficult field.
However over the last few months sales had been declining – quite dramatically. Interestingly, the number of new leads hadn’t diminished, so it wasn’t a marketing issue.
The business owner is very process driven and had over the years created a set sales procedure which had been proven to work. We’d spent time training and coaching his staff so they knew what to do.
So what was going wrong?
Well, knowing what to do and actually doing it are often two different things.
The staff were following the process in a very ad-hoc manner. Large chunks of the process weren’t being done on time, if at all. So there were large gaps in their calendar. People would make appointments and not show up etc.
But October was their best month ever. So what made the difference?
There were a multitude of small incremental improvements in everything from better initial qualification (qualifying them out rapidly), to better value elicitation.
But rigorous policing of the staff and holding them accountable for their actions in fulfilling the KPI’s of following up prospects was one of the key components.
In short he’d learned that delegation must be combined with follow up and measurement. And while he complained that it took a huge chunk of his time (time which should have been dedicated to more strategic management), he realised there was no alternative if he wanted to succeed.
Now before I go on, I should make one thing clear.
While KPI’s are often about policing activities to make sure they’re being done, they are also a great learning and improvement tool. If you’re not meeting a KPI in some area, it could be that you need additional support and/or education. Or maybe the KPI itself needs to be revisited as it’s unrealistic.
And finally, it’s coming up to a quiet time of year for many of you.
It’s a great time to define your goals for next year and strategize how you’ll go about achieving them and what your KPI’s should be.
Which is where we could help…
Our Two Heads Are Better Than One program is an excellent starting point. Over a couple of hours you can bounce ideas and get valuable input as to future direction.
Moving on from there we have a number of focused programs that delve into marketing, sales, team and cash flow in far more detail. Programs designed to grow your business rapidly and sustainably.
Call us on (02) 9499-7958 for more information.
Rashid & Barbara.