Financials and KPIs keeping you up at night?

Assess your business through a wider lens so you get the full picture

What is a healthy business? 

When business owners set out to assess the health of their business, they need to look through a wide lens and capture the entire landscape of their operation. A periodic business health assessment should be a staple of any business planning cycle and it should help business owners determine whether they need to change direction or make any operational changes.  But, when entrepreneurs are too involved in the business minutiae they don’t see what’s really happening to their brand and business.

John Holland, senior consultant with Plutus Consulting Group of Oakville, Ontario, a firm that provides support and resources to struggling companies, doesn’t mince words. Holland, a veteran executive with a track record of successfully turning around struggling companies and several stints at international Fortune 500 companies, is crystal clear that managers and owners may be fooling themselves when they claim to know where their business stands in terms of organizational well being. “Of course good managers review the company’s financials every month, and use key performance indicators to monitor measurable performance,” said Holland. But, printshop owners bound to an industrial-era philosophy of doing business by pushing product or services out the door have myopic vision. 

Holland suggests a more comprehensive approach to gauging success. The first place a business owner must look to gauge performance is the customer. The second place is employee morale. And, while this customer/employee issue is a chicken and egg question, organizational behaviourists agree that employee morale is paramount. 

Disgruntled employees reduce productivity that, in turn, results in lost revenues and, most importantly, generates poor word-of-mouth advertising. Entrepreneurs who want their business to remain strong work hard to keep their employees happy. Your staff keeps your business going. Staff drives consumers to interact, purchase and recommend your business. 

Holland, referencing Peter Drucker, Austrian-born American management consultant and father of management theory, says that the purpose of business is to create a customer. More specifically, it is to create value for a customer. Providing a solution to a customer’s need creates value. 

Here are key questions to which every entrepreneur needs to ask to properly assess how her business is doing.

How are you treating your staff (human capital)?

Do employees in the organization like working there?  Do they have clear roles and responsibilities?  Are the job descriptions reflective of the actual jobs and the work the employees are actually doing?   Are employees given the necessary resources to do the job effectively and safely?  Do employees receive the training, development, coaching and support they need to do the job now and move ahead in the future?

Holland is adamant that the common denominator in all high-performing companies is a positive work environment and culture where values are expressed openly and shared in the organization; a work environment where employees talk about teamwork and respect each other. 

What are your customers saying?

What are the results from your customer feedback surveys? Do your clients tell you they love your product or your service? What percentage of your business is generated from existing client referrals? What percentage of your sales is attributable to new customers? 

Holland is quick to point out that many disgruntled customers vote with their feet. “And that’s why it is really important to make sure that your service or product delivery is constantly meeting the needs of your customer,” he says 

What is your value proposition?

Your value proposition is the innovation, service, or feature that distinguishes and makes your product or service attractive to customers. While many entrepreneurs have great ideas, unless the idea creates customer value or is meaningful to a customer, there is no product. 

Distilling a great idea into words on paper takes time and thought. This is a most important step and it needs to be settled sooner rather than later. Holland suggests that every entrepreneur spend five minutes and view Simon Sinek’s YouTube video, Start With Why. Sinek talks in terms of the Golden Circle consisting of three rings from outside to inside: what, how and why. 

Printers know what they do – put ink on a substrate. Some printers know how they do it – by using the best technology. And some claim they know their value proposition – low cost producer. But few printers know why they do what they do. 

Sinek says it’s not profits. Profits are a result. Few organizations know what their purpose, their raison d’être, is and what their beliefs are. Why does your print shop exist? Sinek contends that all successful organizations, regardless of size, communicate from the inside out. This thinking involves a perception shift. 

An uninspired printer prints words on paper (what), using the best technology (how) at a competitive price to others (why). Inspired printers who truly know their value proposition challenge the status quo (why) by providing customers with options tailored to meet their needs (how). They entice clients to come by and speak with them about how to make client message unique (why). So it’s not what you do it’s why you do it. 

Holland says this is when owners need to take Friday off, step back and sit in a coffee shop and talk to colleagues, industry experts and competitors about their service or product. What is going on in the industry? What is happening to my product? Has my value proposition changed? How do I get back on track? 

Failure is a function of inaction

But, financial ratios are important. No business operates in the red for long. Too-slow market and sales development can mean that you’re not meeting your payroll and covering your costs. And small- to medium-sized businesses are prone to being taken advantage of. Holland also cautions entrepreneurs who gloat about exponential growth. Accelerated growth can lead to burning out a company’s working capital. 

Take the example of the eager printer who signs up a major customer but the account comes with a 90-day payment rider. Problem arises when the entrepreneur can’t subsidize a 90-day loan. This creates a catch 22. The owner doesn’t want to lose the big client yet their cash flow is insufficient to bankroll the large client’s account receivable. Payroll is in jeopardy and more importantly, while the owner tends to the needs of the large client, the bread-and-butter client jobs are stalled in prepress and bindery. 

Holland contends that entrepreneurial failure is largely a function of inaction. As my father would have said, “Talk is cheap.” It’s really important that business owners know the why of their business, and be able to diagnose, formulate, strategize and execute solutions to resolve issues in a timely manner. They must dig their heads out of the business minutiae and look at the bigger picture of the industry in which they participate. 

If you don’t know why you do what you do and people respond to why you do what you do then how will you know how to keep loyal customers and acquire new customers to grow your business, asks Sinek. 

Is it any wonder that many small business owners are up at night? 

For more on opening, growing and sustaining a business: canadabusiness.ca

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