The first question I ask when meeting any business owner is almost always whether or not they are clear about and remain vigilant around the most critical number in their enterprise.
“What is the most important number in your business, and how often do you measure it?”
That’s the question.
On the surface, it provides both a simple and incisive look at what is happening in the business.
The most common response is in the form of a KRI. By KRI I’m referring to a Key Result Indicator. I am talking about a number that occurs as a result of upstream activities, usually arriving with a dollar sign in front of it.
Responses include key result indicators such as revenue, net profit (EBITA), and gross margin.
Important numbers as to the overall health of any business, but these are rarely the key optic.
The unfortunate aspect of measuring and driving your business forward from such parameters often results in poor performance, frustration, and a waste of resources throughout the years, especially time.
Behind The Curtain
Of course, business CEOs who are progressive are right across the singular entity. They measure it, optimize for it, and reflect on it continuously.
It is their ‘canary in the coal mine’ driver. It is often the first signal of upcoming dangers within the business, and just like a wind gauge, it gives them a good indication of the strength of or otherwise within the present moment.
In certain businesses, such an optic is measured frequently, and yes even down to a moment-to-moment basis.
Here are some examples:
Total Risk: Las Vegas casinos measure the level of risk on the tables every single minute. If there are too many gamblers on the tables, they reduce the risk by closing some down. They just never know when all the luck will go the gambler’s way.
Fly Time: SouthWest Airlines understands that they only make money when their aircraft is at wheels up. Everything around the business is re-structured and synchronized to support this very driver. Wheels up!
Belly-to-Belly: As revenue is the lifeblood of all businesses, those that are offering services or products in the five figures or above understand that their salespeople must spend time out of the office, in front of potential and current clients. People buy people, or put differently, trust is the most critical factor in revenue. It takes on average 5 face to face meetings to sell an expensive item, hence the criticality of ‘belly – to – belly!
Working Capital: The economy, especially here in Australia and I am sure in many parts of the world is underpinned by the building/construction sector. Yet we have seen many a business in this profile fall over in the past few years. Why? Working capital! The funding required to operate a business on a day-to-day basis. Lend Lease has this indicator as their number one. They measure it daily. Multiplex recently lost sight of it as have many builders of late.
Management: Tilmann Fertitta started with one restaurant in the USA three decades ago, and today is the sole owner of 600 exclusive eateries across the world. The critical number? Finding the right people to manage his ever-growing portfolio. Yes, there are other, secondary drivers of importance for Fertitta as is the case for your business, but for him it is management!
One of your duties as a CEO is to always look at for the ‘elephant in the room’. To critically think about that standout parameter that has the largest impact on you and your business.
If you were doing a medical diagnosis on your business, which ‘health indicator’ would be at the top of your list?
More often than not it won’t be what you think it is, at least initially.
You won’t find it at the surface, but at the very bottom of your iceberg.
Utilize your team and the people around you, gather them, and ask what they think it is.
By doing so you will discover it and the next 3 – 6 drivers that must also be measured regularly.
Recall, that what is measured gets accomplished. It requires consistency and discipline, however.
Restructure Around It!
Once you have your ONE, you will find that your company needs to rearrange activities around it.
You will most probably save yourself a ton of expenses and wasted time, together with a simplification of your business model, removing the background noise that has no place within your four walls.
The key number must be displayed somewhere in the business where everyone on your team can see it. Otherwise, what is the score? You wouldn’t go to a basketball game with no scoreboard, now would you?
Show it. Live it. Move it in the right direction.
I wish you luck in finding the ONE. It is closer than you think.