Metrics: Decoding the Hidden Language of Your Business
Building a successful company is viewed by many entrepreneurs as a race for answers, otherwise known as insights. Ask yourself this question. How can I develop an intuition for my customers, my people, my systems and models, and the competitive landscape?
In fact, you need more than just intuition – you need precise understanding. You must be able to measure what’s happening inside and outside your company objectively. And then, you must manage by those numbers. Otherwise, it’s almost impossible to gain momentum.
Peter Drucker, a 20th century management theorist and Presidential Medal of Freedom award recipient, put it this way: “If you can’t measure it, you can’t improve it.” Verne Harnish, author of Scaling Up, also loved data and challenged his readers to think of measurement as a secret weapon used to make decisions and predict outcomes. And no less an intellectual titan than Albert Einstein offered that; “Not everything that can be counted counts, and not everything that counts can be counted.”
So What Should Be Counted in Your Business, and Why?
It’s wonderful to feel inspired to measure things. But what you measure is as important as your decision to rule by data.
In Good to Great, Jim Collins studied how good companies made the leap to become great. He observed that “Each good-to-great company attained a deep understanding of the key drivers in its economic engine and built its system in accordance with this understanding.” In short, these companies identified key performance indicators (“KPIs”) and used these KPIs to derive key insights into their business.
The point is that to manage well, you don’t necessarily need to track thousands of things at once. In fact, if you chase too many numbers at once, you will lose focus. (Per Drucker: “There is nothing so useless as doing efficiently that which should not be done at all.”)
Instead, you need to invest time and thought into developing a lean set of controls – just enough to let you steer. Much like the dashboard in a car or instrument panels in the cockpit of a plane, KPIs track critical information but don’t overburden your attention. By contrast, imagine if the dashboard on your car had dozens of gauges measuring obscure things like transmission fluid levels and the friction coefficients of all your engine parts. With all those blinking lights, you wouldn’t notice your gas light, and you’d run out of fuel!
Here are relevant questions to consider:
- Do you use KPIs in your business? If not, why not? What steps will you take to get started with a metrics program sooner rather than later?
- What KPIs do you measure? Are they measured department-by-department or companywide?
- Are your KPIs appropriate and good enough? The numbers you need to track will change over time as your company evolves. In the startup and initial growth phases, for instance, you’ll obsess over growth-related numbers like cost per client acquisition (and related numbers, like traffic to your website). As the business matures, your dashboard should evolve – maybe you’ll focus more on employee productivity or long-term client satisfaction.
- Do your KPIs measure the return on investment? What if every department in your business had to justify its existence? What if every department had to prove every dollar spent generated a 10-times Return on Investment (ROI) or a 3-times savings on costs? These gauges are not for show – they exist to help you take smarter actions.
Resources to Get More Out of Your KPIsYou may or may not have attended our KPI presentation. If not, we summarize the key points below. This video explains how to use our Customer KPI Calculator – a versatile tool that should instantly bring business insights into focus. We’ve also included links to our Customer KPI Calculator Excel file and a White Paper on the traditional law firm versus our approach.
In the coming weeks, you will receive a series of educational emails and videos on KPIs and how to best use them to reduce or eliminate legal liability in your business.
We’re excited to help you take this journey. The feeling of control you get when you start managing by numbers in earnest is one of the best feelings you can have as a business owner.