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What's Your Number?

Feb 5, 2012 by Bill Collier 2 Comments

          “What gets measured gets managed.”

It’s hard to argue with that piece of wisdom. That said, here’s another old saw to consider:

          “If everything is important, then nothing is important.”

Between these two valuable quotes is a balance and a guideline for business owners.

All businesses have certain numbers that define success. Some, like profit, are universal. Every business must take in more than it spends, so an argument could be made that this number – profit - is a definition of success for every business.

But what about other numbers? There’s certainly no shortage of other things to measure - sales, costs, margins, cash … the list goes on and on.

They’re all important. But don’t forget: “If everything is important, then nothing is important.”

Focusing on a small, carefully-selected handful of numbers and actually doing things to improve them is much more likely to lead to overall success than scattershot oversight of dozens of different numbers.

Some business owners create a scoreboard or “dashboard” of metrics – to pull selected numbers out of the blizzard of income statements, balance sheets and other reports – and single them out for an appropriate amount of attention.

This is how the “What gets measured gets managed” piece comes into play.

So, how do you cut through the scads of potential metrics which might be worthy of your undivided attention, and discover the select few which will truly make a difference?

Think about your business. Two questions:

  1. Are there things related to your specific business model that are absolutely critical to ongoing success? For instance, if you are the low price leader, then cost of sales is likely a primary area of focus.
  2. Are there things going on in your business right now that deserve attention? Examples might include things like declining quality, too much dependence on one customer, or high employee turnover.

If you find that there are specific things that warrant a permanent place on your scoreboard, then add them and leave them there. Or, perhaps you’ll discover that a temporary issue needs attention – so it gets a spot, only until it is resolved.

In most cases, these big-picture, corporate-level “critical numbers” will have underlying “drivers” – activities which must be done to move the number in the right direction. A simple example: weight loss. If your critical number is pounds, the drivers would be calories in (eating) and calories burned (exercise.)

The best drivers measure activities and behaviors, as in this weight loss example. If you want to change a number, you’ve got to change someone’s activities or behaviors.

These are the numbers that deserve a significant amount of time and attention. That’s not to say other numbers aren’t important. They’re just not as important.

Identify and break out your critical numbers and drivers. Get them on a scoreboard for all to see. Talk about them. Teach and learn about them. Assign responsibility for them. Track them. Most importantly, be sure to move them in the right direction.

Your business will be more successful for the effort.

 

Topics: Critical Number™

Bill Collier
Written by Bill Collier

Bill Collier is the author of “How to Succeed as a Small Business Owner … and Still Have a Life”. He helps businesses improve their financial results by teaching employees to think and act like owners.

About The Great Game of Business

Our approach to running a company was developed to help close one of the biggest gaps in business: the gap between managers and employees. We call our open-book approach The Great Game of Business. What lies at the heart of The Game is a very simple proposition: The best, most efficient, most profitable way to operate a business is to give everybody in the company a voice in saying how the company is run and a stake in the outcome. Let us teach you how to develop a culture of ownership, where employees think, act and feel like owners.