Tag Archives: business processes

Keep Your Business on Track and Growing: Measure What Matters

By Laurie Breitner and Karen Utgoff

There is more to keeping your business going in the right direction than looking at standard reports from QuickBooks or other accounting tools on a regular basis. While these reports can give you numbers, determining and appropriately tracking what matters — which numbers are important, how they are derived and what else you need to watch — is an essential responsibility of the owner(s) and management team.

In assessing current operations, it’s often useful to compare today’s results with past performance — prior period (year, quarter, month, or week) or effort (job run, project, or program) depending on your industry and particulars of your business. While this isn’t always possible for newer ventures, be assured that if you are diligent, ultimately these measurements will help reveal your company’s strengths and weaknesses, opportunities and threats, as well as performance.

For example, after one year in business you can only guess how seasonal factors will affect your cash flow. However, if you keep track, with five years experience you will be confident in anticipating how seasonal ups and downs might impact your business. When you hire a second employee in a particular role, you have some idea of how long it will take them to come up to speed; by the time you make your fifth such hire, you have a much better idea of how long it should take, as well as what it takes, to be productive.

For new initiatives, measuring is tied closely to looking forward (planning) for likely and intended outcomes. What will initial success look like? What events (milestones) are critical to track progress? How much will it likely cost? Are there gaps in your capabilities or resources that need to be filled before you can realize the potential of the new initiative? How much revenue and/or profit is the project expected to add and when?

What initial operational measures should be monitored? Here’s where it’s helpful to look at assumptions you made in making predictions. Did you assume that if you opened a second location in a nearby town that your strong positive reputation would automatically give a boost to the new site? Did your plan hinge on getting speedy municipal approval for a larger parking lot at the next planning board meeting? What key assumptions do you need to track?

Add to the standard routine of just reviewing (daily, weekly, monthly, quarterly, and annual) results with the following specific approaches that are critically important to measuring what matters:

Assess profitability and the fully allocated cost of goods sold from an operational perspective: For background review pages 8 and 9 of Laurie’s Thriving: Get and keep your business on track. Also, check out Karen’s Succeeding in Small Business post on Four tips for putting your business plan to work for your small business.

Project results for new initiatives with limited or no experience: For background, read Four steps to help small business owners evaluate the financial wisdom of new business-building initiatives and Small business management and entrepreneurship: Two key ingredients for sustaining success.

For additional information read Josh Patrick’s article on Every Business Has a Special Number, or Metric. Do You Know Yours? in the NY Times’ “You’re the Boss” blog and A Winning Culture Keeps Score by John Case and Bill Fotsch in the HBR Blog Network.

Here’s how to get started: On a single page, document the (up to) five most important measures, metrics, milestones, and/or numbers that you follow (or plan to track) to gauge whether you are on the right road, moving into the fast lane, or facing an unwanted detour. Review these metrics with your management team, board of advisers, mentors, and/or appropriate professional services providers. Evaluate them regularly to make sure they remain relevant guides for growing your business. Plan to fine tune them over time as your needs and business landscape change and you learn more.

© 2015 Laurie Breitner and Karen Utgoff. All rights reserved.

Six Misunderstandings about the Lean Startup

By Karen Utgoff

Use of Lean Startup techniques is becoming ubiquitous in entrepreneurship circles these days and rightly so. Along with the closely related Lean Launchpad methodology, this highly effective approach puts one essential success factor — fit between customers, markets, products and company — front and center for founders who might previously have defaulted to “If we build it they will come.”

In late 2012 I was privileged to serve as a mentor for a National Science Foundation Innovation Corps team and to be immersed in the Lean Launchpad method first-hand as part of that program. For more information on the team experience and methodology, visit Steve Blank’s blog; the link is in the list of resources at the bottom of this post. Recently, in preparation for a workshop I’m giving, I reread Eric Ries’ The Lean Startup and noted his observation that:

“Throughout our celebration of the success of the Lean Startup movement, a note of caution is essential. We cannot afford to have our success breed a new pseudoscience around pivots, MVPs, and the like.” (Eric Ries. The Lean Startup, p. 279)

This rang true to me and prompted me to write here about several significant misunderstandings that I’ve observed.

Misunderstanding One: Lean Launchpad methodology avoids failure. Actually the Lean Launchpad method and the Lean Startup movement focus on failing faster, at lower cost, and under controlled conditions that enable the team to learn rapidly and pivot effectively.

Misunderstanding Two: The tools and techniques are only for brand new startup ventures. Confusion on this point seems to be around the definition of a startup. I’ve written before about the need for entrepreneurial activity in established businesses and I was glad to rediscover Ries addressing the issue:

“Entrepreneurs who operate inside an established organization sometimes are called “intrapreneurs” because of the special circumstances that attend building a startup within a larger company. As I have applied Lean Startup ideas in an ever-widening variety of companies and industries, I have come to believe that intrapreneurs have much more in common with the rest of the community of entrepreneurs than most people believe.” (Eric Ries. The Lean Startup, pp. 26-27)

That said it’s important to recognize that a new external venture is different from an internal venture within a successfully operating business. Here is an interesting post by Henry Chesborough and my take on the subject as well.

Misunderstanding Three: We’re already customer focused and therefore in sync with the philosophy even if we don’t talk about minimal viable products (MVPs) and pivots. Perhaps, but it isn’t necessarily so; the key is the organization’s capacity to systematically learn. Are activities designed so that customer and market response will lead to insights? Is the team aware of leap-of-faith assumptions? Are your entrepreneurial teams truly cross-functional? Is your culture tolerant of setbacks and supportive of learning?

Misunderstanding Four: It’s about product development. This sells the methodology short. Sure, product development is one aspect but equally important is identifying receptive customer segments (customer discovery/development) and business model development. All three may be subject to change as the team learns.

Misunderstanding Five: It’s about iteration. Iteration is necessary but not sufficient. If you don’t organize and measure in a way that allows you to learn, iteration is just spinning your wheels.

Misunderstanding Six: The Lean Startup approach frees us from needing to worry about mission, vision, competition, intellectual property and so forth. Not so! Your initial hypothesis and pivots will be informed by and inform the evolution of each of these.

I hope this blog serves to clarify the Lean Startup and that it encourages you to try, and then embrace, it. It has a lot to offer ambitious entrepreneurs and intrapreneurs.

Books

  • Steve Blank and Bob Dorf, The Startup Owner’s Manual
  • Alexander Osterwalder et al, Business Model Generation (72 page preview available)
  • Eric Ries, The Lean Startup

Web Resources

© Copyright Karen Utgoff. All rights reserved.

Row, Row, Row Your Boat: Are You Missing Warning Signs of Rough Water Ahead?

By Laurie Breitner

Winslow Homer [Public domain], via Wikimedia Commons

Rowing Home, Winslow Homer [Public domain], via Wikimedia Commons

Do you know what your employees are doing? While you may think you do — perhaps not. Whether yours is a relatively new entity, or one that’s been cruising smoothly for some time, it’s easy for issues to develop and go unexamined in the daily crush of getting the job done. This slow drift off course can interrupt the smooth flow that results when all your employees pull together.

These real world stories illustrate what can happen.

  • The owner of company that sells through external, commission-based sales staff was very surprised to learn that the 3:00 PM cutoff for same-day orders was being routinely ignored. Fulfillment staff — operating on the assumption that the owner knew and approved — struggled to satisfy orders that arrived later and later. Sales staff had quickly learned that fulfillment workers were staying late to process orders and took full advantage of an ever broadening window to call in their sales. Employee morale had begun to plummet and “sick” days to increase.
  • A tech company owner could see his staff was buried but didn’t have time to examine why. Overtime hours (and resultant costs) grew and employees seemed frazzled. The owner was wearing so many different hats  — executive, senior technician, salesman, and accountant — he didn’t have time to look into what was happening. Profits margins were eroding and he worried that his skilled workers could burn out or leave.

Many business owners recognize when things aren’t right. But because root causes can be hard to find and talking to employees without a solution can be uncomfortable, some find it tempting to simply hope the situation will improve without taking action. Left unattended what starts as a small problem can rapidly become a crisis; in my experience, it’s best to act swiftly. The longer a problem persists, the harder it is to fix.

The first step is to identify issues as early as possible. What might alert you to potential problems?

  • Declining morale is often the earliest and most obvious sign that everyone is not in sync. Symptoms include increased squabbling, turnover, absenteeism and tardiness, complaints about co-workers, cynicism and/or employees acting as if they are “checked out.” One business owner asked me, why couldn’t it be the way it used to be, everyone pulling together? Do you ever wonder that?
  • An unexpected increase in cost of goods sold (CoGS) and/or decrease in overall profitability are signs that inefficiencies may be creeping in. As a business grows and becomes more complex, spending time to design new workflows or clarify roles and responsibilities often takes a back seat to just getting through each day’s work. Whether your organization has grown, taken on new customers, changed computer systems or begun offering new services, involve affected employees in determining necessary adjustments. Otherwise, you may find gaps and/or overlaps, that is, more than one person feels responsible for a new task or no one does it; either can lead to trouble.
  • Unanticipated defections (or reductions in volume of purchases) of existing customers or an overall drop off in sales may result from dissatisfaction with your company. Front line employees are your organization’s ambassadors. If they are discontent, your customers will sense it and may shy away. Similarly, if a new computer system or vendor causes disruptions in the smooth flow of work, the quality of your products or services may suffer sending customers to the competition And, sadly, long-time customers may be uncomfortable raising their concerns with you, the owner, and just disappear.

While these are common signs, each organization is unique; no list of triggers can be exhaustive.

Here’s where your business plan comes in handy. If you have projected what will occur in terms of sales, staffing, and profitability — and documented your assumptions, of course — you can look periodically (at least monthly) for any deviations from what you thought would happen. Work with employees to get to the bottom of unexpected results — whether they are better or worse. Most employees sincerely want to do a good job and will appreciate being involved.

Are you looking for other ideas to help create and maintain a harmonious and efficient organization?

In my next few posts I’ll explore how to get and keep your organization on track, including ways to address inefficiencies and issues related to employee discontent.

© Copyright 2013 Laurie Breitner. All rights reserved.