Yes, it's time to get back to business.
You probably already know the key variables to manage profitability in your business - gross margin, sales per square foot, or sales per employee, for example – but have you compared your numbers to the top performers in your industry lately?
How has the current economy affected their growth rates or performance ratios compared to yours? You will have to do some homework to get the answers. Be sure to find the most comparable companies by industry size or type of business and then try to select the top performers. You may get useful comparisons from available data on public companies, from trade journals or from industry data bases. Your banker likely has access to RMA (Risk Management Association) data that is used by the banks to assess your credit worthiness. It is worth knowing what they are looking at and how they assess your performance.
Ask for key stakeholder opinions on your performance.
In addition to the bank’s assessment you should also regularly solicit feedback from your other key stakeholders. Those would be your employees, your customers and your suppliers.
The key questions to ask are:
• How would you describe our company relative to our competitors?
• What do you think we do best?
• Where do you think we need to improve?
• What opportunities do you think we are missing?
Listen and learn from the feedback.
Often business owners are surprised to find that the perceptions of their employees, customers and suppliers are quite consistent, but very different from their own.
You may think your business is best known for low prices and fast service, but others see you as having expertise that is valuable and worth paying the perceived higher price and accepting relatively poor service. Oops!
Now you have something to work on. First, try to ensure that your perceived strategic position in the market is the one that you want; then work on delivering what is expected. And finally, assess the feedback on perceived opportunities that you are missing. You have already established a receptive audience to new initiatives, so follow-up quickly.
Verify your corporate fitness for growth
In order to pursue new opportunities and grow your business it is also timely to verify that you have a solid foundation for growth. The foundation needs to be resilient, flexible, and expandable in all the dimensions related to organisation, facilities, financing, and IT infrastructure.
A fitness test on all these areas is a necessary first step before launching new initiatives.
Focus on maximizing long-term value.
In these processes of performance review there will be some obvious and easy “quick fixes” to generate revenue or cut costs. But as Einstein apparently once said, “For every serious and complex problem, there is an easy and obvious answer, that is wrong.”
For businesses the error is usually to focus on short-term profitability, rather than long-term value. In fact, the accumulation of short-term decisions to control costs or push revenue may actually diminish the long-term value that arises from sustainable and profitable growth. Typical examples are under-qualified staffing, limited capacity software applications, cutbacks in marketing and promotion, chasing big customers with low prices or accepting questionable credit risks.
Identify and select the priority opportunities.
After completing the review and assessing the opportunities, the list of potential action items may be long. A selection of priorities to address in the immediate future is required. And more than three priorities means you have not yet made a selection, only a ranking. Try harder.
Make a new plan.
With a short list of priorities, you can make a realistic and achievable plan to improve performance. Simply list the steps required with names and dates assigned to each step.
Then make it happen.
Take this “back to school” opportunity to rethink your business and make something happen. Remember if nothing changes, nothing happens.
Be better. Do better.