No one celebrates Thanksgiving in Taiwan, and my business partner is Canadian. But the majority of our clients are American, so the normal rigors of client calls and sales calls were wiped from the slate, leaving us a day to evaluate where exactly we were at.
It was both inspiring and shocking. If you're a small-business owner, I'd highly recommend you check out this post. I'm going to walk you through how we identified everything we could be doing, what we were doing well and poorly, and how we chose metrics to measure success and let that dictate our projects.
The first thing we wanted to do is figure out exactly what we had implicitly or explicitly committed to.
When we calculated how many internal projects and initiatives we had active, or that we wanted to start in the near future, we realized we had 42 current internal projects that would represent hundreds if not thousands of hours to complete.
(That doesn't include client work.)
These included a mix of new marketing channels to get qualified leads and prospects, creating better materials for pitching and selling, creating better internal analytics and using data better, some other creative assets, some necessities (taxes, banking, etc), building some applications for sale, building some applications for internal use as a tool, improving the quality on our offerings, improving the measurability on our offerings, and so on.
All of these would be worthwhile. Frequently, when we're going about our day, we say, "We should do X!" with a certainty that it would be a good use of time.
And it would, in a vacuum of unlimited time. But as we dug deeper, we realized that 2/3rds of these projects would have a lower value-per-hour to us than simply working on converting more qualified leads into new clients, making our clients happy, and then paying third parties / outsourcers to improve the other processes.
It was difficult to say no to 30+ of the projects on our list. But it's the right call. We've got many potential additional angles of attack that would be valuable and useful to us, but engaging in it takes our eyes off the metaphorical ball.
Most business owners and entrepreneurs I've seen do the same.
"Let's just do this one thing" -- and they accumulate a lot of quick wins, but inevitably many of these projects become one-week, two-week, three-week... ten-week long endeavors, and many never get finished. We have internal projects that are somewhere between 30% and 90% completed from six months ago. That's dysfunctional, but I don't think we're any more dysfunctional than the average business. It's simply what happens when you layer on projects without a clear laserlike focus on just a key areas, and I think it's something most businesses experience.
To stabilize things and get all our focus in the same direction, we created a decisionmaking criteria and chose a very small set of metrics to measure.
We started brainstorming out potential metrics with a goal of getting to around 20 potential metrics, and picking a few of them. We eventually figured out 52 metrics that would potentially be worth measuring.
Some metrics were better than others. There were metrics related to taking specific actions (make a call, send out a proposal), percentage-based metrics (EX, how many clients we're measuring the ROI of our work scientifically, which is too low right now because it requires a lot of upfront data-mining and setup on their end), things like traffic and qualified leads, average time to complete sales cycles and fulfillment cycles, contacts, assets, hours, types of revenue, credibility, usage and utilization metrics especially of key systems, staffing/contracting, and even awards and recognition won.
In the ideal world, we'd like to see almost all of those improve, but great metrics should be like a very clear compass. There's no exact number of metrics that are too many, but at some certain number they stop becoming a a way to laser-focus your initiatives and measure success, and instead become a mess of loud noisy information that's a chore to look at.
We eventually settled on eight metrics:
*Booked revenue by week
*Net profit by month
*Proposed money in play
*Fulfilled/cleared revenue by month
*Number of proposals made
*Followups on proposals
Interestingly, there are no metrics for tools, assets, awards, or hiring. 5 of 8 metrics are cash-related, two are sales-related, and one is process-related.
We spent a lot of time on quality recently over the past few months, on speed of completion / cycles, and on our skills. So, it's not that we're neglecting those areas -- they're crucial -- but they're not the bottleneck to more success.
Looking at these metrics dictated to us which projects we should choose. We did select projects to build internal assets, creative, and systems based on these projects, specifically client-facing stuff that would improve our revenue.
We're aiming for 10% week-over-week growth in "Proposed Money In Play" and we formalized sending out proposals as a stage in our sales process. It's not always necessary to have a formal proposal, but now it becomes a binary yes/no decision as to whether we've sent one out.
We figured that proposals made and followups on them serve very well as proximate measures for other sales success. We don't want to optimize for calls made, leads, or any such thing. Also, it's easiest to send proposals for more cash in play to previously happy clients, so it naturally checks that that out too. Thus, with just these two metrics we cover most of the sales process.
Booked revenue keeps us honest, to make sure our in-play money is actually being converted to sales. We'll need to do some sort of rolling average since this one is going to be more variable (we can influence but can't control when deals close) and the numbers are going to have huge variance until the sample size gets bigger.
Fulfilled/clear revenue proxies very well for client success, speed of completion, etc. We have a lot more control over this area than the sales areas.
Then, we look at net profit and cashflow to make sure that our expenses aren't out of control and we're not going to hit a bump in the road, respectively. After having made the cardinal sin of business and not managed net and cashflow previously (revenue! revenue! revenue!...), it's a mistake I just won't make again.
Finally, the last metric is a more temporary one -- our compliance with our sales systems is haphazard right now, with people taking notes in all sorts of places. We had never written up our procedures into an Operations Manual, and they were inconsistent. So we spent the rest of yesterday rapidly re-configuring our sales process and documenting the heck out of it. Now, people don't just jump onto processes over night, and you can't be tyrannical about changing people's workflows. So we'll look to build compliance with the systems into the high 90% range over time.
Are you focused?
It was a fantastic working-Thanksgiving here in Taiwan for me. If you want to get similar gains in clarity, here's five questions to ask yourself quickly if you're running a business:
*Do you know all the internal projects you've committed to do or want to do?
*Do you know how long they would take to complete?
*Do you have a clear, small set of metrics that you can optimize your company by?
*Are you letting your clear metrics dictate your projects, or picking projects haphazardly?
*Have you identified what you shouldn't be doing, because it'd be more effective to grow your revenues and pay someone else to do them for you?
If not, give it a whirl. Brain-dump the projects, brainstorm potential metrics, discuss and pick metrics for your company, and use those metrics to select projects. It'll take you a while -- at least a few hours of focused and uninterrupted time -- but the the feelings of relief, clarity of purpose, and control of your business are simply fantastic.
First thing that came to mind was that you're applying the Pareto Principle, or the 80-20 rule (not sure if you've talked about that before). 80% of your income or success comes from 20% of your effort, and the fact that "2/3rds of these projects would have a lower value-per-hour to us" seems to fall along the lines of the principle.
Interestingly, it's been proven effective in many industries, such as in Venture Capital. A typical VC fund generates profits from only around 20% of their investments, and if they can successfully identify these 20% prior to an exit, then the returns would undoubtedly be higher.
This raises another question; is the Pareto Principle just another way of saying "focus on what you think is best"? If so, why is it that the numbers seem to fall along the lines of 80% and 20%?
This is a great method. I suggest applying to external projects too. For the last few years I have made a spreadsheet of all our current clients and scored them on about 12 factors: financial, did they give referral. joy of working with them etc. Then focused on the top scorers for the next year. Often the bottom scored clients drop off. It would be even better if I "fired" the bottom scorers by refering them to a hunger smaller company that wanted their business and was getting it with eyes open that they were not a fit for my business.
So, three months ago, and looking back. How valuable was this exercise?
I think this is a really interesting idea and I'm wondering how I could apply it to my personal life, too. Like Drucker said, what gets measured gets managed, and when you take into account with the Law of Un-intended Consequences, you realise that you have be really careful when you choose which metrics to track.
I wonder if it would be worth including both goal-oriented (say, net worth) and process-oriented metrics (say, time spent doing activity X). I guess it kind of slots in with your daily tracking stuff, but it might be worth having a high level overview of your current main areas of interest in addition to that (I'm envisioning something like an analytics dashboard for a web app).
> I wonder if it would be worth including both goal-oriented (say, net worth) and process-oriented metrics (say, time spent doing activity X).
Yeah, I do both sets of metrics. I use "semi-liquid net worth" and re-calculate it monthly. I think the process metrics do a better job of helping you assess your conduct in most cases, because for big goals the goal-oriented results lag process improvements and the right action by a while.
I have read your blog for the first time but thought you might be able to help me. I am in 12th and doing a 4000 words essay as a part of my curriculum. My question is if Walmart should enter the Indian retail sector now that 51% FDI is allowed.
This is what I was basically planning to analyze
Retail Market in India and whether customers would welcome it.
Examine stores such as reliance which is currently a top retailer in India.
FDI rules and implications.
Their current partnership with a company named Bharthi in the whole sale sector and Bharthi's presence in the retail as it already has stores.
Rules put forth by the govt. such as investment in back end infrastructure.
First mover advantage. Other competitors and their views on entering India.
Walmart's presence in another Asian developing country with a large population- China.
The protests against this venture and if it would affect their image.
Logistics in India.Is there any other aspect that I could include in my essay?
INTERNAL SCORECARD #10
This is the tenth internal scorecard I've published. I started it as a bit of an experiment -- I thought it'd be interesting to share and show my thoughts on production and productivity, and it would be valuable for readers here to see ups and downs that come with building a nonprofit organization while maintaining a solo consulting practice, and then mixed with personal interests in creativity, health/fitness, etc.
So far, it's been pretty good and people seem to love these. This one covers 21 July to 27 July.
A STUDY IN CONTRAST
I remember reading a book as a young boy, maybe eight years old. One of the characters was described as square-jawed, confident, rough-and-tumble, and of bold nature. I thought to myself, "I want to be like that!"
Below is a great post by Dharmesh Shah on building a startup sales team. You can read the full post here.
"Your sales force if your company's lifeblood. No matter how good your product is, it won't sell itself, no matter how much you believe otherwise. Establishing a competent, effective team to draw customers is often challenging for entrepreneurs, though, who would rather focus on research and development or chase VCs.
First off, a few disclaimers: I've never been a sales person. I've never even played a sales person on TV. All the points below have been pulled from startup sales teams that I think work pretty well (including the team at my marketing software startup).
1. Don't hire sales people too early. In the early days, the founders should be able to sell (and should be selling).
2. You don't need sales people, you need sales. Don't think VP of Sales - think "Revenue Engineer". (Not the greatest analogy, but just like you won't hire a development "manager" as one of the first 5 people in a startup, you shouldn't hire a sales "manager" either). Don't get caught up in fancy titles - focus on dollars in the door.
Below is a great post by Dharmesh Shah on building a startup sales team. You can read the full post here. "Your sales force if your company's lifeblood. No matter how good your product is, it won't sell itself, no matter how much you believe otherwise. Establishing a competent, effective team to draw customers is often challenging for entrepreneurs, though, who would rather focus on research and development or chase VCs. First off, a few disclaimers: I've never been a sales person. I've never even played a sales person on TV. All the points below have been pulled from startup sales teams that I think work pretty well (including the team at my marketing software startup). 1. Don't hire sales people too early. In the early days, the founders should be able to sell (and should be selling). 2. You don't need sales people, you need sales. Don't think VP of Sales - think "Revenue Engineer". (Not the greatest analogy, but just like you won't hire a development "manager" as one of the first 5 people in a startup, you shouldn't hire a sales "manager" either). Don't get caught up in fancy titles - focus on dollars in the door. 3. Don't hire several sales people at once. Your goal is to figure out the "pattern" of what kinds of people are best based on what you're selling and who you're selling it to. You need some feedback from the system so you can continue to iterate on your hires. 4. If you've never hired or been around sales people before, be prepared for a bit of a shock to the system. They're not bad people, they're just different. If you're an introverted geek like me, it's helpful to remember that your startup needs to sell stuff. 5. Resist the temptation to create complicated compensation plans. If it requires a spreadsheet to figure out the commission, it's too hard. You'll have plenty of time to confuse sales people later - start simple. 6. Agile methodologies can work in sales as well. Iterate! Refine your demo script, your slides, and any other collateral information. Capture the lessons learned by the best-performing people and spread it to the rest. 7. Sales people will generally act in mostly rational (but often surprising) ways based on incentives. The rules of the game define the behavior of the players. You were warned. 8. Always connect incentives somehow to ultimate customer happiness. If you reward just "deals getting done", you'll get deals - but at too high a price. You might get push-back that sales people don't control/influence customer happiness, but they do. They "pick" customers. They set expectations. And they control the degree of "convincing" applied. 9. Make sure you understand the economics of your business. Figure out your total COCA (Cost of Customer Acquisition). This includes sales people, marketing people and marketing campaigns. Quick example: Lets say you paid a sales person $10k, a marketing person $10k and you spent $5k on Google AdWords (for a total of $25k) last month. If you sold 10 customers last month, your COCA is about $2,500. Different businesses have different needs in terms of sales vs. marketing spend. Make sure neither is too far out of whack. 10. Your life-time-value (how much revenue you expect to generate per customer) should be higher than your COCA. (No, I did not need a degree from MIT to figure that out.) Once your LTV is a multiple of your COCA, you're ready to start turning the knob and scaling the business a bit (hiring more sales people). But, if your LTV is way lower than your COCA, proceed with caution. If there is no hope for LTV getting higher than COCA, you've got a problem. Don't try to hire additional sales people until the economics sort of make sense. If the car is pointed towards a brick wall, hitting the accelerator is not a good idea. 11. Track data maniacally (even if it's just in a spreadsheet). Information you will want includes: What was sold, who sold it, when, for how much, etc. This data will be invaluable later as you start to scale. For example, you should be able to answer the question: We had 14 customers cancel last month - who sold those customers? Is there a pattern? In the early days, you likely won't have the volume (or the time) to analyze the data - but you should at least capture it for future use. 12. Your pricing should be in line with your sales structure. For example, you can't expect to have an outside sales force (that meets with customers in person) if your average deal size is only $10,000. The math won't work. 13. Once you get beyond three or so people, running your sales in a spreadsheet will become painful. Start looking at CRM systems (like Salesforce.com). 14. Start watching the shape of your "funnel" as early as possible. How many leads are you getting a month? How many turn into opportunities? How many of those convert into paying customers? Once you understand your funnel, you can slowly start tweaking your system to fix the "leaks". That's all I've got for now. For those of you that have built early-stage sales teams, what are your ideas and insights?"