The Secret Entrepreneur: You get what you measure!
Set the wrong targets and a good business can quickly go bad. Our mystery CEO on numbers you should focus on - and when it can easily turn sour!
“If you don’t measure it, you can’t manage it” – the bedrock of much management theory. What’s less often talked about though is the danger of measuring the wrong thing.
I’m not just talking about the problem of looking at incorrect numbers that don’t tell you what you think they do, but the huge impact that simply making something a key performance indicator can have on your business.
For example, I’ve just witnessed first hand the carnage unleashed when a business that set revenue growth as the key performance target for managers realised (nine months later!) that the consequence of this is strong revenue growth, but at the expense of profit.
In anywhere but tech unicorn land, this isn’t so great for business value. I’d put good money on it not being so great for unicorns in the pretty near future too, but we’ll save that discussion for another day.
The result is that the business quickly needed to make savage cuts to get things sufficiently back in the black to keep its investors happy. The staff, of course, are not going to be so happy about this.
Understand the real impact of numbers
You can’t blame the managers though – if someone is told that revenue is the key number, and that’s what they’re measured on, then quite rightly they’ll pursue that with vigour. You can blame the leadership though; they should have seen it coming.
As an entrepreneur it’s vital to understand the real impact of the numbers you’re looking at, and what using those numbers to steer your people really means.
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For example, if a marketing team is measured on enquiries they generate, it’s meaningless unless they’re the right enquiries for the sales team to do anything about. If there’s a disconnect like this and you don’t spot it fast, you can end up looking in the wrong place for the solution. Optimising your sales team to convert the wrong kind of leads is a swift route to failure.
On a more personal note, I’ve never seen a swifter route to unhappiness than picking the wrong measure for your personal progress. The wrong measure most people seem to pick is money. Beyond a modest level, more money does not equal more happiness.
Yes, it’s a cliché, but one that I can personally attest to being spot-on. The pursuit of money above everything else does, in my experience, more often than not lead to chronic unhappiness (it nearly cost me my marriage).
Some of the most miserable people I’ve met have been the richest. Some of the happiest are the cash-strapped entrepreneurs who are working night and day on their business because it’s something they love.
Read previous Secret Entrepreneur columns here on Startups.co.uk.