KNOWING THE TRUE BUSINESS NUMBERS

When a business owner starts managing by the numbers, the first gradient is looking at the result stats. Usually, the first stat you start with is Gross Revenues. A business with no inspection of result stats will end up in chaos with no organized growth.

A good friend of mine recently brought to my attention that he had always managed his multimillion-dollar business by RESULT stats and had just realized that he needed to manage by PREDICTION stats. It made me realize that there may be some confusion in this area. I had just taken for granted that you had to manage a business by prediction stats. I had not used his term before to describe leading stats. I had used action stats or sub stats. PREDICTION stats is the better term because it gives you the prediction of what your RESULT stats will be. When you break your business down into divisions and departments, some RESULT stats will be another department's PREDICTION stats. For example, Marketing would have the RESULT stat of Number of Qualified Leads. Qualified Leads would be a PREDICTION stat for the Sales Department, and the Sales Department's RESULT Stat would be Total Sales or Number of New Clients, etc. Total Sales then would be a prediction stat for the Production Division, then Number of Products Produced would be the RESULT stat for the Production Division and so on. As you are reading this, you may be saying to yourself, “Of course Graham, this is common sense.” Maybe personally you do mentally think with PREDICTION stats, but then in a staff meeting you show your staff RESULT stats, and you are comparing this year's RESULT stats to last year's RESULT stats you would have your staffs attention more on the RESULT stats rather than PREDICTION stats, and so you end up with an organization that is always inspecting after the fact—too late on the chain.

It is a great exercise working out all the prediction stats and result stats. The best place to start is by flowcharting out each area in the business. You will begin to feel like a real executive who knows what you are doing when you do this exercise.