Running Blind

July 8th, 2008 Chris Posted in Financial | 1 Comment »

Every week a buddy and I go to a track work out where we run intervals and get reminded just how old we are. Unfortunately, we rapidly offset all caloric benefits with the ingestion of several beers but at least we figure we’re breaking even…

One of the challenges of our work out is when the coach tells us to go run 800m at a certain pace. Half-way through I’m always completely confused – am I going fast enough? Too fast? Eek! I find myself having to tuck behind someone with sufficient disposible income to have one of those GPS-enabled Gramin training watches – they always know what exactly the pace is.

One of the lessons I got from a big company was the need to likewise always know where you are as a business. Instead of figuring out how fast you’re running, tracking revenue, expenses, lead-generation, share of voice, etc… is the key to knowing if you’re on track with your business.

That prinicple is 100% applicable to the micro business. You may not need to track as many things but if you don’t know what’s driving your revenue and where it’s going – you will be in trouble. Today’s let’s focus on revenue.

When we go out setting our plan for the year for our business, we take the major product types (for us it’s coaching, training, speaking and events) and set goals for each. Goal-setting itself is a topic worth focus, but for now let’s just say you should always have targets.

How do you know you are reaching them? Each month, we sit down and figure out how much revenue we received in each of those for categories. We compare those for our targets for that month (derived from annual targets) and we know if we are ahead or behind target.

But what happens if you’re not on target. Every micro business will be different and it’s your job to figure out why there is a variation but regardless, you need to be figuring out what to do about it. When we’re doing our track workout, if the first 400m is slow compared to our target pace, then we need to speed up to get back on track. If the first 400m is fast, well then theoretically you can slow down a bit – though, in reality someone always tries to show off and run faster regardless…

So, the questions I always ask in the case of variation:

• If we’re below target, what caused it and will it happen again? What can be done to prevent that from happening again?
• If it’s going to happen again, should we reduce our targets for future months? If this impacts overall revenue, should costs be reduced to maintain profit?
• If we’re above target, was it a one-time fluke or a trend?
• If revenue is going to be hire going forward, should we increase investment in any activity to sell even more (ex. markeitng, development, etc…)?

In short, if you are not setting targets and tracking your sales by product group against those targets at least every month, then you are running blind and can’t react to fixing a problem (that you won’t know exists).

And remember – knowing you’re off course is useless unless you take specific action as a result.

C.

P. S. Sorry I missed last Thursday. And for the record – it’s still Tuesday in my time zone.