Journey of a Serial Entrepreneur

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How to get from where you are to where you want to be

5 Key Non-Financial Metrics

“Companies that establish clear lines of sight to the metrics that matter and then make sure that employee behavior is aligned with those metrics can create enormous value growth.” Tony Siesfeld and John-Paul Pape

Over the past two weeks I have been discussing both financial and non financial metrics. They both have their place in helping manage businesses better. I find non-financial metrics fascinating and am inclined to look at them for guidance in comparison to financial metrics. Unlike financial metrics which are purely numbers performing in different segments, non-financial metrics provide much deeper insights into the inner workings of the business. They help understand why certain financial metrics turn out the way they are and what changes can be brought about to improve them. Some however find safety in numbers and are less inclined to rely on these relatively intangible measures. As entrepreneurs we have to look after the business on multiple fronts. We must have the ability to quickly assess several key components on a regular basis. Outlined below are five relatively generic key non-financial metrics. They can be applied to all sorts of business models to help you gauge the level of progress being made from a dashboard view.

1. Customer Satisfaction: Acquiring a customer is only the first step, providing value and satisfying the customer is where the actual work begins. It is a well known fact that acquiring a new customer is between 5-10 times more expensive than retaining your current customer base. To measure customer satisfaction comprehensively we need to take into account all major touch points where the customer will be interacting with our business. Subsequently we will need to choose several sub metrics such as perceived quality & value, trust and loyalty to accurately gauge their satisfaction levels. These can be measured through a variety of tools such as surveys, focus groups and observations. To learn more please click here.

2. Employee Loyalty: Employee loyalty has been directly linked to the customer’s loyalty and corporate profitability. Whether you are a new start up or an established one, this measure needs to be continuously monitored. From the very beginning employees must be told what to expect when they join the firm. They need to be made part of the inner circle to avoid alienating them. Growth and development opportunities must be presented to keep their motivation levels high and lastly they need to be compensated fairly for the work they are doing. Each one of these sub measures needs to be monitored along with several other key indicators such as burnout thresholds. To learn more please click here.

3. Innovative Index: Innovation is measured very differently in various organizations. I believe innovation relates to the ability of an organization to continuously improve on its existing product/service ranges as well as to develop complementary assets around them which will enhance their core products. This will help create multiple lines of business and will keep the business afloat when a core product faces strong competition or a recessionary pressures. To learn more about this metric please click here.

4. Market Share: There is substantial evidence which states that market share is directly related to ROI. With an increase in market share a business can expect to benefit from economies of scale that ultimately lead to better operating margins. A business therefore becomes stronger by gaining market influencing powers and equipping itself with quality management teams. To measure a business’ market, one needs to first understand the industry, competitors, customers and other market factors which have a direct impact on it. Through the understanding of these measures we can calculate how much the total market is worth and then determine our share. Accordingly we can then measure how we grow market share over a period of time. To learn more about this metric please click here.

5. Execution of Corporate Strategy: Business all comes down to execution. Without this critical component we can make all the plans we want and prepare for every possible scenario and achieve very little. As business owners we set ourselves targets and construct strategies to reach them. The next step requires one to implement strategies through a set of tactics. This is the step that separates the talkers from the doers. Don’t get me wrong, careful planning, thoughtful preparation and taking calculated risks is very important. However it should not restrict someone from taking action. To learn more about this metric please click here.

Listed above are a set of non-financial metrics which I believe can be applied to most business models. Apart from these metrics, a business needs to be careful of other measures which are critical to their particular business model. In the end these metrics should not be the end all and be all of the organization. Their purpose is to primarily provide management with the ability to look at several key segments of the business and get an idea about their performance. I believe the correct use of these metrics helps us not only to become better leaders but also impacts positively and dramatically on the business. I would really like to know what non-financial metrics you are using and which industry you are in. Feedback and comments on the metrics provided above will be greatly appreciated.

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Non-Financial Metric #5: Execution of Corporate Strategy

“There is value in careful planning and thoughtful preparation. However, until there is execution, no plan is flawed; no preparation inadequate. Execution spotlights all.” Chip R. Bell

Business all comes down to execution. Without this critical component we could make all the plans we want and prepare for every possible scenario, but achieve very little. As business owners we set ourselves targets and construct strategies to reach them. The next step requires one to implement these strategies through a set of tactics. This is the step that separates the talkers from the doers. Don’t get me wrong, careful planning, thoughtful preparation and taking calculated risks is very important. However it should not restrict someone from taking action. When it comes to measuring how effective an ability to execute has been, we have to look closely at the following:

1. Goals: As mentioned many times on this blog, to be able to reach our goals they need to be specific, measurable, attainable, realistic and time specific (SMART). Many times when I have been unable to reach my target goals it has been due to the fact that I left one of these important components out. When this happens there is a complete break down in the execution process as the strategies we select will be flawed and thus will result in the use of inappropriate tactics. Therefore be very clear with the goals and targets which one creates.

2. Strategies: Good strategies comprise of objectives, scope and competitive advantages. Through goals we can establish what the business wants to achieve. For example say, our business wants to increase traffic on our website by 10% over the next quarter. The strategy for such an objective could be something like “increase traffic on our website by 10% over the next quarter by tapping into the the 18-25 demographic in Europe through leveraged relationships with our European affiliates.” If we were to leave the statement at tapping into Europe we would still be missing the “how?”.

3. Tactics: In the last statement we mentioned we would leverage our relationships with our European affiliates. Tactics need to translate this into reality by chalking out ways on how this can be achieved. For example, we could participate in some seminars next quarter in Europe, we could equip our affiliates with additional marketing material or we could even provide greater financial incentive to reach targets. What is important is that our tactics are aligned with our strategies which are aligned with our goals.

At the end if we were not able to reach goals then we need to go back and re-evaluate where we went wrong. This review process needs to take place on a weekly, monthly, quarterly and yearly basis. As a startup it is imperative that we continually evaluate how effectively we are executing and where we are facing the biggest impediments. When such a culture of accountability and execution is developed it turns into a huge competitive advantage.

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Non-Financial Metric #4: Market Share

“Failure to gain market share even with superior costs is failure to compete. This failure is also a failure to achieve even lower costs.” Bruce D. Henderson

There is substantial evidence which states that market share is directly related to ROI. With an increase in market share, a business can expect to benefit from economies of scale that ultimately lead to better operating margins. Therefore a business becomes stronger by gaining market influencing powers and equipping itself with quality management teams. Keeping track of market share is an important indicator in evaluating how business stacks up against the competition and how it progresses over time. In the early stages of starting out, a venture market research is a critical component of developing a business plan. This is usually a challenging exercise, because information regarding industries and markets is often not readily available. Listed below are some steps I use to evaluate the market and set market share targets accordingly:

1. The Industry: One needs complete information regarding growth rates of a particular industry. What are it’s historic trends? What were the revenue figures for the segment? Have any major technological innovations taken place in it recently? Is the industry very segmented? These are some preliminary questions of interest and importance when looking at an opportunity in a particular industry.

2. Competitors: This is an important segment, one in which you need to document as many direct and indirect competitors in the market place as possible. Look at their teams, products/services, pricing and any other marketing collateral which you can find. Remain constantly vigilant about your competitors, this is a must for any company regardless of size. Create document files which can be referenced easily, this will come in handy during later sections, when you are positioning and promoting your product as well.

3. Customers: Evaluate the target demographic that is going to be targeted. Is the segment growing? What are the current options that they are using in place of the product/service you will provide? How are they currently purchasing the product/service?

4. Market Factors: Are there any external factors which have a deep impact on your target market? These can be government policies, market consolidation and volatile raw material costs. The presence of these factors can have a substantial impact on your target market and must be taken into account.

Ultimately approximate size of market will be gauged. The most common metrics used for broad approximations are, sales by revenue & sales by volumes. Once we know an approximate size of the market we can set targets for ourselves. This metric can then be tracked periodically to ensure that we stay on course and alert to any fundamental market changes.

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