Benchmarking: Part 1

Do you ever wonder how your business does compared to others similar to you in size and industry? Maybe knowing this information would give you a more competitive drive, or would lead you to make some improvements to better your company. Or, maybe you’re just curious.

Whatever your reason for wanting to know, benchmarking can be a powerful tool to compare you to your peers and check your performance. Benchmarking can even lead to an overall greater level of success as a company.

Here are a few (of many) reasons why we think benchmarking is pretty awesome.

It never goes out of style| Benchmarking isn’t just a one and done concept. It can, and should, be used throughout the entire lifecycle of the business. As your numbers and statistics change, the same happens for the competition. Benchmarking can provide a real-time look into how your business is stacking up against the competition and industry trends, and can help you find solutions at any stage in your business.

Knowledge is power| When you see and understand how your business is ranking relative to similar businesses, you can empower management to evaluate company performance and make informed decisions. This information can also be used to identify new and future opportunities that can lead to greater growth and success. To accomplish this, it’s best to compare on an industry or peer group level, rather than just a one-company comparison.

Data doesn’t lie| Without good data, you’re wasting your time. Make sure to look for data from benchmarking that is:

  • Relevant – Data won’t mean much to you if it isn’t relevant to your business. Make sure you consider your geography, size and industry when getting your data. Each has their own trends and characteristics that are incorporated into the data – which makes for a meaningful comparison.
  • Timely – You want to be sure the benchmarks being used are the most recent available, which helps account for seasonality, economic cycles and other fluctuating factors.
  • Accurate – If you’re making sure your data is relevant, it will likely be accurate too. However, it’s always a good idea to verify the data before applying to make important decisions.

A way to measure success| Each business and industry (even businesses in the same industry) has a different way of measuring what success means to them. While you can only decide what success looks like for your business, there are a few metrics that can provide a quick, high level view of your business’s well-being:

  • Net Profit Margin = Net profit before taxes, divided by sales
  • Liquidity Ratio – Current Ratio = Total current assets divided by total current liabilities
  • Turnover ratios, which include inventory days, accounts receivable days and accounts payable days.

As you can see above, benchmarking is a great way to get a picture of how your business is really doing compared to those around it. Using this information, you can feel comfortable making changes to better grow and improve your business.

No Man’s Land: Momentum

In our previous blog posts, we have touched on market misalignment, outgrowing your management, and outgrowing your money, to name a few. Going through all these trials may have resulted in your business losing something you didn’t realize was missing: momentum.

In the beginning, rapid growth companies possess an incredible momentum. However, going through No Man’s Land causes this momentum to disappear, leaving the business at a standstill. To get out of No Man’s Land, the company must find ways to generate momentum again. Keep in mind the other navigational rules we have discussed in prior blogs, as implementing these rules will give a sense that your company is heading in the right direction and regaining momentum.

It’s important to remember that momentum is not the product of following these rules only. To survive No Man’s Land, leaders must manage the company’s culture and decision making process to assure the feeling of forward motion exists at all times, even when survival seems impossible.

While wading through the challenges that come from this rapid growth, it is important not to neglect the company’s morale and emotional wellbeing. Money, experienced managers, and a good business model are critical if a company wants to transition through No Man’s Land; however, these assets alone are not enough.

Entrepreneurs must be sure to maintain a sense of forward momentum, even when the outlook for the company doesn’t look bright. Although momentum isn’t measureable or tangible, the feeling of moving forward brings about actual change. Because of this, the presence or absence of momentum makes all the difference for a company in the stages of transition.

So what exactly is this momentum thing we’ve been talking about? The dictionary defines it as “the force of motion”, while in physics it is described as “the mass of a body multiplied by its speed.” According to Doug Tatum, author of No Man’s Land, “Momentum in business can be viewed as institutional self-esteem.” When entrepreneurs speak about momentum, they are referring to positive energy grounded in the optimistic expectation that a company’s future will become brighter than it currently is. For a company to experience this momentum, they must have a good business model, competent management, sufficient finances and alignment with customers. Without these traits, it will never make its momentum profitable.

So, how do you go about cultivating this momentum? Unfortunately, there is no single rule or set of rules. Rather, the manner in which momentum is cultivated is influenced by qualities of an individual’s leadership style. There are some general guidelines leaders of emerging growth companies in No Man’s Land can follow to create momentum:

  1. Optimism – it is very difficult for a leader to get a company off the ground, much less through No Man’s Land, if the leader is not optimistic. No Man’s Land pushes the entrepreneurs’ emotions to the limits. Entrepreneurs must have an attitude to do whatever it takes without losing determination or hopefulness. They also need to have a can-do attitude that employees can depend on and mirror. It is important to have someone positive to look to when times get tough.
  2. Clarity in Decision Making – How are decisions being made and who is even making them? Are company values being withheld in these decisions? Are goals and ambitions being reached? As discussed in the market misalignment blog, the company needs to have a clear, defined and successful pattern for decision making that also defines the company’s culture. Do your employees have confidence in the way decisions are being made? Without this confidence in the decision making process, you will not be able to generate momentum.
  3. Give the Company a Boost – If your company is deteriorating, don’t wait around for someone to come and declare it dead. Instead, put the heartbeat back into the business using the following three methods:
  • Change up the circle of decision makers and make sure it can be managed.
  • Implement something radical and fun, even unpredictable. This can help inject some life into the company.
  • Make new promises to customers (not too many that you stop fulfilling them) from time to time and have staff members create, develop and implement new processes required to meet the customer’s needs.

So there you have it, a general discussion on what momentum is, why your business needs it, and how to get it back if it’s gone missing. Getting through No Man’s Land is a huge commitment, and having the guidelines to get through it will make the journey a little easier.