We have completed our series of blog posts on starting your small business, but if you have missed any of those articles and you want to teach yourself about the steps to take when you are starting a small business, I’ll put the links to those articles at the end of this post.
Today we are starting our series on growing your small business. Having started successfully, you are not turning your attention to growing your business.
One of your most important tasks of this stage is to set yourself milestones in the growth of your business so that you can recognise when you have reached various points of success. When should I hire more staff? When will reach a point in my profits when I can invest in more equipment? When do I start paying off my startup loan? When should I look to open a new store?
These are the types of questions you should identify answers to at the start of your growth so that you can recognise them and know what to do next.
This is why one of your most important tasks, other than writing your Strategic and Business Plans, is to measure everything.
How does anyone know how they are progressing toward their goals? They measure their progress.
An Olympic athlete knows what the record for the 100 metres is, and each week, as they train, they measure any improvement in speed so that they can gauge against the target.
A child waiting for Christmas knows how many days it is to Christmas and they will tick off a measuring yardstick (a calendar) to see how close it is getting.
If you save up to buy something, you count your savings from time to time to work out how long before you reach your savings goal.
Seeing where you are in your business growth is no different. Measuring your progress tells you how far you have to go, and what you may have to do differently if you want to get there faster.
When people start thinking about their business growth, they usually think of dollar metrics. How much are my sales? What is my profit margin? What is my Return on Capital? What is the value of my assets?
These dollar metrics are important, and I will deal with them below, but first, you should quantify your goals.
By goals, I mean your vision for your business, translated into defined goals.
By doing this, you will make the “woo-woo” subjective Vision Statement come alive as real targets. And by doing this, you will ensure that your business growth journey follows your desired strategic direction on purpose. If you do not have a clearly defined and quantified vision, you may find yourself making decisions about your future on the fly and one day, you will wake up and say “how did I get here? This is not where I wanted to be 10 years ago!”
In order to define your vision, first, make sure you describe it as clearly as possible.
Don’t settle for “I want to run a great business”. Ask yourself what that “greatness” means to you, what you really do in the business, and what that business does for customers. Ask yourself what would really make you proud and happy to be running that business?
You may end up with a statement like: “I want to operate a restaurant that serves innovative and delicious food with the type of customer service that anticipates diners’ needs and provides a positive memorable experience.” Such a statement is clear about what business you are in and what makes it “great” in your mind.
Once you have done that you can look at that statement from four different “perspectives” to further define and quantify what each of those “great” qualities means.
These perspectives mean that you need to look at your business specifically from four different angles, and each one should reveal different aspects of your “great” business. Imagine if you were at a party and you were standing next to the loudspeakers pumping out music at a high volume. Your perspective would say “Man, that music was loud.”
However, if you were in another room where an argument broke out, your perspective would be that “There were angry people at that party!”
The four perspectives that you should use to look into your vision statement are:-
- From the position of the Customer,
- From the position of your people (your employees and yourself as the owner),
- From the position of key business systems, and
- From the position of the finances.
Remember that you are looking and describing the future when you have attained your vision. You are really asking what made you successful by asking four questions:-
- When I have attained my vision, what will my customers think of the business?
- When I have attained my vision, how will my employees and I behave and think of the business?
- When I have attained my vision, which key business systems must be really excellent?
- When I have attained my business what will my finances look like?
If you examine those four questions from the four different perspectives carefully, you should see that the answers to one question lead you to answer the next question, and so on.
If you describe what your customers will think of the business, what they appreciate about it and how they think it serves them, you should get ideas about how your people should behave and therefore how they should feel working there.
When you have described what the customers will say and how your people will work in the business, it should give you clues about which business systems are the important ones that create those situations.
When you have described all of the above you should be able to describe what the financial results of all that will mean.
Describing each of those perspectives, in turn, should give you a series of goals to get to in order to build your “great” business as described in your vision statement.
So, in our restaurant vision example, the description may provide the following clear and definitive goals:-
- Serve good food at a good value (customer value: “delicious food”)
- Provide a varied menu that changes seasonally (customer value: “innovative”)
- Provide fast and attentive service (customer value: “anticipate diners’ needs”)
- Front of house staff pay attention to every table (employee behaviour: “provide a memorable service”)
- Chefs use new ingredients to produce delicious food (employee behaviour: support customer value of innovation)
- Continuous service training and staff feedback loops (a key business system supports attaining customer value and employee behaviour)
- Scheduled discussion and research into menus (another key business system to support customer value and employee behaviour)
- Maximum gross sales targets per every serving (financial results reward all the above)
- Return on investment better than the average restaurant (financial results provide reward)
In turn, these goals can be quantified into targets for measurement:-
- All surveys and restaurant reviews show us in 5 best restaurants
- 90% positive feedback from diners about our menu
- No diner waits more than 5 minutes for a drink; no more than 10 minutes for the meal
- Every wait staff must ask each table 3 times during service if there is anything else they need
- Each season’s menu to use 50% new ingredients
- Customer service training is held every 2 months and staff reviews every month
- Chefs meet with Maitre’D once a week to gauge the popularity of dishes
- Gross sales at every serving top be 90% of the total number of tables multiplied by the price of an average two-course meal
- Our RoI is to be 15% better than the industry average.
You will also notice that as the quantification of the targets is described, they have built-in numerical quantities in percentages, frequency, dollars, etc.
So now, you can measure your performance. Not only from a dollar perspective, but from the point of view of how you are growing in meeting customer expectations, training your staff to meet those expectations, improving systems, and improving financial performance.
And all the while, your measurements will move you along your desired strategic direction, to attain your vision.
Your next step is to implement systems to measure those targets so that you can make your vision real. For example, in this scenario, the restaurant would:-
- Hire a marketing company to survey diners regularly, invite food writers to dine in and write reviews once a month
- Informally have all wait staff ask what the diners thought of the menu, and have them record the result in a simple chart behind the bar that gets added up at the end of each evening
- Randomly monitor 5 tables at every service to see if the 5-minute drinks/10-minute meals targets are met, and recorded for later discussion/improvement the next morning
- Have wait staff record the number of times they check with each table during service
- As each season’s menu is finalised, check to see if 50% of the ingredients are new
- Hold and record attendance at customer service training every 2 months and schedule monthly staff reviews centred around customer service
- Keep records of chef/Maitre’D discussions and randomly check results
- Calculate 90% x Number of tables x average price and compare this standard to takings achieved
- Calculate if monthly/quarterly RoI is 15% better than the industry average
Of course, as a business, dollar metrics are also important. What you hope is that achieving your vision results in a good financial performance. If you have chosen well, the two financial indicators in the targets will lead to underlying financial performance that is excellent.
The underlying financial performance you should also be measuring (and which should be driven by the above) are:-
- Overall gross profit percentage as compared to the industry average. This is the profit (in percentage terms) from gross sales after deducting direct costs (in the case of the restaurant, ingredients, chef wages, wait-staff wages, all expenses that are directly related to generating the sale). Are you better, the same, or worse than the industry average? Are you improving gross profit year after year?
- Net profit percentage as compared to the industry average. This is the bottom line profit (usually before interest and tax) that you are left with after paying all expenses. Comparison to the industry average could give you indications that your overheads are too high, for example, rents, and so on.
- Salaries as a percentage of sales – this measures how productive your employees are in relation to sales.
- Improvement in net assets – is your net asset balance (all your assets less all your liabilities) improving year on year. In other words, are you building wealth?
There are other more detailed ratios and financial indicators you can measure and analyse, but the above are the key financial indicators of your growth.
Next week, we will delve into how a long-term Strategic Plan can help you grow your business after startup. Don’t miss it!
Better than leaving it to chance, why don’t you make sure that you get the series delivered to you, direct to your inbox? Just follow this link.
Now, as I said at the beginning if you missed the previous series on how to start your own small business (and you wouldn’t have missed it if you had followed this link) here are the blog posts providing you with the steps you need to follow to start your business:-
Enjoy this learning, and see you next week.