How small businesses can use Data to win
Entrepreneurs are liars. We tell ourselves that everything is fantastic, that we’re solving the world’s problems and having fun in the process. But in fact we know that is rarely the case…
Being a liar in this way is a good thing. Even when things are all going terribly wrong – we lose a big contract, our best employee resigns, we don’t have cash to make next week’s payroll – it’s ok. We remain happy and positive and reassure ourselves that everything is going to be just fine, because we’re changing the world. We rely on this “reality distortion field” to help us get by. And this is important, because as entrepreneurs you need this confidence and bravado to wake up every morning with the hustle and winning mentality to fight through whatever the day throws at you.
However, the problem with this reality distortion field is that it becomes so real that you begin to delude yourself and assume that whatever you know must be true, or you tend to overinflate your growth statistics based on gut feel and convince yourself that this is actually a good business. You run 100miles an hour but then crash and burn and ultimately fail.
This is why numbers and metrics are vital to your business’ success. The numbers are the source of truth that poke holes in your ‘reality distortion field’. Not only does it keep us real, but it helps us to make informed decisions and not ones based on gut feel.
The best businesses are data driven. Between all of us in the team at SmartBooks, we’ve worked in businesses of all shapes and sizes, from tech startups, small businesses and ASX listed companies. From these experiences we have concluded that the most successful companies have one thing in common – they are data driven. They capture and measure everything about their business – from marketing, sales, operations and finance.
Basically they know their numbers.
Business (like everything) is a numbers game and if you want to win, you need to know them inside out.
Running a data driven business takes a mental and cultural shift to how you may have been running your business previously. This is how to do it:
1. Capture data with cloud based systems
CRM, Project Management, finance – there are cloud based tools for all of these. To get started with capturing data in your organistion, you need to set up the right systems from the beginning.
2. Be specific about what data you want to measure
Now that you’ve got all this data at your fingertips, what do you do with it?
Start by understanding the KPIs relevant to your business goals. If your focus is to increase revenue, start with understanding the drivers of your sales function, product mix and conversion rate metrics then build out target KPIs. Once you’ve nailed sales, move to other functions of your business. Whatever metrics you decide to measure, they should be developed on the balanced scorecard.
If you’re not sure where to start, speak with your accountant about what KPIs you should be measuring in your business.
3. Establish a reporting cycle
Set monthly board meetings with your management team to review the KPIs identified above and review these metrics against your budget. Ask your team to explain/report any variances in budget vs actual performance and revise goals for the next month. Remember if one is not being held accountable to one’s goals, you’re not getting the best value out of the tools nor KPIs – the value is knowing what actions you need to take in order to grow.
Being in business is tough and there are days where we do crush it, and other days where we feel like nothing is going to plan.
Irrespective of your state of mind, data will keep you real and accountable – so if you want your business to get to the next level – start with data.