Are you measuring the right things in your business?
Concerned about the future? You’re most certainly not alone. It seems inconceivable that a few short weeks could turn the world upside down, bringing businesses to the brink of financial collapse. Here we are staring into the abyss of a deep and long-lasting recession. It’s likely to have far-reaching consequences for all of us.
Now, more than ever, businesses need to tighten up the way they operate. When times are good and revenue is flowing, you can get away with a looser management style. However, tough times call for laser focus on the things that really matter. I always think of Peter Drucker’s famous quote – ‘What gets measured gets managed’. The only way to bring that laser focus is to identify critical metrics that will help your business survive and, eventually, thrive. And keep measuring them in a regular cadence.
I’m not saying that most businesses don’t measure stuff – they do. But often it isn’t the right stuff. Ever heard the story of the drunken man searching for his keys? He scrabbles around on the ground around a street-light, until a policeman stops to help him. After a few minutes, the policeman asks whether he definitely dropped them there. The drunk replies, ‘No, but the light’s better here’. That’s a great analogy. When I go into businesses for the first time, they’re often measuring loads of things. Things that are easy to measure or they have always measured. They will spout statistics proudly but many of them are meaningless.
This is the time to re-evaluate what you do and re-educate your team. In a recession, some things are worth measuring more than others. Focus on what matters. Business is like a team sport – you need all your players to know what you’re trying to achieve, the rules, the white lines and the score in real-time. Metrics are part of knowing the score. Without them, you’re playing blind.
There are only four critical things that you should be measuring in a recession. Let’s go through them one by one.
Real emergencies call for emergency measures. And never have we faced an emergency as damaging as the coronavirus crisis. Get right back to basics and focus on cashflow. At the moment, you should be doing a cashflow forecast every week. Maybe you’re experiencing the same as me. I found mid-market and enterprise clients continued to pay in March whilst SME companies were harder to get money from. April is looking ok and hopefully, in May and June, the government’s loans and aid for furloughed employees will start to flow. Let’s face it. If we stop paying each other, we all go out of business
Yes – reduce your discretionary spend. But alongside it, do a six-monthly cashflow forecast and review it weekly. If there’s a high-value customer that’s stopped paying, talk to them – CEO to CEO. Ask them what’s going on. Don’t leave it. These interventions can have other positive impacts. In normal times, you wouldn’t necessarily be having such personal conversations but we’re not in normal times. There’s a massive opportunity to connect on a human level here and your customer relationships will be all the stronger for it.
In my recent newsletters, I’ve linked to a new tool that’s been rushed through to help crisis-stricken companies. It stress tests your financials and will help you with scenario planning. You need to work out how you’re going to deal with different degrees of crisis. What if revenue fell by 10, 25 or 45%? How do you ring-fence your assets? How can you ensure enough cash is flowing through?
2. Customer happiness
Are you customer-obsessed? If not, you need to be. This is vital in any recession. If new customers are harder to find, do everything you can to keep the ones you have. In the present crisis, you need to prepare your company for customer losses – it’s inevitable that some will go out of business. But if a customer leaves you for a competitor, that’s unforgivable. It’s like losing 6 points in a relegation battle.
My top tip is to read ‘Excellence Wins’ by Horst Schulze, founder and CEO of Ritz Carlton. It describes his approach to customer service which led to multi-billion dollar growth. We used many of his ideas when I worked at Rackspace – in fact, our BHAG was to become the IT equivalent of Ritz Carlton.
The metric that enabled Rackspace to realise its BHAG was Net Promoter Score® (NPS) – it blows all other customer surveys out of the water. When I joined IT Lab and Peer 1 as their MD, I brought it with me. It was instrumental in the rapid growth of both companies. At Peer 1, it helped us turn around our rate of churn – we went from losing customers to growing our base.
Anyone looking to use NPS in their business should read ‘The Ultimate Question 2.0’ by Fred Reicheld. It’ll tell you all you need to know. I’ve devoted entire blogs to this tool in the past. If you’re introducing it for the first time, I suggest you measure transactional and relationship scores. The first step is persuading your customers to take part. I remember one of my clients had a reasonable score in the high forties when I started working with them. But their response rate was only 20%. They were being indiscriminate, surveying everyone but only getting 20% back.
So I suggested two things. Firstly, I told them to survey their top 5 to 10% of customers only (representing 60% of their revenue). To improve uptake and response rate, they needed to follow-up any unreturned surveys with a phone call – the aim was to get response rate up to 60% which they did. And you know what they discovered? That their NPS for this critical group was in the twenties not the forties. They went from thinking there were in a good place to knowing they had a lot of work to do.
This is how you underpin your revenue – by making sure you truly look after your bigger customers. Because if you lose one of them, it will make life really hard. As you’re climbing out of recession, you need to try and make some things predictable. And there’s nothing more demoralising than asking your staff to dig deep and then have them suffer a catastrophic loss. By staying on top of your biggest customers, you’ll manage the expectation of your cash flow. You’ll also make sure that any scenario planning is based on real-time information.
If your NPS for higher-value customers isn’t where it should be, put in place a plan to address it. The client who realised their NPS was low for this cohort reacted quickly. They restructured by changing the resource mix for these customers and soon turned it around. Keep tracking your NPS data over time – maybe use a tool that’s specifically designed for NPS. Here at Foundry Farm we’ve been experimenting with AskNicely which seems to work well. Don’t track monthly. Keep surveys rolling all the time and then track a 3-month moving average. This smooths out any peaks and troughs.
3. Employee happiness
It’s a cliché but happy staff equal happy customers. You won’t get one without the other. That’s why I also recommend tracking staff engagement alongside customer satisfaction. In these uncertain times, you want to make sure you’ve unlocked that magic 40% of discretionary effort. It’s available in all your employees (and is something that the best companies consistently achieve). Getting more for less is a sensible policy right now. If you can’t get your staff to love your company, you won’t get a customer to love it. Just impossible!
I’m a big fan of Friday Pulse. In response to the coronavirus crisis, and at my suggestion, they’re offering my clients and readers of my newsletter free access to their platform. If you’ve more than 50 staff, email me for an intro to Nic Marks, their founder. By tracking positive and negative emotions, and collecting ongoing communication and feedback, Friday Pulse gives real-time insights into how individuals and teams are coping, as everyone deals with a new reality. This data is invaluable.
Another metric in your armoury for better engagement is the Gallup Q12. The first question of this survey, ‘I know what’s expected of me at work’ is at the heart of employee happiness. If you can get to a point where 75% of your staff are giving you 5 out of 5 for this, you’ll know you’re in good shape. Crucial is working out KPIs for every member of staff. Things that contribute to your business making money that can be individually tracked. These will clarify expectations like nothing else. Once you’ve got the Q12 in place and you start tracking data from it, it will show you where you need to focus to improve overall staff engagement.
4. Percentage of A-Players
Finally, it’s critical to measure and improve the number of A-Players in your business (these being the top 5 to 10% of available talent for a given job, salary and location). Go through a talent assessment process to establish your current mix of A, B and C Players. And get rid of the C-Players that are dragging your company down. Don’t furlough them. Make them redundant.
Start with your Executive Team. Every one of them needs to be A-Players. If not, you need to act – and fast. This is like going to war. Would you want to be in a foxhole with someone you don’t trust? Someone who hasn’t got your back? Ask yourself two questions, ‘If they resigned tomorrow, would I be disappointed?’ and ‘Knowing what I know about them now, would I rehire them?’ Answer ‘no’ and you’ve got a problem. It’s time to make some tough decisions.
When you move on to staff assessment, there are two axes for measuring A-Players. The first is performance (including an external context). The second is behavioural. Are they living, breathing examples of your values that you’d happily clone? Think about what makes an A-Player in your business. Maybe they don’t need any management time or a huge amount of supervision? Or they say they’re going to do something and you know it will happen? Perhaps they spot things and fix them without asking. Or do five times the work of their colleagues. This is what you want in all your staff and what you need to be aiming for.
To an extent, measuring the percentage of A-Players is a subjective judgement. But there needs to be an external benchmark as part of this. You could tell me that all of your salespeople are As. They hit half a million pounds of net new revenue every year for the fifty grand you pay them. But I could show you ten other companies paying their salespeople the same money. And they’re each winning £1 million of new revenue. So not a single one of your salespeople are, in fact, A-Players.
Repeat your talent assessment exercise every quarter, each time tracking your proportion of A-Players. Start at the leadership level, move on to managers and look at functional areas and teams. Slice and dice the data however you want. Your ultimate aim is to get your entire company up to 90% A-Players. This is how you get to be best in the world at what you do.
And remember that office space and people are cheaper in recession. Suddenly you may be finding that there’s an opportunity to attract some great new people. An opportunity that didn’t exist a few short weeks ago. Take full advantage.