Your Business and Key Drivers

Via Ed Sim, Scott Maxwell has a great post about business metrics.

"When you can accurately predict your results in each operating unit, it means less risk and a greater opportunity to scale your company without blowing your capital (missed quarters get more and more expensive as you grow!). Being able to make accurate predictions also means that:

  • You have an operating model (not just a collection of people), which allows you to scale better,
  • You understand the key drivers of output in your operating model,
  • You are consistently managing the unit to your operating model,
  • You have a set of early warning signs (your key drivers) that you can focus more attention on when they get below certain thresholds (i.e., it helps you to know where to spend your time),
  • You have a set of measures that you can benchmark against other companies to understand where you have opportunities to move to best practices, and
  • You know when you need to add staff or other resources well before you get caught short."

Ed Sim adds:

I was at a board meeting the other day and while we were pleased with the results for the quarter, we were struggling to understand why we were not getting more customers if we were winning a majority of our proof of concepts (POCs).  As we dug through the data we discovered that while we did convert a majority of our POCs, 50% of POCs ended up in no decision.  In other words, we wasted half of our sales engineering resources on sales that would never happen.  The key was to go after the low hanging fruit first – only do POCs that can convert into a sale.  So what have we done to correct this?  We now require a more detailed checklist before a sales rep can request a POC for a customer.  Even if we are able to reduce the no decision rate from 50% to 35% this means more sales.  Clearly this does not mean we need to hire more sales engineering bodies as we can better utilize who we already have.

It doesn’t matter if you are an enterprise, web 2.0, or old economy company because everyone must understand the key drivers of their business, measure them, and finetune their operations to run as efficiently as possible!

A pretty good read for Monday morning!

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