- March 9, 2017
- Posted by: Paul Foster
- Categories: Analysis of Leading Business Performance Indicators, Business activities management
Using the metaphor of flying a plane to describe running a business, I think there are three primary methods:
1) Flying blind;
2) Flying with accounting gauges; and
3) Flying with actionable activity based gauges.
The “flying a plane” metaphor is intended to help you understand why the third way is the only way that works.
1) Flying blind – This is flying on gut instinct. Although you may think your instincts are great, without any data to compare to and check your gut instincts, your behaviors are driven experientially. Painful past experiences may also blur your vision.
2) Flying with accounting gauges – Imagine if the pilot has two gauges in front of him, the first one says “average revenue per passenger” and the second tells him how many miles he has flown without crashing.
How does this help him fly the plane?
How does your income statement help you run your business? It does not. If you are running your business with these types of “results based” gauges, you are giving yourself a false sense of security.
3) Flying with actionable activity based gauges – A fuel gauge is useful and actionable for a pilot. It will tell her if she is going to run out of gas before she runs out of gas. When she sees the gauge reach a low mark, she can take action. It is an actionable, activity-based gauge.
When you run your business, good activity-based gauges help you course-correct in advance of a crash. If we simplify your business into selling the work and doing the work, what are the important activities of each?
Gross revenue last month is not a good “selling the work gauge”. What about the number of potential sales in the funnel? Conversion ratio of leads to sales? Average transaction value? Last month is gone – what gauge will monitor the activities to get sales next month?
“Doing the work gauges” are even more important and time sensitive. If you lose a day of production, you never get it back. At least a slow sales day can be offset by a higher future sales day. If you do not have a gauge that tells you what your production looks like next week, then you can’t take the actions necessary to fill the schedule.
If you put this gauge in place, you can start to get data to help you course correct. Using this type of gauge gives you so much more control of your future. You can try something new and use the gauge to measure the effect of the change. Even when the gauge shows you the latest change did not work, that is a wonderful thing: Without the gauge to measure the impact of the new activity, the change that didn’t work wouldn’t get changed back!
In summary, if you are flying blind or using results-based accounting reports to run your business, that would explain why you sometimes feel like things are spinning out of control! I am not saying accounting reports aren’t useful; it’s just that they aren’t very helpful for flying a plane or running an independent business!
If you or your accountant want to challenge the above point, we welcome the opportunity. If it keeps just one plane from crashing, it would be worthwhile. Please feel free to reach out to us: email@example.com