Finding Your Critical Numbers
As a Business Coach I have created and reviewed hundreds of annual business plans. I find many companies do a poor job of creating their plans, which seriously diminishes their growth in revenue and profits. On the surface, these plans look like they have the right ingredients for success. However, a closer look shows that the leaders inadvertently led themselves astray. They then lose valuable time and energy, creating a profit leak.
As a certified Gazelles coach, I help clients implement the concepts found in Scaling Up by Verne Harnish. The “One-Page Strategic Plan” is a key tool that everyone looks forward to using in our annual planning process. Whether your company uses this business planning tool or something else, the issues you must consider are the same. Only the presentation of the business plan is different.
At the bottom of each of the “priorities” columns of the “One-Page Plan” is the “Critical Number” section. I have found that selecting the “Critical Number” may be the single most important decision in the planning process. The “Critical Number” is a key performance indicator that you have identified as the essential leading indicator for any given planning period. Whether you are planning the year, the quarter, or your personal priorities, it is essential to pick the one or two Critical Numbers that must be achieved to drive all of the other desired outcomes. If you are not sure which Critical Numbers to select, you’ll find some clues by asking yourself questions like:
- What is the key weakness in our business model?
- What is the biggest weakness in our operations?
- What is causing us not to gain customers?
- What is causing us to lose customers?
- What is causing our cost structure to be out of line with that of our competition?
Revenue is a common number clients use. However, this is not a good choice for a “Critical Number.” If growth is an issue, you need to go deeper and find the leading indicator at the root of that problem. For example, are you not able to generate enough leads? Do you generate enough quality leads?
A great example of failing to identify the correct Critical Number in a technology company that recently ran into trouble. This company had been mildly successful for years and achieved moderate revenue growth and great profit margins. But, this company always experienced inconsistent performance in its sales team. Revenue had always depended on a yearly home-run sale. There was no predictability in the sales performance. However, the company recently found that sales were more challenging and customers now preferred the products of competitors. After deep consideration, the company found it did not meet its number-one brand promise. I had challenged this client a few years ago to put more specific measures around their brand promises. They had failed to do so, and this was now coming back to haunt them. In this case, believe it or not, their most important promise was that their product could do what it was supposed to do. My client failed to “Get it Right.” So we developed a way to measure the “% of known issues unsolved” within their technology. That became their Critical Number.
Once you find your Critical Number, ask the question, “If we focus too much on this Critical Number, what could go wrong in the company?” If the answer is nothing, then you only need that one Critical Number. However, if you find focusing on that number hurts other areas of business, you’ll want to balance the first Critical Number with a second one. This will prevent you from unintentionally injuring your progress. In the case above, the company had a cash concern. They responded by focusing the sales team on closing a minimum number of quarterly transactions. They broke that number into 20 qualified leads that were already in the pipeline and needed to be accelerated in the sales cycle.
Call Howard Shore for a FREE consultation at (305) 722-7213 to see how an executive business coach can help you run a more effective business or become a more effective leader