Measure success

“What gets measured gets managed.”

― Peter Drucker

“What are the five to seven key metrics that will determine your company’s success six months from now?” Pause for a moment and try to answer this question. Do you know exactly what these five to seven key metrics are? We are not talking about current revenue or profit figures, we are talking about lead KPIs that will determine what revenues and profits you will make in a few months. Do you know how you are stacking up against each of these metrics at any given moment (without looking them up on your laptop)? Do you review and discuss them with your team in the monthly management meetings?

Can you answer all of these questions with a resounding “yes?” If so, good for you. But if you are like most executives, then you may have had problems naming the right lead KPIs that will drive most of your success six months from now. And this may be one of the reasons why your company is not as successful today as it could be.

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10x Results "Million $ Idea"

One of the most important prerequisites for any business to succeed is to be crystal clear on what the five to seven key lead indicators are that will determine your business success six to 12 months from now.

Hint: It is not EBIT or revenues or EBITDA or FCF. It could be metrics like (1) business pipeline growth/ volume, (2) Net Promoter Score, (3) Involuntary employee attrition, and (4) Shipment returns.

Once you have identified these five to seven key lead indicators, you need to track them and manage them. Then, the rest will take care of itself.

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A few things are important to mention: We picked the numbers five to seven for a reason. Most businesses make the mistake of either tracking too many numbers and then getting lost in the weeds, or too few numbers (e.g., only revenue and EBIT). In our experience, we found that five to seven key lead indicators are about the right amount for a company that operates mainly in one business area; enough to get a nuanced view, yet not too many so that you lose focus of what is really important. Typically, you will find three to four sales and customer-related metrics and two to three metrics that relate to operations (including employees). Every additional business that you operate in will add another two to three metrics to your list.

Let us give you an example to illustrate: Let’s assume you want to lose 10 pounds over the next three months. A bad indicator would be the number of pounds since it is not a lead indicator and also not actionable. Much better lead indicators would be:

• Minutes of physical exercise per day with a between 115 and 130 bpm (target: 30)

• Steps per day (target: 15,000)

• Share of healthy (e.g., fresh food, veggies, low carbs and sugar, good fats, water) versus unhealthy (e.g., fast food, candy bars, Coke, beer, chips) meals per week (target: more than 90 percent)

• Early time to bed (before 10 p.m.) and long enough time in bed (no less than seven hours of sleep) per week (target: 6 weekdays)

Many fitness trackers allow you to easily monitor the metrics mentioned above—and for the food, you can keep an easy journal. All in all, the tracking effort should take no more than three minutes per day, and you should see visible improvements in your body weight and posture within the first few weeks.

Now, the question, of course, is how to identify the five to seven key lead indicators for your business:

Checklist: How to identify the five to seven key lead indicators for your business

• Start at the top: Ask “what does it take to be successful in our business?” You may get answers like: loyal customers, business growth based on customer referrals, innovative products that create customer hype, smart and loyal employees, strong brand recognition, highest product quality.

• Peel the onion: Next, try to dig two to three levels deeper and understand what exactly drives each of these topics and how you can measure them. For “loyal customers,” you may arrive at the Net Promoter Score (NPS) as the key metric. For business growth, you may arrive at the number of referrals per promoter per quarter as the key metric, and so on.

• Test the first hypothesis: Test the first hypothesis on the five to seven key lead indicators using historical data from one to two years ago. Do these figures predict your current performance? Or is the link weak? Then adjust, fine-tune, and repeat the testing until you have indicators with good predictability.

These five to seven metrics is what you should keep top of mind every day. With every business decision that you make, you should ask yourself: “How will this decision affect each of these metrics? How can I further drive them up? What can I do to avoid any downside risk?”

It provides you with a lot of focus and mental clarity when you are able to boil down the inner workings of your business model to a few key metrics that you need to track. And not only does it provide focus and clarity to you, it does the same for your team and investors.

Moving to Action: Questions to Ask Yourself

• What are the five to seven key lead indicators in your business? Brainstorm and validate the list with your management team.

• Are they easy enough to measure and easy enough to understand (i.e., are you able to communicate them to your frontline employees and to investors)?

• How will you display them visibly in your office (tracking monthly performance over time)?

• How do you integrate them into your regular discussions with your management team?

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This insight is a chapter from the book "10x Results: 240+ proven ideas to boost revenues, profits, customer loyalty, and employee engagement". The book is available on Amazon.