How are you measuring what you are doing to grow your company? Do you have internal measurement system and what this system gives you like help in growing your company? These are essential questions for you as an entrepreneur, and I will try to provide some answers and ideas that will help you in designing such a system.
It was evident that many successful companies have their internal systems for monitoring of the implementation of their business plans and models to ensure right decisions that will support the growth.
How Your Internal Measurement System Will Bring Growth For Your Business?
Eric Ries, the author of “Lean Startup” and developer of the Lean Movement is talking about three engines that drive the growth, and each of these engines has specific key performance indicators (KPIs):
- Sticky engine (How you are getting customers to return to your company? What is the customer’s retention rate?),
- Virality engine (How many customers are brought in with each of your viral cycles?) and
- Paid engine (How you are getting paid for what you are doing?).
Another useful way of measures and metrics for growth is proposed by venture capitalist Dave McClure who calls them “pirate metrics” as metrics for acquisition, activation, retention, revenue, and referral.
What Your Internal Measurement System Will Need to Include?
This internal measurement system, besides traditional financial indicators as working capital, acceptable ratios, debt to equity ratios, profit margins, cash flow, receivables, low-cost structure, etc., should include measures in several vital areas that can bring growth to the company. Here are some of the most important:
1. Customers as a Part of Your Internal Measurement System
Your customers are one of the most important persons in enabling high-level growth of your company. So, it is logical that they will become a central part of your internal measurement system.
This system will need to measure the number of new customers per year, the number of lost customers per year, or the number of customers retained. Also, it is essential to understand and measure the potential customer lifetime value for each customer on a regular basis.
2. Employees as a Part of Your Internal Measurement System
Next important part on which you can base your success inside your company is your human capital. You cannot expect to satisfy your customers if you don’t have the right employees. Employees who will innovate and do the things essential for growth.
Mechanisms for hiring and retaining excellent employees measured by employee turnover, job vacancies, customer satisfaction and so on, are essential for the successful growth of your company.
3. Innovation as a Part of Your Internal Measurement System
Next important part of your internal measurement system will need to be measures related to innovation. It is challenging to measure something uncertain as is innovation. But, you need to understand some important indicators that will tell you how your company innovates.
Some of the measures you can use are successful new product introductions and promotional programs measured by sales and costs followed by product differentiation, time to market, or how much time you will need to introduce the new innovative product on the market, innovations that become failures, etc.
4. Your Business Operations as a Part of Your Internal Measurement System
The last element I want to mention here that will need to be part of your internal measurement system is your company’s operations. Everything that you plan or everything that your business model will require from your company to do to ship the value to your customers will be done through your company’s operations.
How much better your operations will operate, you will have more significant possibilities to grow your company. So, you will need to measure operating capacity utilization and a supplier and distribution network effectiveness.