What is your definition of success?
By Jack
Sept 08, 20206
Ask a business owner what they want from their company and you’ll often hear some version of:
“We want to grow.”
How much? Revenue? Profit? Customers? Locations? Enterprise value? You need to define what success actually looks like.
The Outcome
Before deciding what to improve, define the outcome.
Imagine two companies, both with $10 million revenue. Company A wants to reach $20 million in five years. Company B wants to remain around $10 million but materially improve operating profit and reduce the owner’s involvement by 50%. Success means something different to these companies and as a result they should make different decisions about operating their business.
Make it Measurable
A useful definition of success should answer:
What are we trying to accomplish? How will we know we’ve accomplished it? When do we want to accomplish it?
Once those questions are answered, the organization can work backward.
If the objective is to increase operating margin from 8% to 10% within 18 months, you can identify the levers that influence margin.
If the objective is to grow revenue from $10 million to $15 million without materially increasing headcount, you can measure revenue per employee, cost to serve, capacity, productivity, conversion, pricing, and retention.
KPIs & Communication
KPIs should exist because they help you understand whether you’re moving toward the desired outcome. Start with the outcome, then identify the measures that tell you whether you’re on track or off track. Then, assign ownership.
Outcome → Measures → Ownership → Action
Without a defined outcome, businesses can be great at measuring things that don’t matter.
And make sure your team is aware of what success looks like, its measurements, and why it matters to them and your customers. They need to buy in and they can’t do so without a North Star. They need to know how their actions ladder up to the greater definition of success.
Success Doesn’t Have to Mean Bigger
An owner might want:
More profit with the same revenue.
A business that operates without them.
Less volatile cash flow.
Fewer customers at higher margins.
A company they can eventually sell.
More time with their family.
A greater impact on the community or society via philanthropy.
Those are all definitions of success.
The problem isn’t choosing the “wrong” definition, the problem is never defining it at all.
Because if you haven’t defined where you’re going, it’s very difficult to determine whether the decisions you’re making today are actually getting you there.
