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Success and Performance

No matter what size of business you run and what stage of development, defining both success and performance to be measured is a critical step in devising the strategic direction of the business.

At first glance success seems easy to define. We talk of successful business people, or successful businesses in similar ways in that both are deemed successful when they have earned large amounts of money. On the face of it this seems to be all important: who would invest in a company that does not make (or is unlikely to make) money?

But using money as the only measure of success not only distorts our view of a business, it can distort the business itself. The financial crash of 2008 stemmed from businesses that were only focused on financial metrics. There must be more to it than that.

Organic success and performancePersonal success, of course, means different things to different people. If you asked the most successful entrepreneurs what they regard as success it would be rare to hear one say something like “sitting on a large pile of money”. The large pile of money may be important, but more as a comparative measure of success achieved in some other way rather than an end in itself. As with businesses, individuals wholly focused on the amassing of wealth for its own sake and nothing else, tend to become corrupted.

For early stage, or micro businesses, success can be easy to define as it is usually something along the lines of survival – covering the wage bill, steady cash flow, etc. However, this can only go on for so long and any business that wants to ultimately thrive must look further on towards the horizon. It is at this point that defining real success becomes critical.

For classic entrepreneurial start-up businesses, success is often pre-defined in that the business has been set-up to solve a specific problem and success might be regarded as when a certain percentage of people with the problem have adopted the new product, or service. For businesses in more mixed or nuanced markets, success may be not quite so easy to define.

The word success is of course problematic to use in business. The word itself resonates an end point like climbing a mountain where success is getting to the top (perhaps by a particular route) and returning safely. But, in business it is rarely the case that there is a definite end point – only when the business has been set up specifically to deliver an end result like a new drug to be patented, or a new building, or event, etc.

For most businesses success is not achieving one thing, but a number of things and not once, but continually. If it were a mountain climb, the summit would never be reached it would just be a continuation of camps climbing towards ever more difficult to reach higher camps. To continue the metaphor, the targeted success factors would always relate to the mountain itself.  Like all mountaineers we are climbing for the challenge, because it is there. In this metaphor money is like the height of the mountain, we might use it as a measure to see how far we have come and we need to achieve height to get to the top, but the object of the exercise is to climb the mountain, not to get as high as we can just for the sake of it.

So, what should success be? Well each business must define its targets within its given market, but there are certain core themes that really cannot be avoided.

1 – Productive Growth

It has to be productive growth rather than just growth, because if the business grows for the sake of growing it may be sowing the seeds of is own decline.

It is not always the case that the business needs to own the means of its own production. The expertise in the business may be in bringing disparate elements together to make a new entity. Growth may be achieved rapidly through employing the intellectual property of others and assembling them into something uniquely new.

Classic modern examples of this are Uber and AirBnB: a taxi business that owns no cars and an accommodation business that owns no property. Both of these businesses have grown rapidly in recent years precisely because they have not physically grown to reach the productive targets they aspire to. Growth has been achieved with relatively small teams and the employment of technology. Each growth point has been achieved without having to make impossible levels of capital expenditure, or micro-managing employees in remote locations.

These are true examples of productive growth where the focus is on reach, turnover, units sold and profitability rather than on expanding physical infrastructure and/or directly employed personnel.

2 – Reputation

I have chosen the word reputation rather than the commonly used brand because it reaches more effectively the core of this area of success.

A great deal has been written about brand and branding in other places, but the important concept behind a brand (that is often forgotten) is not just the presentation part, but the delivery part. If we take the oft quoted McDonald’s brand, it is not really the yellow golden arches that attract the customer, but the expectation of what will be available in the restaurant. Love it or hate it, we know what is in there in terms of the available food, the environment and way in which it is served.

The McDonald’s management will come down hard on any Franchisee that does not maintain its stringent quality standards on food and premises cleanliness.

So while we often think of, or refer to, a brand concept, we are really talking about reputation. A dirty restaurant serving bad food damages the reputation of the premises concerned, the parent company and the brand it serves.

The reputation is the important thing – the most basic element. It is essential to focus on the concept of reputation, because it is important whether there is a brand, or not. The chances are you are likely to employ a local plumber on the basis of a referral which may well be backed up with a reputation for good work from several sources. One bad job may kill all of that dead.

3 – Profitability

While having a decent pile of cash in the bank (or under the bed) may be nice, it doesn’t say enough about the business to be a critical success factor in its own right: that pile could have come from an asset sale.

A much more revealing measure than cash is profitability: profit expressed as a percentage of turnover.  This is a better measure than just turnover itself as it expresses the value added the business extracts from its transactions with its customers.

A good example is Tesco which in the financial year 2014/15 made a profit before tax of £961m. This is the figure they will always focus on in the TV news – almost £1 billion of profit! It sounds huge and it is always slanted in a way that makes all profitable businesses appear exploitative. However, although Tesco has made some pretty questionable decisions in the recent past, when you view the profit as a percentage of turnover you get a completely different picture about the business. The turnover in the 2014/15 period was £69,654m which means the profit percentage was just 1.37% of turnover.

Even in today’s low interest world, you could get better rates by putting the capital in the bank and in fact the additional figures showed the shareholders making an effective loss. This rapacious capitalist behemoth is in fact struggling a bit.

I am sure Tesco will recover in the not too distant future, but you can see from this example that profitability gives a much better picture than just profit by itself.

Conclusion

Clearly there is more to this subject that can be covered here and each business owner will have their own view on what success means for them. Perhaps I should wrap it up for now with a quote:

Personal Success is: “liking yourself, liking what you do, and liking how you do it.
– Maya Angelou

The same can of course be applied to any business and the whole question of successes and performance can be distilled into that simple short phrase.

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