Numbers: The “Other Side” of Leadership
Each month in 2023, I feature one of my top-ten “Things I Wish I’d Known” when I first started as a manager and leader years ago. This article is my seventh: Numbers: The “Other Side” of Leadership.
“Measure twice, cut once.”
Such sage wisdom and simple advice. And so easy to forget when we’re caught in a whirlwind of excitement!
Many years ago, my company had the idea to launch a terrific new product. We conducted our product research and fine-tuned our idea. We identified our target markets. We even went so far as to develop a prototype.
We did our homework! Or so I thought.
When we ultimately released the product to market, the response was overwhelmingly positive. People were buying it! And we were excited.
Until I ran my first profit and loss statement a month later: OH MY!!!
How many units will I need to sell just to cover the development cost — let alone make a profit?
With a closer look at the numbers, I quickly realized it wasn’t a financially sound venture. It cost more to put the product into the market — and maintain it — than we could possibly generate in sales revenue.
I had missed a crucial step. I didn’t know my numbers. While we had done everything else right, we hadn’t developed a financial structure for it.
In hindsight, if we’d developed a financial structure, we might have known we needed to get some additional funding. Or we might have discovered the product wasn’t financially feasible at all. We’d have put the kibosh on it before we were shoulder-deep in the water.
Unfortunately, I had to pull the product from the market.
The experience was a painful — but valuable — lesson: Measure twice. And, perhaps more importantly, measure the right things!
If you’re like me and more attuned to the relational side of leadership, it’s not always easy to focus on metrics and data.
But putting on financial blinders isn’t the way to go. I learned I’d have to balance the “people part” of leading — collaborating, coaching, inspiring — with the numbers side of things.
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My free worksheet features this month’s theme, Numbers: The “Other” Side of Leadership.
While this blog article won’t teach you specific metrics, it will raise your awareness about possible knowledge gaps. The following Power Challenges get you started on thinking about the numbers and taking action to enhance your company’s financial health.
Power Challenge 1: Know Your Numbers!
Before you take a stab at evaluating your company’s financials, assess your ability to work with the numbers. Be honest!
Do you know how to:
- Understand cash flow?
- Assess savings?
- Read a profit and loss (“P&L”) statement or balance sheet?
- Measure the costs of running a business?
- Work with a forecasting model?
No, you don’t have to have an accounting background!
But whether you’re leading a team, a division or an entire company, you do need to understand these financial metrics and how to monitor them.
Step out of your comfort zone and make friends with numbers.
If it feels too overwhelming to jump in with both feet, start by dipping your toes in the water.
First, ask yourself which key performance indicators (KPIs) are most important to your business. Examples might include revenue, expenses, sales, profit margins, employee turnover rates … the list goes on.
Are these indicators meaningful, impactful and relevant? Are you using them to make plans and decisions?
Second, take a look at how they’re measured. What specific metrics are in place to measure performance? Is it time to add or update any metrics?
It’s okay if you don’t know all the answers — yet. Ask for help if you need it. Reach out to your accountant, business advisor or coach. Don’t have one? This could be the right time to hire one. It could be one of the best investments in your business you’ll ever make!
Related: No, You Don’t Have to Know It All
If it’s not in your budget (now), explore the many free resources available to small businesses. For example, check out the federal government’s Small Business Administration website. It’s chock full of advice, tools and online courses — and can even help you find a local volunteer business mentor in your area.
Whether you go it on your own or with support, the next step is to conduct a financial wellness check. Think of your company’s numbers as you would a person’s vital signs.
Systematically go through the data to make sure you have a firm grasp on the financial health of your business. Don’t be haphazard, and don’t just scratch the surface!
Recognize areas of weakness or financial vulnerability. Explore ways to turn them into opportunities for growth.
Power Challenge 2: Set a “SMART” Goal — and Follow Through
Now that you have a clear understanding of your company’s health, it’s time to move into action.
It’s easy to get overwhelmed with all the things you could do increase revenue, improve profitability or move toward more solid financial ground.
You can’t do it all. Certainly not all at once.
Do yourself (and your company) a favor: Choose one goal or metric to focus on first. Pick a realistic, doable goal that’s relevant for your business. One you’re able to wrap your arms around.
“Be like a postage stamp. Stick to one thing until you get there.” – Josh Billings
When setting a goal, remember to balance ambition with reality. Make it a “SMART” goal:
Specific: Make your goal narrow, specific and clear. Let’s say you want to “see your sales figures go up.” Well, okay, but that’s pretty vague. You’re far more likely to achieve your goal if you make it specific. For example: increase our “ACME product line” sales by 12 percent.
Measurable: How will you measure your progress — and know when you’ve reached your goal? Make sure you have the right tools and data to track progress along the way.
Achievable: Sure, you want your business to be profitable. But what’s a realistic target? Set yourself up for success by setting goals that are a stretch, but still within reach.
Relevant: Consider the impact of reaching this goal. In the “ACME” example above, is the ACME product competitive in the market? Will a 12% increase in ACME sales result in significant profit, or will it just be a tiny uptick? In other words, will we actually care about achieving this goal?
Time-Based: What’s a realistic timeline for reaching your goal? Do you expect to achieve it within a month, a quarter, a year … or more? If you set out to reach your goal too soon, you might miss it and become discouraged. Seek to reach it too far into the future, you may become complacent or unmotivated. Find the “just-right” target.
Now let’s fast forward. You put in the effort, and you’ve achieved your goal. Congratulations!
Or maybe you missed your goal.
Well, that would be disappointing. But rather than consider it a failure, see what you can learn from the experience. What worked well? What didn’t? What other approaches might you consider?
Goals are targets. When you reach them, it’s important to celebrate. But the game’s not over. Make sure you follow up.
Is the goal contributing to your company’s financial health? Are your employees still committed to it? Do you need to adjust any strategies or tactics that aren’t as effective as you had hoped?
Thankfully, you have the right data and metrics to monitor performance long after the first goal has been reached!
Harness the Power of Data, Metrics and Goals
One of the things I like best about being a leader is the opportunity to inspire and motivate others. To focus on the vision for my company — and on the managers and staff who make the magic happen.
But that’s not enough! Of course, it’s important to pay attention to employee wellbeing and morale. It’s important to have the right organizational structure in place — and the right people in the right positions.
It’s equally critical to ensure the company’s financial health.
Become up-close and personal with the metrics and data used to monitor your company’s performance. Your company’s financial health determines its success — and its future.
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Carla inspires leaders and team members — and provides real-world tips to become the best version of themselves that they can be. Contact her today.