How You Measure Your Business Matters

Measure Your Business in a Manner That Matters

Measure twice, cut once is an adage that’s been cited for centuries. Its literal meaning is to verify the accuracy of measurements before making cuts so that time, material, and effort are not wasted. Its figurative meaning is to plan and prepare appropriately before acting. Both meanings hold absolutely important applications for business. The literal meaning emphasizes accuracy to maximize efficiency and effectiveness, while the figurative can be translated as failing to plan is planning to fail.

Measurement can’t be haphazard, however. How you measure, the tools you use to take measurements, and even variables related to who is carrying out your measurements matter mightily. Let’s dive deeper into how to measure your business in a manner that gives you a true-to-life view and points you in the right direction.

Ensure Accurate and Unobscured Views

Calibration happens every day in airplanes, operating rooms, and countless other instances to be certain that measurement values meet known standards. Using proven and calibrated measurements should always be the case in business too, but human factors often get in the way. Emotions are a prime example. That’s not to say though that emotions are all bad. Excitement, passion, and genuine care for others are typically positive and needed attributes in business. Properly channeled, even anger and frustration can be constructive. What’s crucial is to recognize and acknowledge emotions and not let them adversely affect your measurements or the sensibility of your decision-making.

The same is true for bias. Bias can be helpful for things like risk avoidance, steering clear of unhealthy behaviors, or looking for the positives in people. At the same time, bias adversely impacts measurements when we fall prey to seeing what we want to see, relying on initial anchor points, or focusing on one triggering variable and ignoring everything else. We all have biases. The key again is to recognize and acknowledge the presence of these biases and to not let them lead to poor decisions or a not wholly true picture of your business.

Ask Critical (and Possibly Uncomfortable) Questions

Things that are good for us aren’t always easy or comforting – looking in the mirror, going to the dentist or doctor, and exercising more to name a few. We rationalize that they’re covered “well enough” or use time as a reason for avoiding them. CEOs and owners aren’t immune to this in their businesses either. Here are some hard questions you should be asking:

• Do I have a fully objective and independent view of how my business is performing in the market?
• Am I overly focused on short-term indicators and not building my business for long-term health or an eventual exit strategy?
• Are blind spots or experience gaps in my business stifling growth in value?
• Am I creating value for my family and stakeholders? Is value creation a concept I actively consider?
• What aspects of my business are stagnant and why? Do I have incomplete hypotheses or the unvarnished truth?
• Do I have the right people/products/processes/systems/facilities/incentives/distribution in place given my market’s dynamics?
• How open am I to do things differently, pursuing innovation, or piloting new approaches?
• How well is my business positioned for success were something to distract or remove me from the equation? How confidently can I answer “what if…” and “what’s next…” questions?
• To what extent am I navigating by intuition and feeling as opposed to a well-formed strategic plan? Is there a compass that points to True North for my business?

This takes us back to calibration. Answers to and reflections on these questions need to go beyond Yes/No. Answers to these questions, wherever possible, should be weighed against standards and verified. Don’t be satisfied or comfortable with answers that leave too much room for creative or subjective interpretation.

Measure and Assess from All Important Angles

Successfully measuring the state and performance of your business shouldn’t rest solely on financial factors. Sure, financial factors are inarguably important. However, non-financial factors can matter just as much. Additionally, the assessment of these measurements should be rooted in the context of your personal goals and long-term objectives for the business and also in objectivity as to how others (e.g., creditors, potential investors, etc.) will view these measures.

For financial factors, this includes actions such as employing add-backs and adjustments to support accurate benchmarking, recognizing and reflecting one-time expenses, and ensuring accurate and properly prepared financial statements. Non-financial factors that should be assessed include organizational structure, management team depth, succession planning, and a host of others. In short, these areas are those that can materially affect the real and perceived value of your business.

Embrace Evaluation and Input from External Experts

Let’s say you’ve done a good job of recognizing and managing bias and emotion. You’ve asked yourself tough questions related to your business and feel pretty good about the answers. You’ve analyzed some degree of both financial and non-financial factors. What’s next? Smart CEOs and owners validate their measurements and remain open to the possibility that they haven’t assessed everything that should be assessed. They also seek out expertise that can challenge and/or confirm their views, provide valuable recommendations, and support strategic planning for how to move forward.

How we at vcfo approach helping CEOs and owners gain a true and thorough understanding of their business and confirm or dispel what they’re seeing or feeling is through a process we call v360™ Enterprise Value Roadmap. The comprehensive evaluation and measurement phase of this work is foundational and is followed by the collaborative development of an actionable, adoptable, consumable, and achievable roadmap to increase business value independent of revenue. We’ve found that ingredients inherent in vcfo’s people are what makes this especially valuable:

• We’re steeped in entrepreneurship, comprised of diverse experts (in finance, accounting, human resources, operations, technology, and marketing), and match the right expert(s) to each engagement.
• We have practical and extensive experience from a vast array of industries and apply lessons from successes and having had our butts kicked in those settings.
• We’ve sat in your leadership seat. We’ve wrestled with the same challenges, have personally asked the questions outlined above, and guided our clients to success.
  
  

Measure Meaningfully. Cut Confidently.

True and meaningful measurements arm us with information we need to make good decisions, have confidence in our actions, and course correct when change is warranted. If effective measurement doesn’t happen… if bias, emotion, and avoidance skew perceptions and decisions… or if a lack of validation persists… your business will not be as successful as it could be. Be determined to do what it takes to ensure an accurate, objective, and true-to-life view of your business. Your hard work, business, and customers deserve it.

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Want to learn more about the v360™ Enterprise Value Roadmap and what it would mean for your business? Request a Free Consultation with a vcfo expert who can help. We’ve partnered with more than 5,000 businesses in our 28 years and are ready to put our expertise and experience to work for you.