Metrics for Management: How Small and Medium Business leaders and entrepreneurs can utilize numbers to find success

Entrepreneurs and SMB managers are driven by confidence in their own strengths and are calculated risk-takers by nature. Why else would you give up the comfort of a monthly paycheck for the uncertainty that comes with doing your own thing? Even so, some entrepreneurs have a preference to manage by the numbers. For these SMB leaders it is important to think about what kinds of metrics they are looking at because sometimes, as the Financial Times reports, management by the numbers does not add up. 

On the other hand, many entrepreneurs we talk to and work with trust their instincts because it served them well in the past. Their intuition is not just “going with the gut” but comes from their experience, as well as their understanding of their industry and customers. In fact, many business gurus in recent times have argued that intuition should have a bigger role in business decision making.  Should intuition-driven SMB leaders care about metrics and integrate it into their management styles?

How intuitive or “from the gut” entrepreneurs can also utilize numbers and metrics

We believe that all SMB managers and entrepreneurs should integrate metrics, data, and analysis into their management style. Good metrics can be used for multiple purposes. They can directly support decision-making in those who prefer evidence-based management. But they can also be a great tool to train your intuition to be more accurate and precise. 

Is it possible to train your intuition? Indeed, research suggests that quick decision-making, heuristics, or by whatever name you want to call intuition, can be improved. 

Data, analysis, and good metrics can aid intuitive decision-making in two ways. First, we know that intuitive decisions are influenced by their environment. A carpenter is likely to make a better judgment about how much wood is needed to build something when they are onsite. Similarly, a chef is better placed to make accurate decisions about portions when they are in their kitchen. One theory is that experienced professionals use the shape, size, and other elements of their environments to make better guesstimates. In other words, our gut instinct can be more accurate when you have good data as an input. 

Second, engaging in a regular reflective process is an important tool to improve one’s intuition. Looking at last quarter’s sales report or statement of cash flow, and reflecting on how well it matched or deviated from your intuition at the time can be a powerful tool to facilitate self-reflection. Looking and the differences between what you expected and what happened will enrich your knowledge and improve your judgment over time. 

In other words, working with metrics and numbers can make you better at going with your gut. 

In reality of course there are no pure data-based decision makers nor pure gut-based decision makers. As this amazing review of the science behind intuitive decision-making in the Scientific American concludes “intuition and rationality are not necessarily opposites. Rather it is advantageous to master both intuition and analytic skills. Let us not follow our inner voice blindly, but let us not underestimate it either.”

What should small business leaders measure and track?

So you are convinced that you should be looking at some metrics. Good! 

That leads to the million-dollar question: Which metrics matter to your business? And how many do you need? There are many ways to slice and categorize the types of things you could measure, but we like to think of them as being in a few large buckets. 

• Financial Metrics: including profit margins, various ratios or projections related to cash flow, and numbers indicating returns on assets or investments can help you decide if you are focusing on the right products and customers. 
• Operational metrics: like customer satisfaction score (CSAT), employee productivity, and order fulfillment cycle time can help you see where there is room for efficiency improvements. 
• Sales Metrics: including your customer acquisition costs, customer lifetime value, average deal size, and time to close can help you understand how to direct your sales and marketing resources better. 
• Industry-Specific Metrics: Another important category of metrics is those that matter to your sector. For e.g. if you are an ecommerce seller you might care a lot about the conversion on your digital ads, whereas a construction company might care a lot less about the same number.

  Metrics can go beyond measuring the health of your business alone. Here at beancount.co we work with many enterprises that consider the impact they make on people and communities as part of their bottom line. For example, a team focused on products that improve learning outcomes for children with learning disabilities might also want to track the change in learning outcomes along with business metrics. 

How many metrics to track?

This is an important choice and does present a dilemma. 

• Have too many metrics and it dilutes the effect. Neither you (nor your team) can keep track of all of them regularly so everyone stops caring about them. 
• Have just one metric, like some management gurus in the past had preached, and you might be missing important things.

So what is the right number of metrics? The best answer if we look at just the research might be: just as many as you need. 

In practical terms for those under all the pressures of running a SMB we would suggest no more than 5 and ideally just 3 top-level metrics. Keeping it to just 3 is helpful in a number of ways. For one, you (and your team) can reasonably be expected to remember all of them all the time. This way the metrics have a real impact on your day-to-day work. 

Another reason is that each metric is most useful when the data underlying it is accurate and timely. For many SMB the effort involved in managing their data is significant. So when you commit to a set of metrics, you should also commit to the entire process required to generate clean, accurate, and timely data that feeds the metrics. For example, an SMB that wants weekly cash flow metrics but does not do its bookkeeping in a timely way is unlikely to achieve its goal. So each metric you choose is also a commitment to generating and recording accurate data to inform those metrics.

We also suggest you start with fewer metrics and take on an iterative process to add more. First, pick a few metrics and get the process to feed them running smoothly. Then see how useful that metric is to you. Are you and your team using it frequently to make decisions? Does it seem significant in your business? Once you can answer those two questions affirmatively, then you can ask “Now that we know this, what else would be useful to know?” 

Choosing your metrics iteratively has the advantage of not being overwhelming AND giving you time to learn what you should be tracking. 

How can beancount.co help? 321 ABC!

Here at beancount.co, we call the services we offer, 321 ABC, because we can help with three A’s, two B’s, and one C to streamline your operations. These are:

Depending on your needs and existing capacities, a combination of these 7 services can help you get to the metrics you need. For example, if you are uncertain about what metrics you should choose we recommend starting with our advisory services. Here you can work with a consultant to brainstorm what matters in your business and decide what metrics best track the things that matter. An advisory process results in a report that also outlines any recommended process or software modifications that make it easier to generate accurate metrics. 

On the other hand, if you have a great accounting team that just needs help with reporting and analysis. We can perform analysis and create reports in your existing systems – be it Quickbooks, Xero, Oodo, or Netsuites – that your team can repeatedly use in the future. 

We can even take charge of your whole process from end-to-end providing a dedicated bookkeeper, full-time or fractional as needed, to ensure your records are accurate. Thus creating the base from which you can get the information you need from your books in real-time, so you know exactly where your finances stand at all times.

In Summary 

• Some SMB owners and managers like to decide from the gut while others like to manage based on numbers.
• Both types can benefit from having well-designed and accurate business metrics they look at regularly. Because “intuition and rationality are not necessarily opposites. Rather it is advantageous to master both intuition and analytic skills.”
• Metrics can be of many kinds Financial, Operational, Sale, industry-specific, or even go beyond the business and look at the impact on the end users. 
• Between three and five metrics are just right for an SMB to start. That is a number that can be remembered by everyone. 
• When you choose a metric you should also commit to making the process that collects data from that metric accurate and timely. 
• Beancount.co, through its 321 ABC set of services, can support a variety of SMBs to decide on, create and record the data they need for their metrics.