Here’s a tip, to safely ride a bike around town constantly be “watching for signals”. For example, when waiting at a stop light, its good practice to keep watch on adjacent traffic and their intentions. Warning signs include a car signaling to cross your path, wheels turned in your direction or a driver simply not paying attention. Similarly, business owners need to be watching for signals. Not doing so may result in a financial collision with damaging results. The first step is to identify the “signals” to watch that warn of potential trouble.
For the startup, it might be not knowing how much revenue is needed each month to do business. Without this figure, it will be difficult to recognize when cash flow is becoming an issue and financial commitments will become a challenge to meet. Every business should watch for low profit margins hinting that pricing strategies may need review or operating expenses are drifting too high.
A company unable to keep products stocked resulting in limited selection may be missing a signal that customers will be soon seeking to purchase elsewhere. Additionally, this may be a sign that your manufacturing capacity is not sufficient or the supply chain feeding your inventory is not adequate. External signals that may be taking place could include stock market swings, interest rate changes or a turn in consumer spending.
“Key Performance Indicators” (KPIs) reflecting events taking place in the business and market place can help keep challenges in check. A set of well thought out KPIs can guide business owners and decision makers as they identify trends allowing them to intelligently adjust direction of the company. This might include temporarily reducing spending, negotiating new contracts with vendors, review pricing strategies or increasing production output.
Guess work is turned into educated decisions. Within larger companies, each department may have its own set of KPIs. The quality department may look at survey results, parts returned from customer and “dead on arrival” products from vendors. It may report on system downtime both planned and unplanned as well response time requirements and fulfillments for users. Purchasing may want to watch progress to reduce costs in order to react to price increases from vendors.
Watching for these types of “signals” is a key to keeping your company healthy and on-track towards its goals while preventing the unexpected collisions of business.