RUN SIMPLE: The key numbers that every business leader should be watching

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Business leaders look to a range of metrics to understand how their organisation is performing, both within their company and outside in the broader economy.

The age of big data means, however, that an ever-increasing array of data points can be measured, often in total real time, offering more signals to business leaders to monitor. Legendary management consultant Peter Drucker said: “What gets measured gets managed”, so to ensure your management priorities are in order, how do you know what to measure?

We’ve spoken to eight senior Australian business leaders about the key numbers they watch both inside and outside their operations.

Shark Tank judge and entrepreneur Steve Baxter watches cash.

Steve Baxter. Supplied

It’s all about cash levels for Queensland-based entrepreneur Steve Baxter.

“When you are a startup the key numbers are your bank balance (profit can lie but cash rarely does) and your traction – If you increase traction and can do that sustainably then you may be onto a winner.”

University of South Australia ANZ Chair in Business Growth, Professor Jana Matthews, has a list of seven numbers she watches.

Dr Jana Matthews. Photo: Supplied

Professor Jana Matthews says companies which track, measure and manage their numbers are well positioned for growth.

“Those that don’t can easily be swamped by the whitewater of growth,” she said.

Here’s her list of numbers she tracks carefully.

1. Revenue. Increasing revenue indicates that customers want what we are selling!

2. Profitability. Maintaining or increasing profits means that we are delivering products or services efficiently. Growing the top line is meaningless unless you are also growing the bottom line!

3. Revenue per employee. This is important for companies who are heavily dependent on people to deliver services and indicates whether they have too few or too many employees, and gets people thinking about ways to use technology to increase efficiencies.

4. 6 month sales pipeline. This tells me whether we are talking to enough potential customers to achieve our revenue, and if we need to sell and market more, it provides several months to address the problem so we don’t have a short-fall of revenue.

5. Customer satisfaction. There are many ways to measure this – from direct comments, customer surveys, what’s said about your company on social media, to the amount of time customers are on hold when waiting for the phone to be answered. Obviously satisfied customers tell their friends and help us grow our business.

6. Employee satisfaction. There are many ways to measure this – from numbers of employees who quit, their responses on employee or organisational surveys, to “comments around the water cooler”. Again, satisfied and happy employees create a much better work environment and tell their friends who then will want to come work there.

7. Aging receivables. This tells me how much money we are owed and identifies how much money I will need to borrow from the bank to cover my cash flow requirements.

Stan CEO Mike Sneesby watches real-time data very closely.

Mike Sneesby. Photo: Supplied

As a subscription business the first thing video streaming CEO Mike Sneesby looks at is gross signups to Stan’s 30 day trial.

There is a secondary layer which he tracks closely, people who don’t complete the signup process but input their contact details.

Given Stan is a no contract service which a user can cancel at any time, he exerts a lot of energy managing length of tenure and watches the churn of customers.

He uses a cohort analysis of subscribers to do this. A cohort is a group of subscribers which sign up on the same day. Each group is tracked through every point in the lifecycle and has targets for each month on how the groups will perform.

“I track, in real-time, every day’s cohort of subscribers and how they’re performing,” Sneesby said.

“The real key to all of this is having the right data and reporting mechanisms to do it. When we launched it was very difficult and manual, now I have real-time reporting.

“Once you get to know what the numbers are, and what you’re looking for, you very quickly know what’s good and what’s bad.”

Engagement measures, especially around viewing hours is another metric Sneesby watches.

“You want to ensure that over the duration of their lifecycle that they continue to engage,” he said.

Each day Sneesby has a management meeting at 8.30am which looks at the volume of subscribers from the day before and the cost per acquisition and marketing activities.

Looking more macro, Sneesby watches data on the size of the video streaming industry and what the external view on the company’s brand is.

Blackbird Ventures partner Niki Scevak watches numbers which indicate there are lots of happy customers

With so much data and metrics to look at, Blackbird Venture partner Niki Scevak says its easy for execs to fall into a trap of watching numbers which actually don’t mean anything.

With that, the most important numbers he watches are around how happy customers are.

“How often they use the product, how much they love the product, what frequency they upgrade to the paid plan or subscription and keep renewing month-after-month,” he said, adding it’s the “intensity of usage of a product which is the oxygen for every other metric in a business.”

“You can get lots and lots of vanity metrics around total users and number of downloads which can make you feel big and strong but the reality is, those people don’t use the product or love the product enough to pay for it.”

As for macro numbers, Scevak says he watches them loosely to see what others think of the market, but he doesn’t tie all his business decisions to them.

“The odds of success are completely independent from the macro environment. There’s always pros and cons. In a really bad economy it’s harder to raise money but it’s easier to hire really, really good people… Uber was built in the financial crisis, PayPal was built in the original dotcom crash. Good companies are built at any time,” he said.

SurveyMonkey’s Australian Managing Director Tony Ward watches employee engagement.

There are three metrics SurveyMonkey MD Tony Ward uses to track his business’ health.

They are employee engagement which he says can either be tracked quarterly or bi-annually, Net Promoter Score (NPS) which measures the willingness of customers to recommend your products or services to others.

“This can be done every time you have an interaction or quarterly or annually,” he said, adding the final metric is revenue growth, which “in my opinion is the result of both engaged employees and happy customers”.

AirTree Ventures managing partner Craig Blair watches user engagement and unit economics

Airtree Ventures managing partner Craig Blair.

Business leaders need to understand, prioritise, and track numbers in the right way, AirTree Ventures managing partner Craig Blair says.

“We place much greater importance on repeat use or churn and engagement metrics,” he said, adding repeat usage metrics and customer numbers have changed in the past 12 years.

“A repeat behaviour has gone from a linear view if what percentage of customers repeat.. to now a very sophisticated cohort analysis which is the norm now.”

Unit economics is something Blair examines carefully. He looks for how many units are being sold, at what price and looks at how much it costs to provide each unit, including marketing and service costs.

Blair explained unless businesses understand how they spend a dollar and how that comes back to them, they “won’t scale very well”.

In a macro sense, Blair is looking at numbers to define an opportunity. He calls these penetration numbers. Examples include e-commerce’s penetration in retail or the growth of fintech by determining what proportion of banking happens online.

He also watches the amount of capital flowing into sectors and uses the metric as an early indicator of opportunity.

Intuit Australia MD Nicolette Maury makes all her decisions based on data.

Nicolette Maury, managing director of Intuit Australia.

Intuit Australia MD Nicolette Maury breaks the numbers she watches into two categories, output and input metrics.

Output metrics are key performance indicators within the business and look at how the organisation performed in a previous period.

“The main ones that we look at there are customer acquisition, profitability, so anything on the P&L, and customer retention numbers,” she said.

While input metrics are leading indicators and attempt to forecast how the business may perform in the next period.

“These are things for us like website traffic, how many people are coming to our site and how are they converting on our site, what’s the product usage of different parts of Quickbooks Online, and a really important one that we look at really regularly is the net promoter score,” Maury said.

Intuit also looks at how small businesses are using certain parts of their accounting product.

“One of our functions is payroll, we look at how many employees are being paid and new employees are being on-boarded into Quickbooks online companies. We’re then able to compare that to unemployment rates in Australia,” she said.

Externally Maury watches the market numbers for her industry as well as the health and growth of small businesses.

Chris Strode founder of Invoice2Go runs the business off just the numbers and checks them up to five times a day.

Invoice2Go founder Chris Strode. Image: Supplied.

Because Invoice2Go is an app company, Strode lives and dies by his download numbers and conversion rates.

“By looking at those two things I’ll know what’s working and what’s not working,” he said.

“I ran the business off sheer numbers the entire time i ran it and kept it pretty simple. On a daily basis I might check what those numbers are four or five times a day.”

Headcount and growth are also numbers he watches but he finds attrition rates are a good read on how healthy the company culture is.

“It gives you a really good indication of how healthy the company is internally,” he said.

As for margins, they’re different in the software game and it’s not something Strode keeps a close eye on.

“Economies of scale goes sideways. You can add a lot more users without incurring anymore costs which is what people love about software,” Strode said.

In the wider world, Strode keeps a close watch on mobile adoption rates.

“As mobile became popular… how it sort of penetrated the greater population and seeing those numbers being reflected in our download figures,” he said, adding now most people are walking around with a mobile phone in their hand he’s looking at what operating systems are more popular.

He also watches the unemployment rate because “it means more people are going into small business when they’re getting laid off”.

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