Years ago, I met with a business owner of a successful insurance wholesale company. His COO had been lobbying for a marketing consultant, so the owner agreed to meet with my firm.
As part of our discovery process, we had identified several areas that would help this company grow exponentially and this meeting was our opportunity to present our ideas to the owner. After our presentation, the owner said, “Why do I need all this marketing stuff? I’m making money hand over fist.”
Without skipping a beat, my partner replied, “Let me ask you a question:
“If this ship starts to sink, are you going to know where to plug the holes?”
The owner didn’t have an answer. Why? Because he didn’t know his business drivers.
Why is understanding your key business drivers so important?
Knowing what drives the business gives us the insight to know where to focus attention, time and financial resources. It keeps us from wasting time on low impact activity and helps us to pay attention to the most important success factors for the company.
Knowing your business drivers and measuring them becomes a leading indicator of business health: sort of a heart monitor for the business.
Last week, I was speaking with a business leader at a consulting company. We were discussing his firm and the growth challenges they were having. I asked, “What are the key drivers for your business and what strategies are in place that focus on those drivers?”
His response was, “We need more sales and our CEO is going to drive that.”
Since he wasn’t asking my opinion, I didn’t get the chance to tell him that “more sales” is not a key business driver and “having the CEO sell more” is not a strategy.
In my work with business leaders, I find that many of them do not understand the key drivers for their companies. There seems to be a mentality that if we “stay busy” then growth will occur. To a degree, that may be true, however what if they were to step back and seek to understand the following:
- What exactly is a key business driver?
- Why is understanding my key business drivers so important?
- How do I determine the key business drivers for my business?
Clarity for Moving Forward
First, let’s define the term “key business driver”. Simply put, a key business driver is any internal or external element that has a major impact on the performance of your business.
Examples of external elements might be the price of material, market trends or supply chain efficiency. Internal examples could be things like the design-to-market timeline, machine uptime, or technical or customer support efficiency.
What’s important is finding the key drivers specific to YOUR business. So, how does a company go about identifying its business drivers? Let me suggest a few ideas:
Look for patterns
An obvious example of this is in the retail industry. It experiences the pattern of an upswing in sales during the Christmas season. Certain electronics OEM’s (original equipment manufacturer) ride the pattern of new iPhone releases as well. These types of patterns can help determine what drives the business and where attention should be directed.
Assess the customer base
Take a look at your customers and seek to determine: Where do they come from? What are their buying patterns? Which segments are the most profitable? This key insight will help to determine which customer drivers exists for your company.
Assess your staff
Staff review is another way to determine what drives your business. One of my clients consistently seeks formalized feedback from their clients and suppliers on how his staff cares for them. This feedback shows the correlation between treating people right and retaining customers. This is another example of an internal business driver.
Identify internal costs
Driving your business is not just driving sales or top line revenue. Driving business means driving profitability. The internal processes that drive profitability can be identified as drivers.
For example, one company invested in equipment to reduce the cost and time of making a particular part by approximately 75%. This new efficiency is allowing them to leverage opportunities in the market they didn’t have before. For them, manufacturing efficiency is a business driver.
Knowing the key drivers that make the most impact on your business must occur before developing strategy. It's best to determine these drivers with a cross-functional team. Once your team gets a sense for what those drivers are, you'll have taken a significant step towards growth.
When you determine these key drivers, you will have the reassurance of knowing exactly where to “put the plugs in your ship” if need be. This will lead to a confidence that stability, growth and productivity will define your business.
This is a guest post from Jay Hidalgo. Jay lives in Grand Rapids, Michigan and is the Chief Sales & Marketing Executive at Weldaloy Products Company.