Founders spend considerable time creating plans: Business Plans, Strategic Plans, Marketing Plans, etc. The basic question that most plans leave unanswered is, “How do I know if my plan is working?”
In order to gain accurate information to improve business performance, you must create a way to determine if your goals and objectives are being met.
There are two key ways to assess this:
- First, you must establish and evaluate expected outcomes.
Most plans are based on implicit, rather than explicit, assumptions about how things affect each other. Therefore, you should be able to state expected causal relationships. If we do “X” we expect to get “Y” result. Do this for all of your operational goals.You must then establish Measures of Effectiveness (MOEs). These are the indicators of progress toward “X.”For example, “If I spend $5,000 on advertising, I expect to see a 20% increase in sales over six months.” This evaluation allows you to make implicit relationships explicit and therefore able to be modified. While controversial in some management philosophies, there is a certain truth to the statement, “If you can’t measure it, you can’t improve it.”Of course the danger lies in presuming that the linkage between “X” and “Y” is directly interdependent not merely correlated. Being able to test your hypothesis is key to the efficient allocation of the always scare resources: time and money.
- Another way to evaluate performance is to establish a formal review process.
Particularly if your operations have specific discrete phases, plan for and execute an assessment of whether you accomplished what you set out to do within the resource constraints you established.This should be a “no holds barred” assessment. In startups, you do not have the time or luxury of being politically correct when dealing with setbacks and failure. If you don’t get it right, you have to fix the problem. Dancing around the issues will only make it worse.This does not mean you look for a scapegoat. On the contrary, you want everyone to be willing to be honest within the confines of the review, including about their own performance. If you can create a culture of openness and honesty, the ability of the company to learn from mistakes and adapt will be greatly enhanced.It is all well and good to put on a positive optimistic face on to the outside world, but inside you need to be brutally honest with yourselves.
Knowing your numbers and being able to demonstrate the ability to learn and adapt is key to success for an entrepreneur. Likewise a culture of honest and willingness to admit mistakes and take action to correct them is a key indicator to investors that the management team is worth investing in.