How To Know If Your Business Is Headed For Success Or Failure: 5 Questions You Should Ask Yourself Weekly
How do you know if your business is on track?
Startup founders and business owners have to juggle a million and one different variables in order to build and run a successful company. The problem is, when you get too hyper-focused on “the weeds” of the business, it can be easy to lose sight of the horizon line. Where are you headed in the long term? What are your expectations for the next six, twelve, and eighteen months? And, most importantly, how confident are you that you’ll get there?
The reality is that many business owners have very little definition around what it means to be “on track” outside of this month or quarter. They pay attention to their sales, keeping their customers happy, and trying to make more money than they spend. But from a 30,000-foot perspective, it can be difficult to know where the business will be six months from now — because they’re so focused on putting out fires and managing the day-to-day operations happening right now.
Especially if you are building a business with the goal of being acquired and exiting in the near future, understanding whether you’re “on track” for that event is crucial to decision-making along the way.
Here are 5 questions you should be asking yourself on a weekly basis as a startup founder and business owner:
1. “Where does my business fall in relation to industry standards and competitors?”
Being on track doesn’t just mean your sales growth is trending in the right direction, or you’re profitable this quarter.
It’s also important to understand how your business is performing in the context of your industry and alongside competitors. How do your margins stack up? How big is your staff compared to other companies in the same or similar markets? For example, if you are doing $5 million in annual recurring revenue (ARR), but you have 3x more employees than your next-closest competitor, why is that? Are you providing a similar product or service less efficiently? How can that be improved — not just in the short term for your margins, but in the long term to make the company a more attractive acquisition target?
You can usually find general statistics of how businesses compare to each other in the industry, along with averages for rate of revenue growth, gross profit margin, growth contribution margin, EBITDA, etc. This will allow you to put benchmarks in place so you know roughly how you’re stacking up against everyone else.
2. “How much cash do you have — and how much cash do you need?”
Understanding cash flow, and how cash moves within your business, is one of the single most important aspects of building a successful company.
How much cash do you have on hand? How much do you need in order to operate the business, pay all your employees, vendors, and bills? Is cash trending as you thought it would? Is it better? Worse? Do you understand why?
Cash is king when it comes to business, so understanding the levers you can push and pull to improve your cash situation is crucial. The importance of financial forecasting with my first company (Talent Rover, which was acquired by Bullhorn) is one of the topics that inspired my current company, Place — so businesses can easily see all the different variables affecting their cash flow on demand. Because once you truly understand how your business is operating financially, you can then make more informed decisions about whether you need to take out more debt or raise money, or can make an acquisition or accelerate a component of the business.
A lot of times, businesses don’t project cash out far enough.
As a result, they forecast for the short term, only to end up in a cash-constrained position in the long term.
3. “Are our sales metrics going up or down over time?”
How well is your sales team performing?
You might be slamming down deals, but what’s your average deal size? Is that number going up? Is it going down? Has it remained the same for the past six months? Are you trending in the direction you thought you would be? How’s your sales team feeling? Are they hitting the percentage of quota you thought they would hit? Do they know whether they are being successful or not? If your team is exceeding expectations, why is that happening? And if your team isn’t exceeding expectations, how come? What’s the trend? What’s happening in the market?
These are the sorts of questions you should be asking on a weekly basis — both internally, as you think about the future of your company, and collectively, with your team members and employees.
One way that we do that internally is by leveraging Salesforce to track all our metrics. We spend a lot of time looking at deals we won, as well as deals we lost, and questioning why. Personally, I want to know, from every single deal, the specific reasons why we won or lost that opportunity. Because then we can take a more holistic approach, and apply our learnings across the entire sales and marketing departments.
4. “How are customers feeling about the business?”
How do your customers feel about the products or services you’re providing?
I use the word “feeling” here deliberately. Are you having regular conversations with your customers, seeking to understand how they “feel” about your products and business? We actually did an interesting company-wide project last month where we divided all our different teams into groups, combining people from every department into each group. We wanted people who didn’t typically interact to work together.
As a group, they had to answer three questions:
- “What does it mean to have a customer love us?”
- “Why is it important for a customer to love us?”
- “How do we get customers to love us?”
We then took everyone’s answers and created a core strategy around this, then updated our playbooks and performance metrics for every department to ensure that “customer love” is at the heart of everything we do.
The reason this is such a crucial question to answer is because it’s oftentimes customers frustrations that cause them to stop using your products or services. These aren’t impossible frustrations, or things that can’t be fixed. But they do require you to keep a close eye on how people are feeling, and taking the time to listen to your customers so you know what they would like to see improved.
5. “How is the team performing? How is company morale?”
And finally, how is your team performing?
You can gather a tremendous amount of feedback and insight on how the business is doing just by looking at your teams. Are people motivated? Are they excited? Are they pumped up, or are they down in the dumps, overworked, and exhausted? Employees are a strong indicator of whether or not you’re “on the right track” and things are working or not working — which means, the more you can understand what’s causing these positive or negative behaviors, the more you can optimize your business accordingly.
One thing I learned building my first business was that if people are feeling burned out and frustrated, then something is usually off. Something about the machine isn’t working properly. If you take the time to listen to your employees and team members, and really try to get to the root of what they’re feeling, what you’ll often find is a component of the business that can or should be improved. For us at Talent Rover, one of the issues was how overly complex we made it to implement our product. We were spending way more money than we should have spent on hours working on the implementation, instead of looking at the product and making core changes to really fix the issues. As a result, employees felt overworked trying to solve this problem, and their frustration was rooted in the fact they were pouring water into a bucket with a hole in the bottom.
These questions are not exclusive to high-growth startups or big companies. Every business, no matter what size, should be asking these questions on a weekly basis.
Because if you don’t, then chances are your business won’t be around for very long.