3 tips to set KPIs that drive culture
1. Don't be killed by KPIs
KPI's are important because it helps a business look back to see how it performed against its goals. It's also a way to control how individual people are performing inside a business. But, get the wrong KPI's and you get the wrong outcomes. You also end up creating the wrong culture.
The best way to avoid this is to make sure the KPI's don't only align to financial targets, but also the individual vision that you have for your business.
This can be achieved by not only having particular targets for a KPI but the actual KPI's themselves.
2. Know what's important to measure
Management theory icon Peter Drucker said that what can't be measured can't be managed. But in 2018, with so much data being created, everything is being measured. The key challenge to business owners is what's important to measure to get the outcomes I want to achieve for my business? Key performance indicators should align not only with your financial goals but to the individual vision that you have for your business as well.
3. Set up a change program to communicate new KPIs
And because KPI's impact behaviour and behaviour impacts culture, it's important that if you are changing the KPI's inside your business that you have enough education to your team about the why, because cultural change is challenging for all businesses of all sizes. People who are involved in achieving their KPI's are going to want to understand why they're doing it, and that way you'll have the best chance of achieving the change inside your business. It's fine to say that what can't be measured can't be managed, but making sure that you actually have a structure in place to manage the performance of your business is important as well.
Many businesses choose to do this through a particular type of financial forecast that's called a driver based forecast. This way the KPI's directly feed into the future projected income and profit you have in your business. This makes it easier to identify what individual tweaks you need to make as a business owner to achieve the goals you want to have.
3 steps to move your business into the subscription economy
The big movie cinemas in America have made a huge change and a massive innovation. They've moved away from the humble ticket tub to a subscription-based model for moviegoers. This has been led by the massive disruption in the way we consume entertainment thanks to people like Netflix.
The subscription economy is booming, and in Australia, it's predicted to be worth $2.7 billion. Currently, most players, almost 100%, are small, medium business owners.
Over the next three years, 70% of all businesses plan on investing in moving all or part of their business to the subscription model. Well, what is it?
The subscription model says that a customer would rather pay for an outcome when it's convenient for them, rather than owning a particular item that they might have. Almost all sectors in Australia are being impacted by this change.
1. Know why you are doing it
So, why would you bother doing it just because everybody else is?
Well, new research has found that subscription-based businesses are growing at nine times the pace of non-subscription-based businesses in the US. Given how big the subscription economy is in Australia, it seems like something we should all be considering for our businesses.
2. Changes to your Business Model
It really requires a core change in your business model though, it's not just about putting advertising out there and moving your pricing to a month by month model. You'll need to consider changes to how you price, how you sell, how you attract customers. How you deliver your customer service, how you invoice, and how you report on your particular business. From a finance point of view, the whole concept of gross margin completely changes in a subscription-based model.
3. New meaning for Gross Margin
Getting gross margin right is so important to understand how much it actually costs you to deliver your services. But one of the major things that you need to do to move your business towards the subscription economy is understand your customers.
You'll need to learn what price point they're happy to pay, what level of access they want, and how much it's going to cost you to deliver or create enough resources to deliver your product or service to them.
1 way to run your business with government uncertainty
We need to talk about income tax because right now in Australia most business owners don't know what the income tax rate is going to be over the next five year period. This week Labor leader Bill Shorten announced he was going to repeal income tax cuts that had been approved in the parliament.
After a very negative response from the business community, he then had to walk back on his claims, but he did say that he'd never let the income tax rate get to the level that the government's being promising over the next nine-year period.
This matters because most business owners have come out saying that it's very hard to make business decisions when we have regulatory and tax uncertainty.
If implemented properly, income tax cuts should create surplus cash in your business. Extra free cash means extra money to invest in innovation, employing new people, or taking more money out for yourself. Even the most well-planned cashflow forecasts can make it hard to predict future income tax when the government and the opposition don't really know what's going to happen in the future. Recently we learned from accounting software company Xero that there was a correlation between businesses employing more people and the approved income tax cuts that came in last year.
Focus on what you can control
As a business owner thought it's hard to truly know what to plan for. Our tip, focus on what you can control in your business, focus on staff, focus on innovation, and focus on growth. Put your energy into the areas of the business that are going to have the greatest impact.