Over the past couple of weeks, I’ve shared the first two million dollar mistakes of business. These are the mistakes successful entrepreneurs and millionaires do not make. Today, I am sharing the 3rd of these million dollar mistakes.
Not knowing what I was doing in this area cost me thousands of dollars and sleepless nights.
You don’t have to make that same mistake. I’m going to give you the exact steps you need to take in order to avoid it.
To sum it up, you need to be measuring your success in your business. Measuring success starts with having a balanced scorecard.
On a scorecard, you take the 5 core areas of your business and create systems, structures, and strategies around them.
These scorecards can be done monthly, quarterly, annually, or all of the above. You can focus in on one area of business where you need the most help or slowly work your way up to assessing all 5 areas.
The 5 kinds of scorecards you can use are:
1. Financial performance
Answer the following questions:
- Where is my revenue coming from?
- Where are my earnings coming from?
- What’s the return on my capital (as an investor in anything, you need to look at the return on your capital or what you take home after your expenses and fees)?
- What does my cash flow look like (where your money is going and what income streams are coming in)?
- How can I keep my expenses down and walk away with more return on my capital?
2. Customer value performance
Start by asking how you are performing in the area of customer satisfaction and market share.
This can be done through a survey. Your customers’ answers will help you find out if they’re happy and loyal. This is important because, in order to grow your business, you need to make sure you have loyal customers. In the survey, ask them if you are exceeding their expectations and what you could do better.
3. Internal business processes performance
This evaluation comes down to asking how your business is doing in operations. Are you getting things done quicker, faster, and better than you expected or hoped? Are you creating timelines and not only meeting them but exceeding expectations by getting them done quicker and more accurately? If not, you need to create an SOP for every area of your business. Check out The E Myth by Michael E. Gerber or The Four Disciplines of Execution if you need help creating these.
4. Innovation performance
Innovation performance means the percentage of revenue you get from new products, new ideas, and employee suggestions. It is also the rate of improvement in your business. Reflect: are you talking to problem solvers (the people closest to the fire)? If not, you need to start. Figure out what questions people are asking, what’s keeping them up at night, and how you can best serve them. Take employee suggestions in these areas and turn them into new products and services to offer in your business.
5. Employee performance
To assess employee performance, ask what the morale looks like around you. Consider your team and ask what their knowledge base is, what the turnover in your business is, and what the best use of their talents and gifts is. Assess your performance in this area by honestly asking yourself if good ideas are written down and shared with your entire team as soon as they surface.
If you want to learn more about knowing your numbers and how to create scorecards, check out Episode 049: Million Dollar Mistakes Session 3: How to Master the Numbers You Must Know and Create Your Scorecard.