Recently I had a very interesting meeting with a young entrepreneur. This entrepreneur found a smart solution for a latent business problem and started his own business.
But like many start ups he changed his execution plan several times. He had the feeling that his target group didn’t adopt and buy his product fast enough. He asked me to take a look at his business what I did.
My impression was:
- He developed a “Blue Ocean” product (and therefore found a niche market)
- His business plan was comprehensive and clear
- His goal setting was based upon market research and realistic
- His business model was good
- His launching strategy was good.
But he forgot to set the right KPIs (Key Performance Indicators) to measure his progress.
Why are KPIs important?
KPIs must reflect the organization’s goals. They must be key to its’ success, and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations. (source: management about)
What is the ideal number of KPIs?
There is no “ideal number” of KPIs. What matters is choosing the right KPIs.
The most highly cited paper in psychology “The Magical Number Seven, Plus or Minus Two” is often quoted that the number of objects an average human can hold in working memory is 7 ± 2. And this applies very well how many KPIs a single person can handle!
What are the advantages of a right set KPIs for this entrepreneur?
- He can raise the red flag at the right time and respond directly
- He has good focus because of only using 7 KPIs
- Instead of looking back he gets predictive insights
- Clear KPIs are aligned with his strategy, mission and vision
- Right group with KPIs aligns company with requirements of (future) venture investors: Financial, user, acquisition, sales, and marketing.
What is the challenge?
The main challenge for start ups is the lack of history. Great companies have a history and have better insights in what really counts to achieve their strategy.
Choosing the right set of KPIs seems easier for them… But in practice they are also struggling with KPIs and cannot boil them down to 7 KPIs to measure their performance level!
- KPIs give a clear picture of the start up’s (long term) performance level
- Steering on a good set of KPIs enables an improvement of results
- Start ups are already prepared for further conversations with venture investors.
And that’s is exactly what turned out in my meeting with this entrepreneur:
He got nervous because he couldn’t pay his bills anymore. Too many changes in strategic directions had the effect that the business didn’t had enough time to develop and grow.
With serious effects for his company. He urgently needed an investor. And a solid basis for further discussion!
I wish you a good set of KPIs!
- Wikipedia Performance Indicators
- The Magical Number Seven, Plus or Minus Two
- Daan van Beek, author of book “ The Intelligent Organisation”
- Management About: Key Performance Indicators
- KPI Institute
I wrote in my article “Start Ups 2014: Generation of Entrepreneurs Without a Business Plan?” about the importance of a business plan.
In this article I want to outline the importance of checking of & feedback on business/product planson regular basis because plans are never set in stone.
I met a lot of entrepreneurs. In general they have a clear vision of the future and a good sense for possibilities and opportunities (that’s why they started their own business). Entrepreneurs are often change makers in a traditional set world.
Modern entrepreneurs need to revitalize their entrepreneurship on regular basis and add tools like PDCA (or Deming wheel*) to their toolkit if they want to keep ahead of competitors.
Testing (checking – feedback) is not a one-off. Once you’ve started this cycle pattern, it continuous in spirals. This is the power of PDCA. Using knowledge based on real feedback to improve your product/concept and start a new cycle for new products/ideas.
Why entrepreneurs don’t take the benefit of PDCA
In my opinion:
1) Most entrepreneurs don’t take enough time to check or the results after the launch (or test) of a new product/idea
2) Selective hearing
3) They choose the most obvious explanation why a launch succeeded or failed
4) In this stage entrepreneurs actually never learn.
When I ask entrepreneurs why they don’t do a proper check, I often hear:
1) I am facing to many day-to-day affairs so I don’t give myself sufficient time to do a better check for good feedback
2) I jump often to a conclusion because I think that making decisions “on the fly” is the best way to solve problems
3) Every minute counts and only large companies have the resources and time to do proper research.
But this is wrong! A proven method doesn’t cost more time than “jumping to a conclusion”. Actually a proven method saves time because it enables entrepreneurs to implement new products/ideas through focused processes. It enables entrepreneurs to make way for better improvements & innovations.
W. Edwards Deming already stated: “it’s not enough to do your best; you must know what to do, and then do your best.”
In my opinion entrepreneurs should:
– Step 1: Write a short business/product plan so others know their vision, mission and strategy
– Step 2: Implement this business/product plan to keep focus while executing implementation
– Step 3: Check & ask for feedback from customers
– Step 4: Refine business/product plan to improve results, innovate and keep ahead of competitors.
The PDCA cycle is a good start for entrepreneurs of reinventing & testing their ideas in a very simple and proven way.
I wish all entrepreneurs a lot of feedback & improvements!
If you want more information:
– The W. Edwards Deming Institute: https://www.deming.org/theman/theories/pdsacycle
– PDSA worksheet: http://www.ihi.org/resources/Pages/Tools/PlanDoStudyActWorksheet.aspx
– Six Sigma: http://en.wikipedia.org/wiki/Six_Sigma
– Kaizen: http://en.wikipedia.org/wiki/Kaizen
Note*: it’s a myth that Deming introduced the PDCA cycle. Actually Shewhart introduced the PDCA cycle and Deming used this cycle as a base for his own PDSA cycle: Plan – Do – Study – Act.
I was invited for “The Hot Seat Sessions” at The Hub in Singapore this month.
Members of The Hub can book a time slot to talk about challenges/problems they are facing:
In The Hot Seat with Patrick Nelissen
Get your one-on-one consultancy with experts in specific fields (eg. mobile, social media, branding, funding, etc.) to answer the challenges/problems you are currently facing. Book your time with Patrick, specialist in: marketing, sales, business development, business improvement and entrepreneurship
Every month, experts from The Hub community jump into the hot seat, and are available exclusively for members of The Hub weekly for two hours.
This July, join Patrick Nelissen in the Hot Seat for some sage advice!
Most of the members are start ups and have many ideas about new (innovative) products. They are super enthusiastic, strongly convinced, very detailed, full of energy, probably the next Facebook or Box.com or Google or Tripadvisor, hopefully disruptive, highly motivated, etc.
So talking with them is really great. It gives you a lot of energy and is also challenging because you are aware about their vulnerability at this stage.
Now that I’ve done a number of meetings with start ups, I’ve come to realize that none of these start ups has a business plan, product development plan and/or financial plan. And this is no exception. Already in The Netherlands I experienced a lack of motivation and sense at entrepreneurs to write a business plan. It was always a struggle to get them thinking and writing about how they want to execute their business.
I realize that good writers aren’t always the best entrepreneurs and vice versa. But the good thing about writing a business plan is that you have to step back to get a holistic look about your product, pricing model, personnel, distribution channel, customers and competitors. Based on this holistic look, you are able to define the best strategy and business model to launch your product. The result is: reducing vulnerability!
Fortunately, there are models for condensed business plans. My favourite is Business Canvas Model from Alex Osterwalder. Author of Business Model Generation. Business Model Generation is a practical, inspiring handbook for anyone striving to improve a business model – or craft a new one.
Other good options are:
- The One Page Business Plan from Jim Horan. Jim is the author of “The One Page Business Plan” the best selling business planning book on Amazon.com. He is also the developer of The One Page Planning and Performance System.
- The $100 Start Up from Chris Guillebeau. A guideway to show you how to lead a life of adventure, meaning and purpose — and earn a good living.
Give yourself a break, take a blank sheet and start outlining your business model (on 1 page). It will:
- Make your business stronger
- Keep you focused
- Reduce your vulnerability
- And it’s fun to do: it’s the journey not the destination what counts!
PS some other recommendable books (thanks to http://steveblank.com/books-for-startups/):
- The Lean Startup – by Eric Ries
- Extreme Programming Explained – by Kent Beck
- the other side of innovation – by Vijay Govindarajan & Chris Trimble
- Biodesign: The Process of Innovating Medical Technologies – by Zenios, Makower, Yock, et al
- The Startup Owners Manual – by Steve Banks.