Why do you need a mission statement?
To be successful, that’s why! You need a clear and broad mission statement that resonates with the public. It tells everyone why it would be beneficial to do business with your company. It should represent the company’s vision of how it would like to be seen by its customers. It should answer 3 questions.
- What do we do? Are we simply a widget producer? If so, why would someone buy our widgets versus the competitor?
- How do we do it? Do we want to be the least cost producer of widgets and approach it from the commodity standpoint, or do we want to produce a gourmet/specialty product and go after a smaller but potentially more profitable market? Do we contract with more 3rd party producers to handle markets we can sell to, but not produce for?
- For whom do we do it? Not everyone is a potential customer. We need to define the demographic characteristics (age, income, etc.) of customers who are likely to buy and then define the geographic area they can cover.
It’s critical to keep it simple. So simple it should fit on the front of a T-Shirt and be able to be read from 20 feet away.
How fast can your company afford to grow?
Starting a business requires cash, and growing a business requires even more. Even a profitable company, having great success, can run out of cash if they grow too fast. What is the proper balance between consuming cash and generating it? You have to determine your self-financeable growth rate to answer this. There are “three levers” or critical factors that determine this rate.
- The Operating Cash Cycle- the length of time a company’s cash is tied up in working capital before it is returned when customers pay for the products sold or services rendered
- The Amount of Cash Tied Up per Cycle – the amount of cash needed to finance each dollar of sales, including working capital and operating expenses.
- The Amount of Cash Coming In per Cycle – the amount of cash generated by each dollar of sale.
What are performance indicators?
Financial statements keep score for the entire organization, but not for individuals or departments. You need scorecards or performance indicators, to help measure and support the efforts of these individuals. They should measure what’s important, not just what’s easy to measure. They need to be clearly linked to objectives that will allow employees to determine how they are performing in relation to their strategic goals and objectives. Providing operations employees with feedback on the results of their actions is a major opportunity to improve.
You can’t track performance if you can’t keep score.
It is important to understand the benefits and limitations of estimating business performance this way.
- Main limitation: Metrics will never describe all your business, so what you can see in numbers is some kind of abstraction. However;
- The Main benefit is having performance described in numeric values. If you have these values you will be able to record performance, to benchmark your performance and to control your business.
The key is any metric needs to be essential for decisions, or actionable.
Why companies fail to deliver on their promises?
The most frequent explanation is that the strategy was wrong. But the strategy by itself is not the cause. Strategies most often fail because they aren’t executed well.
- Execution is a discipline.
- Execution is the major job of the business leader. The leader must run three core processes:
- Picking other leaders (People Process)
- Setting the strategic direction (Strategy Process)
- Conducting operations (Operations Process)
Why isn’t every leader executing? Conceiving a grand idea is usually intuitive, but shaping it into a set of executable actions is a huge challenge, and a lot of leaders do not have the mettle to see it through. A great example is the ‘theory of relativity. It took Albert Einstein more than a decade to develop the detailed proof to explain it. That was the execution – the details of proof in mathematical calculations. The theorem would not have been valid without the proof. Einstein could not have delegated this execution. It was a challenge no one else could meet. The challenge of execution is getting to the heart of an issue through relentless and constructive probing.