Every company has no choice but to use some semblance of a yardstick or metric system to measure their business with. Most businesses choose the easiest metric available – a singular number or percentage like revenue or gross margin that can be compared year-on-year or quarter-by-quarter. For many CEO’s or managers, this is an all-telling number: a final answer to the question: How did our business do? It’s simple. It’s easy. It’s comparable. But it’s just not justifiable.
Which metric to use?
The problem lies in that fact that such metrics are almost too simplistic in their nature. A 5% decline in profits for the year tells you nothing about how a business did. Likewise, a 10% in revenue uptick is not cause for celebration unless we truly know what is going on. There are just too many factors that affect a company’s performance, internal and external to the company, to judge it by a single number. Furthermore, if we’ve learned anything from the recent economic landscape, it’s that macro-economics play a large part in the overall performance of a company.
There has to be some other metric by which you can measure your business; a metric that is closely linked to your business’ most important core values. For instance, if a key core value in your business is “change and innovation”, then you must measure your company’s performance by the amount and/or quality of innovation. You can ask yourself questions like:
Do we invest enough capital to drive more innovation in the next year?
Did we make any breakthroughs in research?
Did we invent any sustaining or disruptive technologies?
The true performance in a company that highly values innovation should be extracted from such questions, and not entirely from sales numbers.
Zappos.com as an example
One popular business that utilizes and encourages this concept is Zappos.com. They realized very early on that their business should revolve around two different (but still intertwining) core values – the first core value is culture and the second is customer service. Instead of strictly measuring their success by sales numbers, Zappos made it an early goal to get ranked on Fortune’s “100 Best Companies to Work For”.
Surely enough, in 2012, they were ranked 11th. The upshot of this is attracting superior talent, receiving free publicity, and obtaining a more dedicated work-force, among other things. They also decided to market their brand around customer service (Zappos’ company tagline is “Powered by Service”). With a marketing message focused on providing unbelievable customer service, Zappos was able to differentiate itself in a market saturated with shoe retailers by offering customers benefits like free shipping both ways and a 365 day return policy.
Zappos did not explicitly chase revenue. Instead, they created and curated a couple of key core values, and as a result of integrating those core values, revenues increased year-on-year. It’s a simple strategy, one that often gets lost in the shadow of misleading revenue figures, and it’s one I think all businesses can learn from.
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