10 Financial Questions to Ask Every Month! by Frank Coker

Here are key financial performance questions that should be routinely asked every month by the owner of the company. Accountants and financial managers will look at these questions and have their own answers, but they won’t see the things the owner sees. Because we are biased, we will use some Corelytics concepts, but this can be translated to other tools that you may be using.

Key financial performance questions for the owner:

  1. Do we have any glaring new problems? Do the Corelytics Leading Indicators show any radical movements in the most current month? Which leading indicators are red and therefore need further investigation?
  2. Is revenue growth meeting our goal? Does the 24 month revenue trend show that we are on track? Do we need to make a major correction?
  3. What’s the revenue forecast for the next 12 months? Is there a potential collision with revenue and expenses in our forecast? Are we on track for a good year-end?
  4. Do we have an unusual spike in expenses that is distorting our picture? Do we need to make adjustments to get a clearer picture?
  5. Is revenue growing faster than gross margin? It should. If not, we have a potential ticking time-bomb, and we can’t “make it up in volume.”
  6. Are overheads growing faster than revenue? If SG&A is growing at or above the rate of revenue growth we probably have COGS mixed in with overheads and will not be able to fine tune pricing for products and services and will have bogus gross margin data.
  7. Is payroll or other major expense growing faster than revenue? If so, these need careful management. Runaway expenses can drain fuel vary fast. Intentional investments are a different story but they have to be tied to an increase in revenue or the company is loosing ground.
  8. Is cash keeping up with growth? If cash doesn’t grow along with revenue growth, we can be forced off the track even if everything else is working perfectly.
  9. Are we building financial strength? If working capital and the quick ratio are not improving over time, we are losing traction. If a company is growing and loosing financial strength, there is a fundamental problem that needs to be corrected before growth continues.
  10. Do we have an LOB that is hurting the business? That can put stress on part of the engine and cause a burn out.

    After these questions are answered and if all of the above are “green lights,” here are 2 more “bonus questions” that need to be asked.
  11. How do I compare with my peers? Am I falling behind or moving ahead of the industry? Industry benchmarks are the key to this question.
  12. Do I need to adjust goals to make them more realistic or to address future changes?

Then the big question: What are the top 3 priorities I want my team to focus on this month? 

When this becomes a monthly routine, it can be done very quickly, but it can be transformative to companies that think of this as a quarterly or annual process. You can get way off track and have a tough time getting back on track if steering isn't happening at short intervals.

Building versus Operating a Business, by Frank Coker

For a lot of business owners, there is no difference between building and operating their business. They view these as the same thing. The truth is, these are very different and require a very different mindset.  I’m sure you have heard about the importance of “working on your business” rather than “working in your business.” This is very similar to build versus operate. They are both important concepts, but no matter how you slice it, too many business owners don’t put enough time into analysis and planning. Long-term building and short-term operations management can have a big overlap, but they require a different approach and a different way of thinking about the business. At a minimum they require a different set of questions. Here are some examples:

Building your business involves questions like:

  • How can I build capacity to handle more volume?
  • How can I grow and continue to be agile and opportunistic?
  • How can I determine which lines of business are most profitable. This is very similar to build versus operate. They are both important concepts, but no matter how you slice it, too many business owners don’t put enough time into analysis and planning.  types of customers or which lines of business are more profitable?
  • How should I adjust pricing to get the best combination of profits and competitive advantage?
  • What skill gaps does my team have? How do we address this?
  • Am I getting my team to fully engage? Am I building leadership capacity?
  • What new products or services should I add? What should be eliminated?

Operating your business involves questions like:

  • What fires are burning now and need immediate attention?
  • Which bottlenecks are slowing me down or taking excessive resources?
  • What parts of my business are customers most frustrated with?
  • What productivity goals are being met and which are not?
  • Do I have customers that are draining resources and which should be terminated?
  • Do I have processes that need formal procedures? How do I reduce the number of “exceptions” and increase the number of “standard procedures?”
  • Am I measuring the work areas that impact profit and lead to greatest customer satisfaction?

As you think about these questions, you might see that both lists of questions can be approached from a “working in the business” and a “working on the business” perspective. You can argue that all these questions can be stretched to include both business building and business operations issues. In reality it is important to do both. At the same time it is important to answer these questions from separate build versus operate viewpoints even if you decide to put the same question on both lists.

You could also replace build versus operate with strategy versus tactics or even long-term versus short-term management. But, any way you cut it, business owners need to do both. In fact, owners need to look at short-term issues from a long-term perspective, and they need to be sure that long-term plans have a meaningful short-term actions in order to get lift-off. It’s all about integrated planning and holistic thinking. That’s a tall order. You have to be schizophrenic to do this job!

PS: Corelytics lives primarily in the "building your business" category and is complemented by a myriad of operations management tools. Even specialized industry tools like Connectwise for IT, for example. Our aim is to automatically connect these concepts within the dashboard in the near future. 

When Should You Sell Your Business? by Frank Coker

Have you thought about selling your company? Do you have a game plan with specific time frames? Do you have specific financial goals? Are you going to get an adequate return for your personal investment?

Most business owners give these questions very little thought until something happens that forces the subject. Most entrepreneurs focus on building their dream business and making their next big sale. The idea of potentially selling their company is the last thing on their mind. It’s a subject they put off because they think it is only a remote possibility in the future. There are a lot of things we all consider to be topics for “later in life” and then we are surprised by how quickly that time comes.

The important truth is: the wrong time to plan to sell your company is when it is time to sell. Waiting until something happens that forces the decision is the worst possible time to start the thought process. Owners that wait until the last minute often have trouble making any money on the sale of their business and very often discover that they can’t sell now or they would lose everything – and in too many cases they simply have to shut it down. It usually comes as a shock, but very often there is no value in a business that has not been built with selling in mind. And building value in a business takes deliberate planning and usually requires 1 to 3 years to make the important moves that build value.

It is also important to know that most businesses sell because of some forcing event and not because they planned to sell. Forcing events can be anything from a sudden health problem, a law suit, a divorce, a withdrawn line of credit because of a missed covenant, and many other unexpected events. If there has been no prior planning, an owner can suddenly be confronted with a lot of bad choices.

Planning ahead for an eventual sale of your company and making the moves that increase company value can have many benefits:

  1. It is the best “insurance policy” against the unexpected
  2. It can result in a value that can be many multiples greater than a company that does not plan ahead
  3. Companies that work on building the value tend to be more profitable
  4. Owners that have prepared their company for an eventual sale tend to hold on to their companies longer because they are actually worth more to the original owner
  5. Companies that plan ahead find it easier to get bank loans and investment dollars and therefore can build an even more valuable company

You might notice a pattern here. When you focus on building value in your company, whatever you do to make it more valuable will also tend to generate even more value. Companies that start this process sooner are often surprised to see the results and end up getting more inspired to build an even more profitable business. It’s amazing how this works.

There are a lot of highly qualified business advisors that can help companies move down this path. If you want any suggestions, just send an email to info@corelytics.com and we will send you 2 or 3 names. The benefit of having a professional advisor can be worth many times the cost.

New-Generation Benchmarks, by Frank Coker

What role do industry benchmarks play in your planning process? Most business consultants would tell you that you really can’t do meaningful planning if you don’t combine internal data and external data as your starting point. Without both it is impossible to create a meaningful and believable plan. Benchmarks are a key part of external data and can provide very helpful information about the market you are in. Benchmarks can help you see if you are performing at a level that is consistent with your peers and help you pinpoint where you need to make adjustments to be more in line with your market.

It is important to know that all benchmarks are not created equal. Knowing where benchmarks come from, the time period they were derived from, and how the data is collected can make a huge difference. Unfortunately there are many problems with the most common benchmark data used by most companies today.

Many of the traditional sources of benchmarks are on their way to becoming obsolete. For the most part, the big benchmark providers use survey data and publically available government data. If you are okay with low-precision data that is at least a year old, then the traditional sources are fine. However, I would argue that this kind of data has very limited value and can be destructive if used where precision is needed.

For example, if you are looking for a benchmark that shows how much other companies like you are spending on rent or payroll as a percent of total revenue, you can get a pretty good clue from traditional sources. But if you want to know about market growth, profitability and the overall health of your specific market, you don’t want to use one and two-year-old data; and you certainly don’t want to use “wishful thinking” data derived from surveys.

Far better solutions to this dilemma are only now beginning to emerge. The right solution is for communities of companies within specific markets to participate in data networks that allow anonymous collection and sharing of performance statistics. In these arrangements, all participants can see how their performance stacks up against their peers, and more importantly, how the market is changing from month to month.

With the Corelytics Financial Dashboard, benchmarks are derived from current actual financial data showing “real-time” evolving trends. In addition, the benchmarks are translated into dollar values that are specific to each subscriber so they can see what their business would look like if it were performing at benchmark. When you combine benchmarks, goals and actual trend lines, it becomes easy to discuss performance with the management team and decide on actions that can close the gaps.

Emerging data-sharing networks require that data come directly from accounting and operations management systems, not data that is manually entered and subject to errors or exaggeration. This does require that the intermediary not introduce a bias, which can be the case when the data provider is part of a vendor supported publisher or a financial institution that caters to a narrow segment within a market.

With this information, everybody wins. You can see where demand is increasing and where it is decreasing. You can see where markets are becoming more or less profitable, and you can see if companies are building financial strength or losing it. All of this can be done in ways that do not interfere with the competitive process or give any individual company an unfair advantage. With more insight into market performance and business trends, business decisions become much more certain and likely to succeed. When a market is healthy, both the customers and businesses in the market win.

In the future, as market information networks grow, there will be much greater precision in the planning and decision-making process. And as trends and cycles and overall economic pressures get folded into the picture, business owners will be able to adjust their plans and expectations and avoid the overspending and underspending that currently happens with small businesses every day. 

The Secret to COGS payroll, by Frank Coker

If you really want to understand how your business is working, you need to understand gross margin. And if you want to have a meaningful and correct gross margin, you need to separate direct (COGS) and indirect (overhead) expenses. And the toughest and most crucial COGS (cost of goods sold) item is payroll.

It is surprising how few businesses actually take this step. Without it they really cannot know if their direct costs are too high or if their pricing is too low. Without this, you will be left in the dark and will probably make the mistake many companies make. You are likely to fix the wrong thing.

Before I explain how to split payroll, here is an important concept that needs to be addressed. Some people will disagree, but most agree with this:

Basic COGS Payroll Concept: All staff hired to do billable services should have their pay 100% allocated to COGS payroll. Anything they do that is “administrative” is really just part of the cost of having a billable person on the payroll.  Training, administrative meetings, and paid time off should be viewed as part of the direct cost of having a billable person on staff and therefore should be included in COGS. There are exceptions to this rule, but we will save those for later.

Understated COGS generally leads to pricing that is too low. Pricing that is too low for a company’s cost structure is one of the most common causes of business failure. If pricing is wrong, growth will destroy a company. There is usually a fine balance between healthy and unhealthy business growth and COGS is the key to understanding where that line is.

First priority is to get COGS payroll split from overhead payroll. There are 4 ways to do this:

  1. Produce a departmental payroll – this is the ideal solution, but can be the most expensive. If you use an outside payroll processing company, they can do this for you at an extra charge. You may need to prepare time sheets showing where employee time is being spent unless you charge each person 100% to a single department.
  2. Journal entry split – this is actually the easiest solution, especially for smaller companies. Here you just run all payroll into a single payroll account in the accounting system. After the payroll is posted each month, manually compute how much of the payroll belongs to COGS and do a journal entry that reduces the payroll expense account (which is usually an overhead expense account) and add that amount to a COGS payroll account. This can be a quick calculation and quick journal entry done each month.
  3. Simple percentage split in Corelytics – this is a way to see roughly what your total COGS are and it lets the Corelytics give you a rough feel for gross profit and gross margin. This is not a good long-term solution, but is a quick way to get started.
  4. Monthly adjusting entries in Corelytics – this is similar to the split journal entry approach above, but done in the dashboard. You would only do this if (a) you wanted to test a “what if scenario”  or (b) you don’t want to make changes to your accounting system. In Corelytics you can create adjusting entries that reduce overhead payroll and increase COGS payroll, or any other account for that matter. These amounts can be entered each month.

To make gross profit reporting meaningful, you should make this change for the preceding 24 months at a minimum – 36 months would be ideal. If you just start tracking this information in a new way and don’t change your history you will not be able to do meaningful trend analysis, and comparing your P&L to a prior period will be very misleading.

Once you get your COGS payroll split from overhead you are ready for the next step which is to split COGS payroll into separate COGS accounts for each line of business (LOB). This is the crucial next step in build a company that can grow and have precision steering. You can read more about COGS in my upcoming book – Pulse: Understanding the Vital Signs of Your Business. We are planning to release the book in the next few months.

Cash Flow - the Bigger Picture, by Frank Coker

If you have cash left after all the bills are paid at the end of the month, everything is fine – right? Not really. There could be a tsunami brewing that could wipe out your cash and you might not seeing it coming if you are only looking at the cash register.

Cash flow analysis looks at cash that is generated and used in the P&L and in the Balance Sheet. Many small businesses think the P&L really tells the whole story, but without the Balance Sheet you are only seeing part of the story.

Here I would like to pause to say a special thanks to Ed Patton, a cash flow expert and a special member of the Corelytics advisors network. We have collaborated with Ed over the past couple of years to develop a very easy to understand cash flow review report. This report is still in beta while we work with selected advisors and their clients to verify that we are presenting data in the most easily understood form. Most business owners have told us that traditional cash flow reports produced by most accounting systems and by most accounting firms are confusing and not helpful. Our goal is to deliver a report that is easy to understand and easy to use in business decision making.

As Ed would say, “A cash flow report should answer the basic questions such as ‘why is my cash balance going down as my revenue is going up?’ and other key questions about the life-blood of the company.” Am I tying up cash in new investments faster than it can be replenished? Am I paying down debt too fast or too slow? Many of these questions can be answered by cash flow analysis.

Cash flow is the primary driver of financial performance in any business. It can be driven with precision or with ball-park estimates and gut feel. Precision steering has a much greater probability of success.

If you have an interest in participating in our beta evaluation of the Ed Patton Cash Flow System, EPS for short, just contact us at info@corelytics.com. This report will be available to Corelytics users as an add-on and can be generated anytime, on demand. It makes sense out of cash flow that is not available anywhere else.

Conflict that Pays: Goals Versus Budgets, by Frank Coker

Most small businesses owners and managers think goals and budgets are the same thing. Most executives in large high-growth enterprises will tell you these are not the same and should not be confused. So let’s take a closer look.

Budget Purpose:

  • Constrain spending; set limits
  • Hold people accountable for spending
  • Link available cash to spending priorities
  • Define minimum acceptable, low risk performance
  • Define basic conditions of employment

Goals Purpose:

  • Stretch performance and motivate staff to achieve the best of their capabilities
  • Unconstrained aspirations combined with a degree of realism
  • Stretch beyond the comfort zone - create a healthy tension
  • Set the basis for rewards (rewards should apply to stretching, not for doing the minimum)

It is very likely that achieving stretch goals will require re-negotiation of the budget. But you certainly wouldn't want to increase the budget if the team is under-performing.

When goals are tied to budgets, there is a high probability that problems will result. For example, if goals are set to match the budget, it usually means the goals are basic and easy to attain. Conservative goals often result in making everyone comfortable but produce lackluster results. This is usually discouraging for high performers, favors lower performers, and sets the cultural norm for the company.

Conversely, if budgets start high to match aggressive goals, spending will be excessive if goals are not being met. If spending starts high to support aggressive goals, it is usually impossible to recover the excess spending if goals are not being hit. Whenever possible, solid progress toward stretch goals should lead the way to increasing the budget. Not the other way around.

There is a delicate balance here. It takes experience to get this right. Ideally, spending plans should be well inside the safety zone and performance goals should be on the edge, putting pressure on the spending plan.

Another key to success is getting the whole team involved in the planning. The team needs to understand the dual nature of budgets and goals and they need to be included in the thought process of building the two. When budgets and goals are created in the back room and simply handed to the team, it is likely that the team will be skeptical and even cynical. Getting the team involved in the planning process and committed to achieving goals can profoundly improve business results and be highly motivating. Hitting budget can be somewhat satisfying but certainly not as motivating as hitting lofty goals and breaking a sweat.

Is Your Business “Healthy”? Three Tests, by Frank Coker

Some aspects of health are obvious and can be easily observed. But the most important indicators of health are not visible without investigation. 

Much like problems with blood pressure or cholesterol, you won’t know there is a problem unless you have the right instruments to check it out. And if these go unchecked, they can be fatal.

I discuss this topic in more detail in my book and in prior blogs (see links below). Here I would like to highlight three big health-factors that can make or break a business (including non-profit organizations).

  1. Trend lines not in conflict. There are many trend combinations that can be in conflict but often go unnoticed. Included in these combinations are growing revenue and shrinking gross margin, growing debt and declining assets, growing profits and declining equity. More of these are presented in the book. Any one of these can cripple or shut a business down.
  2. Top management is clear on top priorities. There are always more issues to address than available time. If top management doesn’t set the priorities, everyone on the team will set their own versions of their top priorities. Alignment only happens when goals and priorities are clearly defined and communicated.
  3. A routine process exists for monitoring and adjusting directions and priorities. Without progress reviews, there can be no accountability. Without accountability, things drift. When a company drifts, it is impossible for it to get traction in any specific direction.

Unhealthy companies stay flat and are unable to move forward. Unhealthy companies may survive but they are just one speed bump away from going out of business.

Directions in Accounting... (Notes from Doug Sleeter for Advisors)

Doug Sleeter recently spoke to a room full of accountants looking to advance their business.  Both Doug Sleeter and Edi Osborne often echo the same themes in their presentations as Corelytics does and this year's conference was no different.  So it's worth repeating. 

Doug's theme this year? RETHINK, RETOOL, and REALIZE success.

Advisors, what is the value that you're adding to clients?  Evolution might be a necessary step.  Take a look at these statistics about the probability that computerization will lead to job losses within the next two decades: 

  • Accountants are 94% are likely to lose jobs to automation within 20 years.  (SOURCE: "The Future of Employment: How to Susceptible are Jobs to Computerization" by C. Frey and M Osborne (2013)
  • In comparison, here are some other high-risk categories:  real estate agents 86%; word processors, 81%; commercial pilots, 55%

  So if your revenue comes from preparing annual tax returns, you might find you are obsolete (vs. pressing the tax return button from QuickBooks). Payroll submissions show a similar fate.
 

Based on a recent study, here's how SMBs select an accountant: 

  • Expertise
  • Responsiveness
  • Proactive strategic advice
  • Reputation
  • Referral from someone you can trust
  • Personal relationship
  • Latest and most efficient technologies
  • Low fees
  • Large firm/staff

 Conversely, here is why SMBs LEAVE their CPA:

  • Did not give proactive advice, only reactive
  • Poor responsiveness
  • Referral to a new firm
  • Lack of expertise
  • Fees were too high

 *SMBs also want CPAs to hellp with technology but think their CPA doesn't want to help so make sure you let your clients know that you are willing/able.

In the end, to defend your valuable position as advisor to your clients, you will likely see an evolution of value and a necessity to help your clients arrive at this new position with you.  

With this as a backdrop, do you SERVE or LEAD your clients? 

Learn more from Doug Sleeter.

Also, see some of Edi Osborne's advice on advancing your practice.

20 Common (and Avoidable) Mistakes Business Leaders Make, by Frank Coker

 

Building a successful business isn't an easy task, especially in today's competitive environment. Business leaders have to be persistent and have a clear focus on where their company is headed. They have to recognize problems early because some problems can’t be fixed after they go too far.

In the spirit of looking ahead and taking corrective action before hitting a barrier, let's take a look at 20 common (and avoidable) mistakes business leaders make that can grind their business to a halt: 

1. Irregular Performance Reviews

Business owners should spend some amount of time every month with their trusted advisor(s) and their management team to review financial performance and get everyone focused on areas needing top priority attention.

2. Lack of a Process

Right along with processes for doing the work of the business, there should be formalized processes for monitoring business performance, prioritizing, exploring solutions, assigning responsibilities, and then cycling back to monitoring.

3. Numbers without Connections

A lot of information is looked at in isolation. Looking at performance data as an interconnected matrix can change the whole picture. Knowing the relationships between numerous performance metrics helps pinpoint places where single adjustments can be made to drive many improvements.

4. Overly Broad Analysis

We need to do more than look at a business as if it was a single entity. In actuality a business that has been alive for more than a couple of years usually has multiple lines of business (LOBs). Each is a business within a business. Each has a P&L with gross profit, margin, a share of the overheads and bottom line net profit. When businesses are tuned at the macro level instead of at the LOB level, there is a high probability that the wrong thing is going to get “fixed.”

5. Stuck in Detail

There is a big difference between getting things to work right and getting the right things to work. It is very easy to fix things that shouldn’t be part of the business process in the first place. Many processes are continued because they were important at one time. No one has stopped to see if they are still needed or if they are providing a meaningful benefit. This is especially true of reports that were requested in the past and no longer used but still produced.

6. Eroding Financial Strength

Many businesses focus on P&L performance and skip the Balance Sheet. Managing Balance Sheet trends and ratios are just as important as managing the P&L. When management intentionally works to achieve good ratios, it ultimately builds a more valuable company.

7. Draining Cash

Many accountants encourage their clients to drain cash as part of a plan to minimize taxes. In many cases this is damaging to the long-term value of a company. Sometimes the reason cash is vanishing is because of unhealthy growth. If cash is depleting as a company grows, there is a strong possibility that growth is damaging and could push the company off the edge of the cliff.

8. Runaway peaks and valleys

Peaks and valleys in workload can be very damaging to a company, especially if the company is paying for staff needed to support the peaks and are then idle during the valleys. This calls for adding revenue sources that can fill in the gaps or provide a bigger base of recurring revenue. The greater the peaks and valleys the lower the value of a company in the market.  Consistent revenues mean predictability and predictability means higher value.

9. Not Ready for Exit

Most business owners do not have a plan for building their company’s market value and are not prepared to sell the business if something were to happen. This is tragic for many companies. When the unexpected happens, the owner finds out that with just a few adjustments they actually could have had a valuable company to sell, but it’s too late to fix things up when you must sell quickly. An even more important benefit of being prepared for an exit is the discovery of new and important ways to make a business run more efficiently and more profitably. 

10. Management Team not Good at Problem Solving

Many business owners view themselves as the direction setter, the problem solver and, often, the guy that does the complicated work. This prevents the management team from building a competency in problem solving. The owner needs to step back from being the go-to-guy as the company grows or this will be the reason that the company doesn’t grow. One of the last security blankets the owner wants to release is the role of being the only decision maker.

11. The Owner is the Expert

This is the classic story of business founders that are the expert and want to be seen as the knowledge center and decision center of the company. This is closely tied to #10, but this mistake extends past the management team and involves customers. When the owner is seen as the expert by customers, the business will screech to a halt if the owner steps back for any reason. No one is interested in buying this kind of business and most customers will tend to move away from a one-man show because that is too risky in the long-term.

12. No Advisor

No professional athlete would ever consider not having a coach. No professional business person should be without an advisor. This can be accomplished in many ways: peer groups, financial advisors, consultant, investor, etc. Having an arms-length advisor is almost as bad as not having one at all. If the advisor is not able to see the meaningful detail of business performance from month to month it is highly unlikely that they are going to provide meaningful input to your business.

13. No Board

Not building an advisory board or external board of directors can be a huge mistake. Different than an advisor, the board can serve as a think-tank, provide connections to external resources and become an important part of the image of the business to the outside world. A company that is in a major state of flux should lean more toward an advisory board. When the path to growth and investment are more clearly defined, that is the time to bring outside professionals on to the Board of Directors.

14. Advice from Bookkeepers

Accounting advice and financial advice are not the same thing. Many new business owners don’t understand this distinction. Accounting includes looking backward and making sure that records and reports are accurate and complete. Financial advice consists of looking forward, planning and setting goals. It is highly unusual for one person to provide both perspectives. Even when they can, it is often not a good idea. These two perspectives often need to be in healthy opposition to get the best results.

15. Stuck on a Plateau

It is very common for companies to hit a growth plateau and stay there for a while. Getting comfortable and staying on a plateau is often the first step to going backward. Often a plateau is an indication that the company’s management processes and organization capacities have hit their limit and attempts to get past those limits are not working.   Getting past the plateau will usually require some kind wakeup call (hopefully not a disaster!)  and, many times, outside influence to help get back on a forward moving track.

16. Repeating the past

The things that made you successful in the past are often not the things that are needed to make you successful in the future. Using the phase “this is the way we have always done it” is the first clue that a company is stuck in its own folklore. Everybody and every organization tend to resist change but there is no way to move forward without taking new steps. Moving away from the comfortable and into the uncomfortable is, well, uncomfortable. But that is the only way companies grow.

17. Not Listening to the Market

Deciding what the customer wants without validating the assumption is dangerous but common. A more precise way to provide what the market is seeking would be to start with customer feedback and then pilot test on a small scale. Then, only after demonstrating that the new idea works, should it be promoted and delivered on a larger scale. This incremental approach, with validation at each step of the way, can eliminate many mistakes, avoid runaway costs, and improve the likelihood long-term success.

18. Betting Big on One Idea

This is the “all eggs in one basket” scenario. It is better to assume that it will take multiple business offerings to build a successful and sustainable business. You can think of this like building a portfolio. A successful portfolio has diversity. It contains multiple complementary assets, some more mature elements and some unproven elements, some high risk and some low risk elements, with most of them in between the extremes.

19. Not Achieving Balance

As a continuation to #18, an evolving portfolio of business offerings requires constant tuning and adjustment. Some parts will prove to be low performers and others will be winners. When you monitor and track performance of each part of the portfolio, you want to look for trends that show potential future problems so that you can make early adjustments rather than waiting until it’s too late to correct them. Monitoring for early signs of problems and opportunities is critically important to obtaining top performance from each part of the portfolio.

20. Seeing Problems Too Late

Everybody is good at 20/20 hindsight. It’s always easy to explain why a business failed and what could have been done to prevent it – after the fact. The only reason businesses fail is because they didn’t take corrective action in the face of some problem or circumstance. Seeing into the future is never perfect, but developing the skills and the right feedback mechanisms can make a huge difference. Predictive analytics is one approach but certainly not the only one. Solving for the 19 mistakes above will go a long way toward solving #20.

The above mistakes and the actions that can be taken to avoid them are expanded on in my new book targeted for release in June 2014. The title is Pulse: Understanding the Vital Signs of Your Business.