Every day matters in business, but some days matter a lot more.

Today we tie Draymond Green and clutch shots to making better decisions in business.

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HOW TO IDENTIFY THE KEY DRIVERS IN YOUR BUSINESS

Tuesday night, Draymond Green of the Golden State Warriors flailed his arms and hit Jusuf Nurkić. Last night it was announced he was suspended indefinitely.

On it’s face, without additional context, it appears like a drastic measure for a “sorta” punch thrown by Draymond. But when you take into account that 4 weeks ago he put Rudy Gobert in a chokehold and has a long history of cheap shots.

Outside of the cheap shots, Draymond has had a great career. He just signed a $100 million contract and has made in over $150 million in contract value alone.

In 12 seasons in the NBA, he has averaged almost 30 minutes a game, 8.7 points, 6.9 rebounds, and 5.6 assists on the way to the Warriors winning 4 championships.

He has been a key cog in their success and benefited with 4 NBA All-Star selections, won 2 Olympic gold medals, and was named Defensive Player of the Year in 2017.

But despite all that, a handful of moments where he couldn’t control his temper, is most likely what he’ll be remembered for.

The greatest players in basketball are remembered by their championships and clutch moments.

It’s a harsh reality and something you have to imagine can haunt the best.

As I thought of this in relation to Draymond… I came to a realization: business is no different.

While every decision you make has an impact on your outcomes, results are driven by a few variables with an outsized impact.

Warren Buffett famously said he only has to make one good decision every five years to be successful.

But to find those gems and ultimately make the good decisions, you have to put in the consistent work.

So what does this mean for your business?

First, we want to identify what those few overly impactful things are. What are the key drivers in your business?

Once we’ve identified those, we need to identify the right KPIs to track progress in those drivers.

Let’s dive in.

Identify result drivers

Each driver will have some impact on the business, so despite there being a few with an outsized impact, we need to understand them all. From understanding them all, you’ll be able to identify which you need to track more closely and frequently.

Drivers can be broken into two categories:

1. Revenue & Profit Drivers
2. Cash Flow Drivers

Within each driver, there are many different levers you can pull. We don’t have the time to go through all those today, but we will in the near future (I’ll be putting together a series).

But as a primer for today, let’s quickly summarize.

Revenue & Profit Drivers:

1. Product: a good product separates you from competition and drives customer engagement with your business.
2. Pricing Strategy: the right price determines your position in the market and relationship with the customer. Aligning product and price is key.
3. Revenue Growth: this is driven by your ability to source and market your product/service.
4. COGS Optimization: if your COGS limits your ability to price where you should be in the market, your business is setup to fail. Sourcing and product/service structure are the big drivers here.
5. Operational Efficiency: is your business ancient and missing ways to capture more profit?
6. Customer Acquisition Cost: your ability to get customers for less than the cost of first purchase (or second purchase) can make or break the whole business. Understanding LTV (customer lifetime value) tells you at what point you’ll start to generate real cash.
7. Customer Retention: while acquisition is important, good retention makes acquisition less so. Good retention increases LTV and means you have to reach less people to grow. If people are walking out the back door at a higher rate than they’re coming in the front, you’re fighting a losing battle.
8. Leverage: too high a debt or capital expenditure load can make a solid business unprofitable.

Cash Flow Drivers:

1. Inventory Management: inventory is one of the biggest drags on cash, as growing businesses constantly need to reinvest cash to increase inventory. Good inventory management can transform a business.
2. Cash Conversion Cycle: CCC measures the time between paying for inventory to receiving money from your customer and your whole business runs on this metric. The ability to manipulate payment terms of your vendors and customers can transform your ability to keep cash.
3. Capital Expenditures: equipment breaks down and work stops… exactly what you don’t want. Capital expenses are inconsistent, which means if you don’t plan for them it can damage the business.
4. Borrowing Capacity: adding borrowing capacity can give you breathing room and allow you to ramp up. No borrowing capacity can mean you have to say no to growth.
5. Debt Service: debt management is a specialty into itself. Understanding your debt structure and covenants is important to create a stable business.

Leading vs lagging metrics

Once you’ve identified the key drivers in your business, it’s time to figure out the metrics you need to track those metrics.

I go deep into this metric identification process in this article, so I won’t go deep into it here.

But a quick overview:

Start by brainstorming all the metrics related to the drivers you’ve identified.

Then, start narrowing the list.

Ask:

1. What outcome are we trying to achieve?
2. Which has the most direct impact on the outcome?

We ultimately come to 2-4 metrics to track one outcome. Those metrics should be split between leading and lagging measures.

Lagging metrics are the ultimate outcome you want.

Leading measures are predictive of the lagging metrics.

With leading, you want to get as close as possible to the first action of the chain.

Sales calls will predict revenue growth.

Equipment maintenance predicts downtime.

Training budget predicts higher sales call conversion rate.

Collection/aging reports predict cash conversion cycle reduction.

While the connections may be slightly different in your business, the key here is to capture the full cycle.

The right systems to track these metrics are also key.

Sometimes there can be manual capture, but it’s best to integrate this tracking into software you’re using.

Software like NetSuite allows you to capture a wide variety of metrics and automatically track them with ease.

A system for review

Once you’ve identified your key drivers and metrics, it’s time to set up a system to review them.

Without consistent reviews, they’ll drop off the radar and not drive the results you want.

I like to set up a review of specific KPIs on a weekly, monthly, and annual schedule. Sometimes I’ll insert quarterly in there if there are seasonal differences in a business.

Next week we’ll talk about creating dashboards and a system for regular review.