Q. Dear Zenagos, I am just starting my first business. What I really want to know is how do you know when you are failing?
It’s usually pretty easy to tell when you are failing because it becomes impossible to operate anymore. A better question is, “How can you know if you are succeeding?” Failure becomes obvious because you run out of money or can’t deliver or have angry customers, or all of the above. When you’re failing, you know it, and there are clear processes for dealing with it (such as bankruptcy, which gives people whose businesses have failed a clear path to starting over).
The “Almost There” Syndrome
However, many small business owners don’t experience clear failure. Instead, they experience modest success without real progress. That is actually much worse. Entrepreneurs are optimists, so they remain hopeful, despite a lack of evidence that they can truly achieve their dreams. We can’t tell you how many times we have talked with entrepreneurs who refuse to give up because they are “almost there.” If you have been “almost there” for more than a year, then you are not. It’s time to face facts.
Then, how can you know if you are succeeding?
The only way to know if you are succeeding is to make specific goals (yes, they must be SMART) and a 3-year financial plan. Then, set a milestone at least every six months. It sounds obvious, but if you don’t have goals, then you won’t know if you are meeting them. Experienced business leaders usually set several goals (a “scoreboard”) based on the most important numbers (“key metrics”) that drive their business. For example, if the number of subscribers you have drives how much revenue you make, then one of your goals should be to achieve a specific number of subscribers by a particular date.
A 3-year financial plan? I’m terrible with numbers.
We’re not talking about a massive financial plan. See what you can get done in an hour. Just write down your typical monthly or annual revenue, and assume you will make that for three years. Then, write down your typical costs, and assume they will stay the same for three years. Once you have your revenue and costs written down, try some situations: What if your costs increase by 20%? How will that affect your income? What if you raise your price by 20%? How will that change things? If you hate math, find a friend who can help. But get it done. As with goals, if you don’t have a financial plan, then you won’t notice when things are going better than you had hoped (or worse).
Why do milestones matter?
Once you have set the goals and made your financial plan, make a decision now about what you will do in six months if you have not met your targets. For example, you could say, “If I don’t have at least 20 subscribers in six months, then I will change my marketing approach.” Setting a milestone like this will prevent you from languishing, thinking you are “almost there” for years at a time, despite not meeting your targets.
If nothing changes, nothing changes.
Goal-setting, tracking financials, and setting milestones are all strategies for helping you to face the truth and make changes, while you still have time to make a difference. Doing the same thing over and over isn’t just the “definition of insanity”; it is also death to small businesses. Successful business owners set reasonable goals, track their progress, and make moves (“pivot”) when they aren’t getting the results they want. As they say in support groups, if nothing changes, nothing changes.
So, if you want to know if you are succeeding (or failing very slowly), take matters into your own hands by making a plan, tracking your process, and facing the facts, whatever they are.