Strategy has always held a specific interest for me. In my past life, while climbing the corporate ladder, I was exposed to a strategic management process called The Balanced Scorecard. In the early 1990's, two researchers, Drs. Robert Kaplan and David Norton, realized that simply using financial measures to determine the effectiveness of a firm's management team tended to focus more on short term tactical thinking and overlooked long term strategic success. The result was a report in the 1992 Harvard Business Review called the Balanced Scorecard which was later published into a series of books. There is a quote from Balanced Scorecard: Translating Strategy Into Action that explains why companies fail. It's not from a failure to plan or to develop a good strategy. It's usually because the management team failed to execute the strategy, despite the fact they measured financial performance.
This was all very interesting stuff but it seemed more appropriate for larger companies. In fact, when I began working with startups, I kind of forgot all about The Balanced Scorecard. My Kaplan and Norton books still have a prominent place in my library but it seemed that the problems of entrepreneurs were much more real time and fluid; more improvisational like a jazz musician than the formally trained classical virtuoso.
So today...., I am Googling the Entrepreneurial Scorecard looking for when the new Michigan study will be available and there......
...there it was.....
"Entrepreneurs use Balanced Scorecard..."
I just had to go for a swim. And sure enough, it was deep. The article is very well written but it is an 18 page white paper written by Robert Lussier and published in The Journal of Small Business Management. Here is a link: Entrepreneurs and the BSC For those who are really into the strategic planning process, it is well worth the read. BUT FOR THE REST OF YOU....
The four basic perspectives of the Balanced Scorecard are worth your consideration, even if you are the only employee in your company right now. One day you will be managing a group of people and eventually, they will be managing groups of people. By that time you will need a good tool to keep things on track and it won't hurt to begin thinking about that now. Besides, the framework applies to any size company.
- Financial Perspective- This is the one we are familiar with. This is the shareholder's perspective and it is still just as relevant. Even though you may be floating your company month to month on your credit card, you still need to keep careful track of your revenues and costs. Your investors will evaluate your company's value based on your financial statements. They will hold you to the financial goals you set.
- Customer Perspective- What measures should you have in place to determine whether or not you are meeting your customer's needs and expectations? The CEG training programs stress the importance of understanding customer pain and what translates the features of your product or service into customer value drivers. Later when you have hundreds of customers, you can measure satisfaction, repeat business and so on. But what delivers value to your first customers and how can you measure that?
- Internal Perspective- This is a measure of the processes that run your company...things like quality, on-time delivery, sales cycle, cash receivables, etc. But right now, it's just you , your accountant and a few service providers you outsource to. You still have to make sure things don't fall into a crack and the bills have to get paid sometime.
- Learning and Growth - This is the perspective of the company employees, making sure they stay motivated with the right incentives. In short, it is your company culture. Begin thinking now about the culture you want to have and how you are going to attract the right people who will be productive while fitting into that culture. Perhaps you will share some equity in lieu of big salaries for your key first employees.
I realize I'm asking questions instead of giving answers but the point here is to introduce you to a strategic management process that will help you manage your growth as you achieve sustainability. The article above has three good case histories of small companies who are successfully deploying the Balanced Scorecard as a way to ensure they stay on track with the most important things to their business. You may even get some ideas you can implement sooner than later.