One of the most daunting but critical tasks for business owners is to balance the many sources of data that can help guide decision-making. Irrespective of the size of a company, understanding what matters to your long-term success, and what's dragging down your growth, is essential.
For early-stage businesses, data may be scarce and expensive to attain, but it's important that businesses make informed decisions. No one likes leaving money on the table, but worse is not having the knowledge to change it.
Balancing Costs With Returns
Simple mistakes happen to every business owner. Because we're constantly saturated with data, it's hard to know what to pay attention to, or how to measure tradeoffs like payment-processing costs and cardholder behavior.
For instance, I'm an American Express cardholder, and business owners tell me all the time, "We don't take AmEx; the processing fees are higher." That seems like a straightforward cost-saving measure, except for potential AmEx customers you're turning off or turning away. Any form of payment you don't accept could be money walking out the door. The question is, how much?
Even if they buy from you anyway, AmEx cardholders spend statistically more when they use their preferred card. They're more likely to pay a convenience premium, more likely to buy higher-margin "unlimited" plans and monthly subscriptions. With your attention focused on saving in processing costs, you might be sacrificing some of your most lucrative potential customers.
Know What to Measure, and Then Measure It
For a brief period, Kabbage paid for more seat licenses for our CRM than we had employees who talked to customers. The company was scaling so fast that different teams bought separate licenses or bought more for new hires, and no one had noticed. No one was able to check the vendor costs against what we were actually using. Only once we hired someone to go through the mountains of vendor data did we see how much we'd been overpaying. Consolidating just that set of CRM licenses saved us more than that individual's salary.
There were other things we could have learned and money we could have saved if we had been regularly reviewing the data. We launched several time-consuming, tech-intensive partnerships that didn't pay off for us, but at the time no one was analyzing the return on investment. We were too busy to sift through it with any precision. We have since moved on to some even more meaningful opportunities, but those earlier projects improved how we measure initiatives today.
I see young salon owners and restaurateurs who are determined to have a sparkling social media presence. They hire professional photographers, invest in splashy ads, spend hours replying to every review and comment with diligent cheer. They don't have a clear idea whether that platform is reliably bringing in new and repeat business. Knocking yourself out on something that doesn't improve measurable outcomes is worse than useless: It's wasteful.
If you could ask that earnest socially focused entrepreneur if their efforts are paying off, you can ask the right questions about every part of your business. What data could tell you if the investment is paying off? Do you have it? Can you get it? Is someone reviewing it? Once you know, are you acting on it?
Too Much Input? Focus on Outcomes
You might not be ready to hire a data guy--at least not yet--and information is coming at you fast. So stick to your core concerns. Your high-level task is to monitor outcomes: the real-time health of your business.
Compare the distribution of your costs (where you're spending time and money) over the distribution of your revenue (money coming in). Is it worth it to stay open on Saturdays? The data will tell you. Are a few clients always demanding your time but not building your bottom line? They're not worth it. Let them go.
Every business is different and you know yours best. But when the data shows you distractions and diversions--big costs that aren't improving outcomes--it's time to invest in change.
Accepting the extra point on AmEx processing fees, reviewing vendor license contracts for savings, scaling back on social: These small choices might not seem like they would impact the long-term outcomes of your business, but they do. When you're deluged with data stories and feedback, you must compare new information against your core goals, and then be willing to follow those findings to improve your business's health. Data-driven insights can tell you what's working toward your goals and what's holding you back.