Most entrepreneurs understand the value of a mentor to hold them to account and open their eyes to opportunity. But how best can this kind of relationship work?
One avenue to explore, for those looking to sense-check how the business is evolving, is to find a mentor or adviser who is willing to be analytical about delivering results.
Why tie these two opportunities together? Simply because measuring what matters helps any owner-manager to make informed decisions to plot the way ahead with purpose and a mentor – perhaps even one formalised as a non-executive to the business – should be part of that effort rather than removed from it.
What kind of data should an improvement-minded business owner and a plugged-in mentor be looking at? Here are some obvious places to start:
What to measure – top-line finances
Every company has to track its financial performance. The ebb and flow of money from the company accounts of even a relatively small company will usually involve thousands of transactions in a typical year, and with tax obligations in the mix every company has to maintain and keep a detailed log of the financial fundamentals.
Yet with so much data at the fingertips, many business owners still don’t pay proper attention to those basics of revenues versus costs. Instead of rigorously scrutinising what’s coming into the business, and setting that against the outgoings for each revenue line, it’s surprisingly common for many company directors to wait for the accountants to tackle the annual company accounts well after the event and to sign them off for filing with barely a glance. It’s out-of-date information, goes one argument, so why bother?
That way lies trouble, needless to say. Up-to-date, properly maintained management accounts are a fabulously useful tool to every business – so start to look carefully at them and show them to the mentor.
How to formalise this? Well, a mentor could get a commitment from the board for a monthly or quarterly look at the big-picture data. Ideally this would make use of a dashboard with the flexibility to give some real insights, but really whatever platform works.
What to measure – cashflow
Cashflow matters to every business – though some have a bigger cashflow gap to plug than others, perhaps because of the nature of the industry they are in or for certain historical reasons, like a big customer moving a key contract onto worse payment terms.
Whatever the particular dynamic the object must be to understand cashflow as quickly as possible. What are the outgoings from month to month and how and why do they vary? What money typically flows in and what is the story behind it? In short, every business needs a cashflow model that is intelligible to deliver financial control. It might reveal that credit control is weak, for example, which is something that is relatively easily remedied.
Again, one challenge here is to think about the frequency of applying boardroom scrutiny to cashflow. Monthly makes sense in most contexts, perhaps delivered via a short presentation highlighting any points for discussion.
What to measure – profit and loss
Any business that can accurately allocate its costs will learn a great deal very quickly.
While it’s an easy goal to set, it’s actually often harder to deliver than you might think. Revenues flowing in are simple enough to capture, but how were those sales secured exactly?
Consider these questions:
- How many enquiries were there set against actual sales?
- What was the conversion rate of sales-related meetings against sales?
- How much time elapsed between an enquiry and the issuing of an invoice?
- What was the average order value?
- Is there a correlation between order value and the sales process and personnel?
- Is it possible to capture the different routes to a sale in relation to sales and marketing activities?
- Which marketing activities are most successful and most measurable?
- Which are hard to measure in success terms and why?
There is a lot to unpack in this work. It probably lends itself to a detailed session with a mentor involved once a quarter, or perhaps even more frequently than that.
This question of mentoring in an analytical way is a huge topic, of course. These ideas are just a beginning. Let’s look at two examples in practice to bring things to life.
Mentoring and metrics in practice – Steel City Marketing
James Biggin is managing director of Steel City Marketing. It’s a promotional gifts company based in Sheffield that’s into its fourth decade of trading but the business has been revitalised and reshaped by Biggin over the past five years, since he took over at the helm.
“When I took ownership of the business there had been losses and I was supported by mentors as I worked to streamline the company around some financial realities,” says Biggin. “I shrank it back from ten staff with three salespeople to a business with five staff but with four having sales accountabilities. I also got us out of an old building we’d been in for 30-odd years and found somewhere central and funky to complete the reboot.”
Steel City’s loft-style offices have revitalised his team of nine, says Biggin, and changed the culture too.
“The other piece in the puzzle, alongside sharing and accountability, is rewarding team members for delivery and achievement, and that’s something I worked on with outside help in a considered way.
“Before the 2011 turnaround no one was ever rewarded with bonuses. Once I had ownership I put in a team bonus. It was based on targets I set, and they are always challenging but achievable, with further incentives when achievement goes even further. The beauty of what we have now is that everyone shares in the success – it’s an equal pay-out whether the individual is in production or accounts or sales and marketing.”
Mentoring and metrics in practice – KeyNest
Another business looking at the data with a mentor is the scale-up company KeyNest. The business is a network of cafés and convenience stores across London where home-owners using accommodation services like AirBnb can safely deposit keys and have them collected by an authorised user using a one-time code.
It’s an offer is already enabling hundreds of hosts to check in guests remotely every month, not to mention cleaners, maintenance staff and property agents to access the property when needed. The proposition also uses contactless NFC technology to enable online tracking of every keyset – and keeps keys anonymous too.
The question of how quickly KeyNest can grow, and how the founders can measure whether growth is on a steep enough trajectory to get the business to break-even quickly, is one where founder Marc Figueras says there is work to be done.
“The proposition works, no question, and customers that use the service really like its marriage of security and convenience and become advocates. Added to this, it’s a shareable idea which plays well in terms of today’s viral sharing economy.
“But there are variables we still need to understand more fully. How many users will use the service again and again? What average spend can we expect from these recurrent users? How quickly can we realistically scale up so monthly revenues hit cover our business costs and move us into profit? The unit economics are attractive, in that the marginal cost to us is small as we scale up, but there are still things we must work at.”
With this need to keep iterating and analysing in mind, Figueros emphasises that finding a mentor to help with the analytics-driven journey has been essential.
“We have benefited from mentorship a lot. Our mentor is CEO of a housekeeping and cleaning services company, and his innate entrepreneurship and view on the market opportunity – and how to measure it – has been invaluable at every step. He has helped with the scale-up business plan, too – including our plans to launch in some European cities.”