Business is the most competitive sport out there. Your rivals want to take revenue from you, and your employees will ditch you for the next best opportunity. However, to stay ahead of competitors, ensure that your good employees don’t leave, and that your operations continue to drive profits; all you really need to do is be a better business than you were six months ago.
It doesn’t take much to be better if the focus is growing revenue by 2%- 3% every month, which should result in doubling revenue every 24-36 months. A more profitable business will allow you to pay yourself more, hire more staff, invest in R&D projects with tax credits, and give yourself a moat against your competitors.
Owners and managers can best achieve this growth by having strategies and processes to help them increase revenue, control expenses, and deal with change. However, once a company hits a 40% growth rate, the old controls that kept the business going will start to break or create bottlenecks that harm the business, so how it operates will need to change.
What worked operationally at $200k revenue will not work at $400k in most cases but definitely won’t at $1 million. So, the strategies can be the same, but the tactics must differ depending on the end goal.
Getting Business Operations Ready For Data Analytics
When a company grows, it must constantly review its operations to see what needs to be changed because what got it to $200k won’t get it to $1 million. Owners and managers can use descriptive data analytics to see how operations are performing and whether the performance will be enough to reach the revenue goal. This monitoring can help owners and managers see what needs to be removed or added to make things flow.
With enough data, a business can use predictive analytics to see what is required to prepare for an increase or decrease in sales if it has seasonality. Business is dynamic, so you have to be ready for change, and it will be hard to manage that change if you don’t have data to understand what’s happening.
Before any business can use data analytics properly, it needs to create a system for its operations. Conducting a Porter’s Value Chain analysis is an excellent framework for assessing how operations should perform, which shows what is needed to help a business sell a product or service from point A to point Z.
Marketing and Sales are the first step of the chain analysis. This includes things like ads for marketing and sales when a restaurant server takes the order from the customer.
The second step is inbound logistics, such as how to store and acquire materials to sell to your clients. This step typically involves a restaurant’s freezer and storage room and how to bring materials from Restaurant Depot to the restaurant.
The third step is operations, turning those raw materials into the product or service you need to sell. In a restaurant, this is the kitchen that is preparing the meal that the customer ordered.
The fourth step is outbound logistics, where the product or service is delivered to the customer. In a restaurant, the server provides the meal to the customer from the kitchen.
Service is the fifth and final step. For a restaurant, this can mean following up with a customer to ensure everything is up to par and fixing anything wrong with the order.
These steps are the primary activities of delivering a product or service to the customer, and the final result is the gross profit margin. If you sell a hamburger for $15 in a sit-down restaurant but spend $6 on primary activities, then the gross profit margin is $9.
Descriptive data analytics lets you see where the costs are and the revenue numbers so managers and owners can see if anything needs to be changed. For example, in Applebees, the COO removed the baskets for serving fries and placed the fries next to the entree. This decision saved the company $15 million a year, and orders didn’t decline. If you remove something and the order volume stays the same, you can use that $15 million for something better. With data and a system, you can experiment with your operations to see if a change improves or worsens things.
This gross profit margin then funds all the company’s other operating expenses, which creates the operating profit margin. The secondary activities in a Porter’s Chain Analysis can be considered operating expenses and can incorporate:
Procurement
This activity is how the company acquires raw materials. This is heavily related to inbound logistics, and if a business can negotiate and find the needed materials, it can help it stay more competitive.
Human resource management
This activity involves hiring and retaining employees who will fulfill the business strategy. Overall, managing employees is helpful for all primary activities, where employees and effective hiring are needed for marketing, logistics, and operations.
Infrastructure
This activity covers a company’s support systems and the functions that allow it to maintain operations. This includes all accounting, legal, and administrative functions. A solid infrastructure is necessary for all primary functions.
Technological development
This activity is used during research and development, including designing and developing manufacturing techniques and automating processes. This includes equipment, hardware, software, procedures, and technical knowledge. Technological development is a business working to reduce technology costs, such as shifting from a hardware storage system to the cloud.
Interest payments and taxes must be deducted after calculating the cost of goods sold and operating expenses. This final accounting step creates the net profit margin, which should be around 5% in a restaurant.
Getting the Organization Chart Ready for Data Analytics
Creating a successful business requires many operational steps that work in harmony with each other. This is why organizational management is also needed before implementing a data analytic strategy. Data analytics is ineffective if the organization is full of holes or doesn’t have the capabilities to utilize the recommendations or insights. However, owners and managers can start using descriptive data analytics to see how profits and expenses are doing, building awareness of what needs to be done to grow the business. This is why hiring a bookkeeper is one of the first things a business owner should do. It can also help with tax planning and see where a company can invest to grow revenue faster.
Once you know how operations will go in the current phase of your business, you can start looking at organizational management. Any standard business selling a product or service can break down its organization in the following way.
At the top of the organization is the leader.
The leader is responsible for the company’s strategy and vision. They are the ultimate decision-makers and must maintain relationships with other entities to survive. They are also responsible for the business’s culture and standards so that the company will continue progressing.
Below the leader is the manager
The managers are responsible for managing day-to-day. They have numbers they know they should be hitting and know the staff’s roles and responsibilities.
Then, below the manager are three divisions.
Operations, which is responsible for making and delivering the product or service
Sales/Marketing is responsible for gaining and closing leads.
HR/Support/Finance is responsible for financial statements, reporting, data analytics, and onboarding/offboarding employees.
In the beginning, the owner will probably have to take on all the roles, but the goal is to start delegating the lowest-value tasks to an employee or a vendor that can do the work for less than what the owner can get paid selling the product or service.
If the owner can spend one hour selling 250 dollars worth of coffee, but it takes them one hour to do payroll and bookkeeping, but this can be done at $50/hr, then they should find a bookkeeper to do this work so they can focus on selling more coffee. Eventually, the owner must step away from the operation role and move more into the leader’s role if they want to grow the company.
Having a Vision Helps With Data Analytics
Business is simple, but it won’t be easy to double revenue every 2 to 3 years. Growing a business will require a lot of endurance and courage to go after it every day. But if you have a vision, it will make things much more manageable. If you want to be a 1 million dollar company with 15% profit margins and a salary of $150k, you could bring in $300k a year as an owner. From here, you can see if that is enough or if you want to challenge yourself to grow even more.
If we look at a $200k company that doubles revenue every three years from 2021, this is how things will look.
- 2024: $400k
- 2027: $800k
- 2030: $1.6 million
- 2033: $3.2 million
- 2036: $6.4 million
- 2039: $12.8 million
- 2042: $25.6 million
- 2045: $51.2 million
What it takes to make $200k a year will be very different from what it takes to make $51 million 20 years later. So, it’s important to start figuring out how things must change once a company hits a 15% growth rate and start asking questions like:
- What needs to be eliminated?
- What should be added?
- What roles are required, and who needs to fill those roles?
- What new technologies will need to be utilized?
- When should I exit this business, and what is enough for me?
Having your company vision and mission statement can help you understand what the future needs to look like and what is required to make the journey successful. One of the easiest things to do as a person is to get distracted and focus on the wrong things. It’s also important to know that it is simple to enter something, but exiting that position will be more complex. So, know what is essential and where you need to be in this present moment.
What Charts To Include In a Business Dashboard
To get even more clarity, owners and managers can use a data analytics dashboard to gauge what decisions need to be made to achieve an average 2-3% growth rate. What an owner needs for their business dashboard will depend on the business’s current situation. To build your business dashboard, you can create charts using Tableau, PowerBI, R, Excel, or Google Sheets and include the following charts:
- Bar Chart:
- Pros: Ideal for comparing categorical data or showing trends over time. Easy to understand and widely used.
- The cons are that it can become cluttered with too many categories and is only suitable for displaying continuous data kiwi thinning.
- Line Chart:
- Pros: Great for showing trends and patterns over time, especially for continuous data.
- Cons: We may need to find individual data points, making it difficult to discern specific values.
- Pie Chart:
- Pros: It helps show parts of a whole and makes the proportion of different categories easy to understand.
- Cons: It can be misleading if there are too many categories or if the differences in proportions are subtle. It is not practical to compare values.
- Area Chart:
- Pros: It is similar to line charts but with the area filled below the line, making it easier to visualize cumulative totals or proportions.
- Cons: It can be challenging to interpret accurately when multiple areas overlap.
- Scatter Plot:
- Pros: Excellent for visualizing the relationship between two continuous variables. It helps identify correlations or clusters.
- Cons: With many data points, it may need to be more precise. It requires careful interpretation to derive meaningful insights.
- Histogram:
- Pros: Ideal for visualizing the distribution of continuous data, helping identify patterns such as central tendency and variability.
- Cons: Histograms can be less intuitive for some users than other chart types, and binning choices can affect interpretation.
- Heat Map:
- Pros: Effective for visualizing patterns in large datasets, mainly when dealing with geographical or matrix-like data.
- The cons are that it can be overwhelming if the data is too dense. Interpretation might be more straightforward with proper color coding or a legend.
- Box Plot (Box-and-Whisker Plot):
- Pros: Provides a comprehensive summary of the data distribution, including outliers, quartiles, and median.
- Cons: Interpreting this may require some understanding of statistical concepts. It could be better for displaying individual data points.
- Gantt Chart:
- Pros: Great for project management, displaying tasks, and their durations over time.
- Cons: It may need to be more transparent and accessible to read with complex projects or many tasks.
- Bullet Graph:
- Pros: Efficient for comparing actual values against target values while displaying qualitative ranges.
- Cons: This may require an explanation for users unfamiliar with the chart type. It is not suitable for displaying complex relationships.
How Managers and Owners Can Be Effective With Data
A business dashboard must change as the business grows to focus on what will achieve that 2-3% growth rate. To deal with the eventual change to the organization, owners and managers should know the data analysis process and the life cycle of data to determine which graphs should be included in a business dashboard and how to ask the right questions. For the Data Analysis Process, here are six steps which involve:
- Ask:
- This stage involves defining the problem or the question you want to answer through data analysis. It’s essential to understand the objectives and information you seek clearly.
- Prepare:
- In the preparation stage, you gather and organize the data required for analysis. This may involve collecting data from various sources, cleaning and formatting it, and ensuring it’s ready for analysis. Data preparation also includes handling missing values, outliers, and any inconsistencies in the dataset.
- Process:
- Once the data is prepared, it’s processed to transform into a format suitable for analysis. This may involve data transformation, aggregation, or statistical techniques to derive new variables or metrics.
- Analyze:
- In the analysis stage, you apply statistical methods, data mining techniques, or machine learning algorithms to extract insights from the data. This could involve exploratory data analysis, hypothesis testing, regression analysis, clustering, classification, etc.
- Share:
- After deriving insights from the data, it’s essential to communicate the findings effectively. This stage involves creating visualizations, reports, or presentations to convey the results to stakeholders clearly and understandably.
- Act:
- The final stage of the data analysis process is to take action based on the insights gained. This could involve making strategic decisions, implementing changes, or further investigation based on the findings to drive business outcomes or solve the problem initially identified.
Following this framework can help a business decide how to grow using data analytics. A company will likely need to focus on getting customers in its first five years. So, having a dashboard focusing primarily on marketing could make sense until there is enough revenue to cover operations.
A company must understand how to manage its data to build the right business dashboard to be effective. Following the life cycle of the data framework can let owners and managers know what is needed to ensure they get the correct information and involves doing the following:
- Plan:
- The planning stage involves defining the data requirements, including what data needs to be collected, how it will be collected, and for what purpose. Establishing data governance policies, privacy considerations, and compliance requirements is crucial at this stage.
- Capture:
- Once the data collection plan is in place, data is captured from various sources, such as databases, sensors, websites, or external APIs. This could involve manual data entry, automated data collection processes, or real-time data streaming.
- Manage:
- The collected data is stored, organized, and maintained in the management stage. This includes data storage infrastructure, database management, security, access control, and quality assurance measures.
- Analyze:
- Like the Data Analysis Process, this stage involves analyzing the data to extract insights and derive value from it. Depending on the objectives, various analytical techniques and tools may be applied to the data.
- Archive:
- After the data has served its primary purpose, it’s archived for long-term storage. Archived data may still hold value for historical analysis, compliance, or regulatory purposes. Proper archival procedures ensure data integrity and accessibility when needed.
- Destroy:
- Eventually, data reaches the end of its useful life or becomes obsolete. In this stage, data that is no longer needed or has surpassed its retention period is securely destroyed. This could involve data deletion, shredding physical records, or other methods to ensure data privacy and compliance with regulations.
As a leader, you must know how to be an analytical thinker to make sense of all the data, which involves breaking down complex problems or situations into smaller components, analyzing those components, and deriving insights to make informed decisions or solve problems effectively. And here’s a more detailed explanation of the five aspects of analytical thinking so you can make better sense of your data:
- Visualization:
- Visualization involves mentally representing information in various forms, such as charts, graphs, diagrams, or mental models. It allows individuals to comprehend and manipulate data more effectively by converting abstract concepts or numerical data into visual representations. Effective visualization aids in pattern recognition, trend identification, and communicating complex ideas to others.
- Strategy:
- Strategic thinking involves considering long-term goals, assessing available resources, and developing plans or approaches to achieve desired outcomes. It requires foresight, creativity, and anticipating potential obstacles or opportunities. Strategic thinkers analyze the current state, envision possibilities, and formulate action plans aligning with organizational objectives or personal goals.
- Problem-Orientation:
- Being problem-oriented means understanding the root causes of issues or challenges rather than simply addressing symptoms. Analytical thinkers approach problems systematically, breaking them into smaller, more manageable components and identifying underlying patterns or relationships. They ask probing questions, gather relevant data, and explore alternative solutions to arrive at effective problem-solving strategies.
- Correlation:
- Correlation refers to the relationship between two or more variables or factors and how much they change. Analytical thinkers are adept at identifying correlations within datasets or complex systems, enabling them to uncover meaningful insights or predict future outcomes. They use statistical techniques, data analysis tools, or logical reasoning to discern patterns and causal relationships between variables.
- Big-Picture and Detail-Oriented Thinking:
- Analytical thinkers balance the ability to see the broader context or overarching goals (big-picture thinking) with attention to detail and precision in analyzing specific aspects or components (detail-oriented thinking). They understand how individual elements fit into larger systems or processes while recognizing the importance of accuracy and thoroughness in data analysis or problem-solving. This dual perspective allows them to grasp complex macroscopic and microscopic aspects, facilitating holistic understanding and informed decision-making.
How Setting Goals Helps With Data Analytics
In business, you will never find the final answer, so it’s best to think about the next best question you should ask and then start solving it. This process will be like Sisyphus rolling the boulder on the hill to watch it roll down with the following problem to solve. But instead of being for eternity, having a system for growth and an exit plan can help an owner avoid the fate of being stuck or in a purposeless position.
To avoid the wasted effort that can lead to bankruptcy or unfulfillment, it’s important to set business goals with benchmarks to be hit. This should be reviewed every week. When we have a number to achieve, it can motivate us much more than wondering mindlessly. The data analytics should reflect the quarter’s goals, which should help with the yearly goals. It’s always best to break things down from an annual perspective and see if the company’s strategies and tactics can get them there.
To make $1.2 million in revenue for a restaurant, $100k/mo in revenue is needed annually. If the average meal order is $22, 4556 orders are needed monthly. So, about 152 orders are required a day to reach the annual goal. With data analytics, you should see your busiest hours, what is selling the best, and what isn’t selling. The business’s busiest hours should focus on getting those orders in. Concentrating on prep and maintenance should be the priority for slower times. Then, you should also make sure that marketing efforts are bringing in those 152 orders a day. Tracking this information in a spreadsheet or a database can help a business owner see if they’re on track.
Many restaurant owners experienced a boom in online deliveries during the pandemic, but online orders have slowed down with increasing inflation and folks using up the last of their pandemic assistance. This may have caused many business owners to be complacent, thinking that online orders were the norm, but eventually, businesses will become competitive again. So, it’s best to stay ahead of the change by investing in people, upgrades, technology, and operations and knowing what to stop or eliminate.
As with many things, you don’t have to be great to get started; you just have to get started to become great. For most businesses, implementing a system to double revenue every two to three years will take two to three years and will require constant upkeep to ensure the growth continues. So, it is important to be patient and have faith that your process can help you achieve your dreams.
And if you can grow a business to $10 million in revenue, you can sell that business for 2-10 times revenue. For restaurants, a rule of thumb is 2.3 times revenue, but a higher multiplier can be used if there is a system for growth. A chain with ten restaurants with $1 million in revenue each might fetch someone 23 million dollars or more. Proper tax planning using small business-qualified stock with a C-Corp can make that $23 million payout tax-free.
Know How To End Things And Adapt
What gets measured and managed grows exponentially, and things don’t happen by accident. You have to be intentional with everything. This is why a business owner should use data analytics and organizational management to double their revenue for their exit plan. As a business owner, they get to decide what is enough and what their life should be. This is the beauty of a business because it gives you control and flexibility over your life if done correctly. There are a lot of opportunities and tax benefits to enter entrepreneurship, but you have to know how to manage things to get the outcome you want.
What a business owner wants to avoid if they want to scale is the paradox of the baker. The baker can’t grow their business since all their time is dedicated to making pies and can’t work on other parts of the business. The baker ultimately wants 100% control over the business to prevent uncertainty so they can’t trust their business to someone else. This mindset will cause the business to reach a limit and will never be able to scale beyond one shop. To reach the next level, a business owner must learn to accept chaos and uncertainty to grow. By discarding the idea that you can never fail and need complete control, you can learn to stop being the baker.
In 33 Strategies of War, Robert Green discusses one reason the Spartans failed: they only focused on War. When they took over Greece, they didn’t fully understand economics and politics, and the Greeks’ leisure lifestyle and political culture started to eat away at the Spartans’ culture. A great thing can work, but it won’t work forever, and you need to learn how to be flexible with how you operate and manage things to reach the success you’re looking for. Having data analytics and organizational management in place can ensure that you stay successful.
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