Let’s say a startup has defied the odds and survived its first several years. The entrepreneur has found a niche market, launched a product, secured funding, and continued to assemble an effective team. The business is moving forward. As the business grows, and entrepreneurs feel they have a safety net where there was none before. But how to stay hungry? Helping startups commit to improvement at every stage has to be the goal.
Staying Hungry: Helping Startups Commit to Improvement.
When things are tough — a startups attitudes and sense of urgency often begin to change. A startups’ attitude changes when they feel that all is well. As the company milestones become less urgent, the intensity of their attention ebbs and start to diminish. This relaxing time is the period when it is most likely to see competitors swoop in and gain market share. Using an improved product offering, or a better customer service, or just a better market strategy might help.
I’ve seen companies come out of the gate and tenaciously follow their North Stars, only to lose focus later on. They start to get comfortable — in some cases, too comfortable. The initial hunger subsides, and employees gradually become less motivated to make the extra effort to drive the company forward.
I implore every company I work with to combat this kind of stagnation by identifying what they can do better at every stage of the company’s life cycle. The critical question is: How do some startups manage to avoid the pitfalls of complacency when others don’t?
Two words: Continuous improvement.
Continuous improvement is valuable at every stage of a company’s life cycle. While it is crucial to set a course for your employees by setting key performance indicators that will ensure the company meets or exceeds its goals, it is equally important to adjust those goals over time as market conditions and customer demands change.
As those goals evolve, it is also critical to stay focused on the company’s best practices to provide a baseline for ongoing changes that can significantly improve growth, profit margins, and retention rates. A constant focus on continuous improvement also helps employees stay intrinsically motivated and challenged, making them less likely to feel stagnant in their current roles.
Progress By the Numbers
Having a reliable way to track progress is key to continuous improvement. Each functional area of your company should have its own KPIs to strive for, each of which should align with your company’s central mission. Choosing the right KPIs is critical — not only will they provide a roadmap for your employees.
But they will also help startups demonstrate to investors that the company is on the right track toward meeting its goals. Management should also ensure that each functional area has its own KPIs that will reinforce broader company goals that can be measured at the individual department level.
Because your goals need to evolve as the company hits various milestones, a KPI dashboard, which show progress toward goals, is a critical way to help teams prioritize their work. For example, if a sales manager shows his team a P&L, balance sheet, and a statement of cash flow, it can be unclear what employees need to focus on next. But if he shows that the customer retention rate is 80 percent when it needs to be at 95 percent, the team can use its KPI dashboard to take action on that data.
Customer needs and behaviors change regularly, but many companies only alter their approaches long after a problem has been identified. To avoid this pitfall, be sure to reexamine your standard processes continuously and to adjust your KPIs with a view to the future. It is always better to get ahead of a problem than to trail behind it with a quick — and potentially ineffective — fix.
Keep an Eye on the Lag and Lead
By documenting standard processes thoroughly and making sure all relevant data remains at hand, management should be able to determine more easily where changes need to be made. To help managers figure out what needs to change (and how), it is useful to turn to lag measures and lead measures.
Generally speaking, a lag measure is retrospective data that is too late to change, such as the previous month’s revenue. A lead measure tells you whether you’re on track to hit a goal in the future. For example, if a company is trying to increase its conversion rates, the lead indicators might be the number of phone calls.
Maybe the problem will be the number of demos that a sales team makes with potential clients. Later, the team would examine the lag measure of the number of demos that didn’t convert. Both measures are key indicators of a company’s progress, and they can inspire procedural changes to help teams meet their goals.
When processes are standardized, a single small change can alter the course of an entire functional area. If everyone isn’t doing things the same way, change becomes more difficult. With thorough, up-to-date documentation, everyone from a new hire to a seasoned manager has something concrete with which to gauge themselves.
At any moment, there can be a downward turn when unexpected obstacles emerge. More importantly, each person has documentation of what worked before showing them a precise roadmap of what needs to go right, which is crucial for continuous improvement.
The Lifeblood of a Startup: Motivated Employees
Management needs the right data to make informed decisions on how to improve, but employees are the ones who truly move the needle. The manufacturing-era “carrot and stick” method of motivating employees, in which workers are given compensation for jobs done well and penalties for under-performing, no longer works—and it is especially ineffective with millennials.
Extrinsic motivation, in the form of raises and promotions, is also unsustainable. Companies that rely on a purely monetary reward system run the risk of paying their people too much too soon and being unable to retain them as they continue to advance in their careers. Today’s employees need to be motivated intrinsically to do better.
KPI dashboards are a fantastic intrinsic motivation tool. They not only allow employees to track their progress; they also will enable them to pinpoint areas in which they can do better. To improve employee performance at my old company, Affiliate Traction, we developed an online KPI scorecard.
Each employee was given five goals to accomplish, and employees could view each other’s progress toward those goals in a live spreadsheet. This gamification of work caused a noticeable uptick in employee motivation and productivity —and it didn’t cost us a dime.
The most successful companies I’ve worked with have been learning organizations — ones that take the time to figure out what makes them successful, to document those strategies and procedures, and to reassess them as the organization grows.
Employees are far more likely to stay motivated if they are continually learning and growing along with the organization. As with any learning process, mistakes are inevitable. But in my view, mistakes are only failures if you cease to learn from them.