What's Your Business Telling You?
To many small-business owners, the facts and figures their daily work casts off are more incidental than instrumental. Reluctantly storing it all on disks, in file cabinets and on scraps of paper strewn about the back room, business owners often think this constant stream of information is useless (except maybe to the IRS). They see it as a burden, another onerous management task in a work day that is already too short.
What they don't realize is that they're sitting on a gold mine. Almost every piece of information that a business produces is important, and can be used to boost sales, fatten margins or increase customer loyalty. From transactions to inventory to shipping costs to customer data, small businesses are starting to learn that mining business data for insight is not just for major corporations anymore.
Data can tell you whether your store hours are ideal. It can tell you if you're charging too much for some products and undercharging for others. And it can tell you who your best customers are and why. Taken together, all this business information tells an important story, one that can and should make a major impact on how you run your company.
But there are some rules for collecting and utilizing business data effectively. Because it can be a time-consuming task, business owners need to make sure they are going about both gathering and analyzing information the right way and achieving the right results. Here are some basic guidelines:
- Know what you're looking for. It's difficult to collect and analyze all the data your business produces unless you know what you're looking for. You need to identify certain metrics that, given the nature of your business, will provide insight into how you can run the shop better (aside from the obvious, such as revenues and profit figures). Big businesses call these "key performance indicators," or KPIs. I call them common sense. For example, if you publish a magazine, you need to know how well each of your sales associates is performing, the renewal rate for advertisers in various industries, and the demographic information of your readers.
- Garbage in, garbage out. Not all facts are created equal. That's to say that though you may be collecting and storing information, if it's not accurate, relevant or current, it's likely to hurt more than help. Data management specialists call this "garbage in, garbage out." If your data is not clean, it will yield dirty and misleading analyses. So if you're going to use data to support business decision making, be sure it's scrubbed.
- Trust the data. Once you've collected the right information, and you're certain it's accurate, put it to use. I've spoken with many business owners who collect data and view the analyses, but don't act on it. The data is there to tell you something. It's the most objective source of advice you're going to get. It holds no bias. It's the story of your business laid bare. And if it's telling you to change something, change it.
The software and various other tools you can use to collect and analyze your business data are too numerous to list here. There are thousands of custom software packages built for every industry under the sun. There are so-called "business intelligence" software suites that can be applied to nearly any company. And there are good old-fashioned spreadsheets, which are far more powerful and useful than most people realize (I highly recommend taking a course to familiarize yourself on the features of these applications).
Which software you use is less important than your approach to data gathering and analysis. So set your goals, collect good, clean data, and take action on that information.