How to Develop KPIs to Find Clarity, Focus, & Power Up Your Business Goals (Part 1)

Eliminate guesswork, reduce risk, and build confidence – in your current position and in taking the next steps for your business.

This article is the first of several exploring why and how to use objective measures to evaluate your business.

Getting the Gears Moving

I discuss below some background and suggestions for how to get started with goal-setting. SMART goals create a solid foundation, from which you can then select specific and useful KPIs (Key Performance Indicators). This approach tangibly boosts your ability to succeed in your goals.

Eliminating Guesswork – Background

This article originated from watching the “2020” Kyoto Olympic Summer Games. I got to wondering: What motivates these extreme athletes to push themselves so hard? How do they make it through the stress, pain, and mental anguish, in search of accomplishment, triumph and elation? More importantly, in the context of running a successful business, how are the athletes judged and scored?

Two examples stood out for me:

1. I noticed that the synchronized divers always seemed to have someone filming the dive on a tablet. I assumed that person was from their coaching team, and that this was a video for review and analysis. Thus, the divers had immediate and objective feedback on their execution.
2. My ears also perked up during the trampoline competition, when the announcer, Kyle Shewfelt, spoke about how the event is scored. Kyle pointed out that the majority of the measures are now objective (difficulty, time of flight, and horizontal displacement), while the fourth remains subjective (artistic). This means 75% of a trampolinist’s overall score is objective! Kyle observed that eliminating guesswork from objective measures results in a fairer overall score.

Now, let’s translate these ideas to the business world. Wouldn’t it make sense for business decisions to be based on as many objective measures as possible? Indeed, it is extremely helpful to identify and measure the most useful and objective data points based on your goals. It is also important that the data be correct and current. Data should give you feedback when you need it, not when it’s too late.

This is true if you may soon be adopting a change, but it is also true if you wish to stay the current course. Any seafarer knows that you can set a course, but adjustments will be needed to stay on it.

All of this is not to say that the “Artistic” factors don’t play an important role. A person can’t help but factor in his intuition and any assessments he can make based simply on his experience. However, the more you can make business decisions based on measured information, the less risk you will take on. After all, we don’t know what we don’t know – and we’re human.

So, let’s eliminate the guesswork as much as possible!

Terminology: KPIs/Metrics

I tend to use the acronym “KPI” and the word “Metric” interchangeably. A Key Performance Indicator, or KPI, is just a fancy way of saying a useful measurement. Similarly, a metric can be defined as a system of measurement. KPIs, or business metrics, are measurable and quantifiable data that allow businesses to evaluate performance.

Goals and Metrics

Many of us have heard of SMART goals before. Well, here is a quick refresher! SMART is an acronym for a list of optimal goal characteristics:

• Specific
• Measurable
• Achievable / Actionable
• Relevant
• Timed / Timely

The idea is that if you have a goal that meets all of these criteria, you are more likely to succeed in achieving that goal. Sometimes it takes some adjustment to get there, but by their very nature, SMART goals allow for pivoting. This is primarily because they are measurable and are meant to be updated to remain relevant.

Check out this article at Fit Small Business for quite a lovely infographic illustrating SMART goals, as well as some examples and in-depth discussion.

We could have a chicken-or-egg debate regarding if goals or metrics come first: Do you need goals to determine which types of metrics to track for your business? Or, do you need metrics to identify which aspect(s) of your business you want to set some goals for?

I believe it’s a bit of both – a dynamic relationship! As mentioned above, goals are flexible and will evolve as you obtain more information. This speaks to the purpose of this article: to inspire you to develop SMART goals in conjunction with targeted metrics to help you achieve them.

Getting Started

What is most important for you to measure? By no means should you limit yourself to financial metrics. There are plenty of non-financial aspects of business that are important. For example, customer experience can be measured via client surveys.

Here are some things you might take into consideration when developing your goals and selecting which metrics to monitor.

Summary

Give some thought to your own situation. What are your business goals and which sorts of KPIs could best serve you in attaining them?

Sure, you may not yet know how to measure or calculate a particular KPI. You may not know where or how you might find or generate the information you want. But don’t discount something just because you think it’s impossible to measure. Maybe measuring that aspect of your business is more possible than you think!

This article covered #1 and #2 above.

Watch for future blog posts to help you move through next steps: some specific KPIs, leveraging milestones, as well as my own assessment of some of the available technology. Software can not only improve operational efficiency, but often can make creating and tracking KPIs easier, too.