Yes, benchmarking is a “Buzzword” and when you’re running an SME you probably don’t want to use or hear buzzwords. However, this one is important as it gives you a measure of how your company is performing, not just against your own expectations, but against your competitors. Now that’s got to be important – right?
STEP 1 – Identify exactly what your company has done in the past, in comparison to what it does now. This may seem like common-sense, but so many business owners don’t analyse just why they have changed the way they work or the way they interact with customers. Some couldn’t tell you why they chose a system or an app, other than to say someone suggested it. Look at Why you changed and then at What difference it has made. This will give you the baseline for Benchmarking against your own performance.
STEP 2 – Document thoroughly what you do now, in terms of process, finance and people – so basically who you employ and why, how you manage them in the business, how your management of key business information affects your finances, so their effect on cashflow, P&L and investment ability (how much money you have spare to invest in your business at any time), how much time you spend on managing and fixing internal processes, etc. Measure what has changed since the previous year, or even before that. Document this and add to your information record. Now compare this information properly with the information you gathered in Step 1. You have now Benchmarked against your own performance, at least to give you a starting point and a chance to do the real benchmarking.
STEP 3 – Now the exciting bit, despite whether this exercise uncovers some great or poor ways of working. Begin with researching similar businesses to yours. If you have previously completed a Competitor Analysis (essential) then use it as a starting point. Even better is to compare that information with what you can find out about those companies’ performance and growth. If you didn’t complete such an analysis, don’t worry, you can do one now. Just look at the information you prepared, to measure your own business success and changes and apply it to what you can find out about your competitors. Then compare the information about your own progress, growth and change to that of your competitors of a similar size. You have now begun to Benchmark against similar companies.
STEP 4 – Don’t expect amazing ideas for growth to come out of the previous exercises! Yes, you’ve made a great start and you now have useful management information about your own business and your competitors, but most will only have grown a little, or stayed the same, or even shrunk. At another time, we will cover Turnover vs Profitability as these are very different mechanisms for evaluation and when you come to sell a business, you will see that! Now look at companies in the same or similar business-space as you but which are much larger; they may have done things differently, they may have taken on investment to grow – there may be many reasons. Study just what they did to get to the stage that you wish your own company to reach; see if they offered a different staff experience, or if they used Venture Capital, or whether they achieved growth through a single “Golden” product or service. Compare what you currently do with what they did to grow. You are now Benchmarking against Growth Competitors.
STEP 5 – Look at all your data; what is it telling you? Are those great ideas for growth now starting to emerge? Have your aspirations changed, or remained the same? Do you have a clearer view of the future? You can ask yourself more relevant questions now about your business direction and in particular, if you are looking for an Exit in a few years, you can really now begin to create that Exit Strategy, based on sound Benchmarking data, in sync with the markets, your competitors and your aspirations. Record the measurement of your information in a way that you can retrieve and use it instantly. Make those changes in Finance, People and Process that you have identified as necessary for growth. Seek help if required, or just to get an external view of where you are and where you need to make changes to get to your destination.