Edition 212 – Why Benchmarks are Rubbish?
Mrs King was my PE teacher when I started Year 9 at Palm Beach-Currumbin State High School on the Gold Coast in 1982. Having recently relocated from Sydney, I ended up in a school that was completely sports obsessed – something I wasn’t.
PE classes at PBC were brutal. I’d come from a school where a lazy game of softball or cricket for 45 minutes was your PE class. In my first semester at PBC, I was expected to swim 10 laps of an Olympic pool. Except, I’m an awful swimmer and the best I could manage was 1 lap.
Mrs King gave me a rollicking. “You’re not trying” she exclaimed. “What’s wrong with you?” Blah blah. I quickly became the pariah of the PE class.
Next semester, athletics was the punishment of choice. The task was to run 10 laps of the school oval – 4km in total. Mrs King gave me a look as we took off. I said nothing. What she didn’t know was that I was good at running. By the third lap, I’d passed all the cool kids. By the seventh lap, I’d lapped everyone in the class. As I crossed the finish line, I can still see the look of amazement on Mrs King’s face.
“I didn’t think you were good at sport” she said as I gathered my breath. My reply was swift. “I’m not a great swimmer, but I can run”.
She’d benchmarked my sports performance based on my swimming prowess (or lack thereof). Similarly, she’d benchmarked the cool kids based on their swimming, not on their athletics.
And that’s why I’ve long felt that benchmarks are rubbish.
Too many family businesses are too busy trying to benchmark themselves against other family businesses that may, or may not, operate in their own industry sector, geographic location or niche.
Geographic benchmarks are irrelevant. How your business performs relative to another business of the same size is moot. The best form of benchmarking is against yourself. Against your own business. Your business is unique in so many ways including:
- The industry in which it operates.
- How it is funded.
- The margin it operates at.
- How many staff are employed.
- Whether you’re in retail, wholesale, manufacturing or professional services.
- Whether you own premises or rent them.
- How much profit you desire.
- The nuances of any specialisation you may have.
- Your own management style.
I could go on. However, the best form of competitive analysis is you versus:
- Last week.
- Last month.
- Last year.
- The last 5 years.
- Your budget.
- Your strategic direction.
If your gross profit margin is slipping, as a family business owner or manager, the first question you need to ask yourself is why, not how does it compare to others in my industry.
By questioning what is happening inside your family business, you can start to drill down on where the issues are and how you’re performing against yourself, which is the most accurate form of benchmarking.
By all means, compare yourself to other businesses if you desire. It’s just that I don’t believe the comparative results you obtain will be meaningful, and may actually create some unnecessary anxiety.
This Week’s Tip
Business Dashboards are powerful tools for measuring business performance. Reach out if you’d like to find out more as to why they’re more important than any other measurement tool in your family business.