All too often, we are driven to believe a chart that does not have a positive slope upward is to be viewed negatively. Growth is generally regarded as imperative to longer term success. But understanding what you measure, when you measure and how you measure it, is of far greater importance.
Often, revenue is used as the basic yardstick which can easily be misleading unless the underlying drivers are properly understood. An overly simplistic percentage change in revenue on the prior year tells you little about the health of your practice.
Measures of success, growth and health are related to a range of issues, and the objectives and strategies you set and the lifecycle stage of your practice all impact significantly on what you measure and the meaning of the resulting numbers.
Objectives and strategies
You can only improve what you measure. So simple, yet so true! Only if you have set a range of objectives for your practice, and the strategies to deliver those outcomes, will you know whether you are being successful or not. Your objectives set should consider a range of factors, including your immediate competitive landscape; structural changes within the industry, particularly regarding your supply chain; and the overall lifecycle stage of your business and yourself.
Businesses develop for a variety of reasons - the owner may be entrepreneurial or seeking to deliver a particular lifestyle, for example. This is an entirely personal choice and will impact your perception of success or growth and how you interpret the numbers.
Your practice lifecycle stage influences what you measure and your strategy:
- Start-up. During this phase, key aspects to measure and assess include: level of market penetration; rate of new customer acquisition; market/customer awareness of your practice; if customer expectations are being met; how fast revenue is being generated and cash burned to manage cash flow; and the bedding down of practice processes and systems - all while building the practice culture.
- Growth phase. The practice should expand rapidly during this phase, moving towards a level of profitability. Financial performance indicators need to be monitored closely to ensure your business is functioning in an efficient and productive way. But be cautious and mindful of the risks of pursuing revenue opportunities without determining associated costs. Most businesses will encounter a phase where remaining as is will limit growth, whereas pursuing strong growth will require significant investment, perhaps, for example, adding another testing room.
- Maturity. It’s easy to settle back during this phase and seek to enjoy the fruits of your efforts. Your revenue, profitability and customer base are strong, but this can be the riskiest time for your practice. Your market and customers could be changing around you and if you don’t keep an eye on developments, you may miss these dynamics. During this phase, it is critical to monitor customer satisfaction, the actions of your competitors and the market in general. Fine tuning a range of factors, which on their own may appear insignificant, can result in relatively large gains when aggregated and place your practice in a more favourable position when you enter the final phase.
- Renewal. Renewal requires a significant investment and you should weigh the risks and time required to deliver a return carefully. Practice layout and the fitout/design remain acceptable for a certain period, while an outdated look could impact your sustainability, especially if your competitors have changed around you and shifted customer expectations. It may be best to invest only small amounts into cosmetic changes, which are able to deliver a disproportionate impact relative to cost.
- Exit. Many New Zealand practice owners are approaching retirement and there are vastly different ways to approach this phase. Ideally, you should be in a position to exit through the sale of your practice. Succession planning may be the best way to accomplish this and to transition your customers to new owners. The immediate departure of a current owner could be associated with significant risks for the new owner, such as loss of custom/goodwill, so the new owner may seek to offset this through the sale value.
Buyers require a comprehensive body of information to enable them to properly evaluate the business and their options. Preparing your practice for sale may take effort, but it should maximise the value you receive, facilitate the due diligence process and greatly reduce stress.
In summary, understand what it is you seek; set objectives and measure those outcomes, only then will you be in a position to determine whether you have achieved success for your practice and yourself.
Neil Human is CEO of the Independent Optometry Group. To find out more about how IOG can help make your practice thrive, please get in touch: firstname.lastname@example.org or 0210 292 8683.