The other night I was watching my son playing an Under 11s tennis match. It’s amazing how competitive nine and ten year olds can be – they hate to loose, even a single point.
But what was interesting was that they needed constant, gentle reminders to keep score. Not because they didn’t want to know who was winning or because they didn’t know how. No, it was because they were concentrating so much on the game and hitting the ball and winning the point they were playing that they forgot to track the overall score.
You could say they lost sight of the bigger picture – what they were trying to achieve in the long run.
I see the same thing in businesses every day.
Business is similar to sports in this respect. How do you know if you are winning in business if you don’t know what the goal is and you’re not keeping score?
What is the score in your business right now?
How many points have you scored this week?
How many do you need to score to win this year?
Do you know how to answer those questions?
The great thing is that in business, just as in children’s games, you have the opportunity to decide for yourself what winning means.
So where should you start? How about setting a goal: a target which means you’ve won the game…
Business is a vehicle for creating wealth and at some point you will leave the business.
So why not define what those two realities will mean to you? Define those and you’ve defined how you finish the game.
For the purpose of this discussion let’s define wealth as: having an income that you don’t have to work for that is sufficient to support all the things you want to do and have. It could be a pension. It could be income from investments. It could be dividends from your shares in the business you no longer work in. How much do you need and how do you wish it to be delivered? That will define how big and profitable you need the business to be.
Next, let’s look at exit strategies. There are only about four or five ways to leave a business, e.g.:
- to die in service
- to retire without a pension relying on the state to provide for you in retirement
- to retire with a pension
- put a general manager in place and take an income in dividends from your shares in the business
- sell the business to someone else creating a pot of cash to invest in other assets to create the income
Out of these exit strategies only the most confirmed, persistent and delusional workaholic is likely to choose death in service. And no one particularly wants to retire on a state pension these days.
And the other three really just come down to choosing a profit target that supports the wealth target.
Define those and you’ll know how to reach match point.
Of course, there is resistance to doing this for all sorts of reasons. Not least of which is the level of uncertainty involved in running a business that tends to knock you off course as soon as you’ve defined your course. How can you set a profit target based on a wealth target 20 years or more from now when you’ve no idea what’s going to happen between now and then.
Well sure, things are going to happen. Economies are going to boom and bust. Banks will stop lending and then start lending too much again. Governments will swing from left to right and back again. They will all have some impact on your ability to achieve your target.
But let’s say your business is making a £50,000 profit today. Is it more likely to make a £500,000 profit in 7 years time if you don’t set that as a target or if you do set it as a target. And then plan your business growth accordingly. Sure there’ll be wobbles along the way where you achieve more than you hoped and where you achieve less. But let’s face it, you’ll have the same wobbles due to external influences regardless of whether you have a plan or not.
Just like sport. You start the game intending to win the match. But you have no control over how well your opponent is going to play. It shouldn’t stop you setting the goal of winning the match though. You’re much more likely to win it if you aim to win than if you just go out to play…