Why does accurate information matter so much?

If you have inaccurate information about your business, you will not make good decisions. You risk losing control of accurate information as your business scales with headcount because you have to drift away from the business’s core operations. When you cannot observe how things work yourself, you’re instead relying on other people to tell you what is going on.

How to get accurate information for decision-making at your business

Ask managers about the workflows for direct reports

You want to continually test the knowledge of managers to see whether they can talk about the workflows of their reports. If they are speaking with sufficient detail and are believable, then it’s more likely they are likely giving you accurate information in updates. If you’re dealing with multiple levels of management, see how far you can go down the organizational hierarchy as you are quizzing your direct reports. The more detail, the better.

Develop a sustainable single source of truth about metrics in your business

Get the metrics that you and investors care about front and center for everyone to see. Make sure there’s no ambiguity about the interpretation of metrics. People will try to interpret conclusions differently and provide extra context, but it’s your job to filter that information and action on it. This is why it’s so important to have information that you are sure about, so you can weigh it against business context.

Keep your organizational structure as flat as possible

Reduce the number of layers in your organizational hierarchy as much as possible. Information gets distorted when it gets passed from one person to the next on the way to an executive or founder.  Less layers in the organization mean the broken-telephone effect is minimized. 

Keep your business simple

The key reason why you need to keep your business simple is due to the risk of false attribution. Meaning, you can identify a bad result from your business, but then when you start digging, there is so much going on that could have caused the bad result, it’s very difficult to determine the root cause.

An example of an over-complicated business where false attribution occurs is as follows:

You run a company that provides businesses with accounting software and use a monthly subscription model. You’ve identified that customers don’t stay paying for very long, and a lot end up asking for their money back. The problem is that many parts of the business might have caused this:

1. The sales team is allowed to target any type of small business they want, so 20+ industries are targeted, which makes it very unclear which ones might be profitable.
2. Your sales team is allowed to close using whatever process they want, so they may pick customers that aren’t a good fit.
3. You provide accounting, payroll, and receipts software as a bundle, and you don’t know which one might be performing worse.
4. Your account managers (the ones that service your clients) don’t have a process either about serving customers the same way, so there may be a gap there as well.  

So it’s very difficult to discern what the problem is here without spending an exorbitant amount of time getting context. And even then you might still get it wrong.

Here are some ways to keep your business simple:

1. Focus on a few key KPI’s at once.
2. Keep operations simple and streamlined. Measure the important inputs by each part of your process.
3. Only target 2 customer segments at most.
4. Keep your product value proposition and messaging as simple as possible.
5. Standardize job levels, titles, and compensation bands across the board.
6. Keep your sales and marketing pipelines processes simple, with key milestones you can point to. 

Watch for bad news by prodding and building trust with your direct reports

Actively ask what’s going wrong in the business by asking these questions:

1. What are the biggest problems you’re facing right now? How are you currently thinking about it?
2. Are you stuck on anything?
3. Are you afraid to bring problems up with me? If that’s the case, that’s my fault.
4. What are your biggest weaknesses right now? How are you dealing with them?

Catch bad results before they happen by looking at leading indicators

Try to get KPI’s that show leading indicators, meaning you can see the inputs that will lead to the outputs of the business. Ask for a prediction by the person responsible for the relevant output KPI. If their prediction is correct most of the time, you have a great leading indicator that gives you accurate information about the business which will give you a forecast about the future.

Level skip

Spend time on the front-lines of the business to understand what’s actually going on. See if it lines up with what other people are telling you. If there’s a discrepancy, it usually means there’s something wrong with what you’ve been hearing from management.

Manage outcomes, not context

Most people will explain away bad outcomes because that works to their advantage. All else being equal, your odds of making a good decision are higher if you have the right KPI’s, versus listening to someone’s context. You can usually be less sure of someone’s explanation versus the results, and it’s better to act on higher-quality information. If someone has a good turnaround plan, maybe it’s worth giving them another chance. But if bad outcomes continue, you must make a decision to change things, because it becomes more and more costly to wait.

Conclusion

Managing information becomes extremely important the more your business scales. It can be the life or death of your business because of the consequential decisions you will make. Create KPI’s you can rely on, and keep your business simple and streamlined. The toughest pill to swallow is that you need to manage outcomes and not context in the end, because ultimately you are responsible for the business.