We are drowning in information, while starving for wisdom. ~ E.O. Wilson
Recently I was talking with Rick Scott, the founder of Rick Scott Construction. He said, “Mark, do you realize this is going to be the most profitable year we have ever had in our 25 plus years of being in business.”
Think about that for a second, the most profitable year in almost three decades of doing business. What an accomplishment!
He went on to say, “What most excites me is that the profits are not coming from a one-time stroke of luck, rather from a new focus on executing the business.”
As we unpacked it further, the success is coming from a focus shift from revenue to profitability. The shift is subtle, but one that can add fuel to the fire of a business that is struggling to grow or get ahead. Using profitability over revenue as the definition of winning (called the critical number) each month focuses the entire team on “profitable revenue” not just any revenue.
Additionally, Rick and his team have been focused on two measures that have the most influence on profitability:
1) Earned versus estimated revenue
2) Days ahead/behind schedule.
Finishing projects on schedule not only impacts profits, it also impacts client satisfaction setting Rick Scott Construction up to create even more satisfied clients.
Understanding the difference between leading indicators and lagging measures and how to design them is an important competency for you and your managers to master to Scale Up your company.
While lagging measures, such as monthly revenue, gross profits, and EBITDA are important; lagging measures are analogous to looking in your rear-view mirror. The leading indicators, such as those that Rick Scott Construction designed, allow you to see the road ahead and proactively adjust.
When driving you (hopefully) spend most of your time looking ahead. That is why your windshield is so much larger than your rear-view mirror. Similarly, when scaling your company, you and your leaders need to be looking ahead. That is the power that comes from properly designed leading indicators.
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Success isn’t something that happens, it’s built. There will be things that don’t go according to plan, and there will be days where the unexpected happens. Leaders that focus their team members on the leading indicators they can most control see more consistency in hitting their lagging measures such as, revenue growth, and profitability.
Good days, turn into good weeks, which then turn into good months. Even when targets are missed, teams can understand what needs to be done to get back on track.
One of the most important tools you can use is the Power of One. This tool allows you to understand the seven levers your managers can influence, if not control, to increase profitability and cash flow, as well as which of the levers will have the biggest impact.
It was through this analysis that Rick Scott defined profit as the critical number and schedule attainment as the leading indicator that most impacts direct costs and profits.
Once you identify where the opportunity lies in your organization, design two or three leading indicators the team can focus on each week. Assign someone to be accountable, select realistic targets, and then implement new routines to generate those desired results.
Rick and his team started analyzing schedule attainment, specifically days ahead/days behind schedule, each week. Each week they identified the causes of under and over performance. They worked as a team to make further changes in processes and designed training for their team. This training helped to increase their project manager’s confidence that they could be even more effective in driving schedule attainment.
The result? Hear it from Rick himself.
“After sitting down and going through the Power of One tool, with Mark’s guidance, we were able to have the most profitable year in our company’s history. Identifying our leading indicators allowed our team to focus on priorities that drove the business forward.”
Rick Scott Construction is a good example of a team that is Scaling Up with a few KPIs, and Critical Numbers. Because they took a strategic approach, Rick Scott and his team are now able to confidently forecast earned revenue, speak to the status of their projects, and more confidently drive profits and cash flow.
Another first - for the first time in his career Scott is able to take one week a quarter to travel with his wife or focus on charitable pursuits. Scott is a talented wood-worker and uses that talent to create masterpieces that raise money for charity.
Scaling Up planning rhythms, more strategic KPIs, and tools like the Power of One have accelerated results for Rick Scott Construction, more freedom for their CEO, and created more positive energy in the organization.
What can a stacked approach to Scaling Up do for your business?