Success lies not in profit
CHECKLIST: BUSINESS PERFORMANCE
If you managed to keep your doors open in these tough economic times, you did well.
As the year draws to an end, many businesses will be taking stock in an attempt to determine whether or not 2019 was a success. Were objectives accomplished, millstones reached, goals attained, revenue increased etc?
All are very important questions, but one cannot but ask the simple question: how do you determine success in business especially over a very short period such as 12 months?
Typically, we judge a business’s success on its profit-making ability, and we do so for one simple reason: If a business is about creating wealth for its owners, then its success should be judged on its profitability or lack thereof. But is it that black and white? Today’s businesses are far more complicated than yesteryear’s and if we consider the different business models utilised in various industries then determining the success of a business is not so black and white.
The tech industry is a perfect example. Most tech businesses around the world are not profitable for two to three years after inception. Take Facebook, which is a powerhouse in the tech industry and one of the biggest companies in the world, it didn’t turn a profit until 2009 which was five years after it was founded. Now imagine if Facebook investors had judged its success on profitability in its first year of operations?
Therefore, we must analyse a business’s performance using different models to determine its success at each specific stage. And therein lays the first step to analysing a business’s performance. We must first determine which stage the business is currently operating at. In the Facebook example, its non-profitable years were during its foundational stage. This stage entailed building its brand and more importantly, attracting and growing its user database. Its emphasis on building its user database is the sole reason that attracted advertisers which is core to Facebook’s revenue today.
Additionally, the discovery stage of a business usually happens during the period of unprofitability. The discovery stage is where you get to learn and understand your product to the point where you can clearly, succinctly and accurately articulate your product and its intended customer.
There are many other nonprofit assessment-based items you can use. For example, did the business build important relationships and partnerships? Or did the business scale by increasing manufacturing output? Or maybe the business was undergoing a turnaround strategy or repairing its reputation with customers, suppliers, creditors etc. all which cannot immediately be judged on profitability.
Above all, if you managed to keep your doors open in these tough economic times when thousands of businesses are shutting down on a daily basis, then you did well.
Munya Duvera is CEO at Duvera Elgroup