Creating KPIs for Your Business
The goal, says Michael Girdley, is to put an early-warning system in place that will alert you when something’s not going according to plan.
Good Morning!
Here are today’s highlights:
Shawn Busse says the era of free marketing is over.
California’s new minimum wage is having an impact far beyond the fast food industry.
A Walmart store manager can now make more than $400,000 a year.
Are Costco’s gold bars the new $1.50 hot dog?
MANAGEMENT
Michael Girdley on setting up an early warning system: “Financial statements show a company's past. But how do you predict the future? You need a Key Performance Indicator system for your company. KPIs aren’t a new idea. Lots of people do them. But they often end up super complicated. So here’s my simple, effective method. I’ll illustrate with my company Near, which helps companies hire nearshore employees in Latin America. Every business is a machine that exists to fulfill certain functions. At the highest level, Near does the following three things: 1) Market. 2) Sell. 3) Fulfill. So, we make each of these functions a category in our spreadsheet.”
“Identify core numbers: Figure out which numbers will give you a good picture of the health of each function. Your goal is 15 to 20 numbers max. More than that, and you’re getting too complicated. Each number is owned by a single teammate, who is responsible for updating the KPI sheet on a weekly basis.”
“Using Near’s example, they track new contracts signed. But that’s actually a lagging indicator of how many sales calls they have. This is a lagging indicator of how many sales calls they book. You could keep going to emails sent or leads identified if it makes sense for your business. The important thing is that they’re activity-based numbers — stuff you control.”
“Tracking the early steps of your main functions has two benefits: You get an early warning system. If Near sees a drop in sales calls booked, they’ve got three weeks’ warning that new contracts will take a hit. Speed is everything. You learn to predict better. Knowing how many booked calls turn into actual calls, and how many actual calls turn into contracts lets you figure out the formulas you can use to predict future business.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
Is the Era of Free Marketing Over? This week, Shawn Busse talks about how much harder marketing keeps getting, especially for do-it-yourselfers. The cost of everything keeps going up, and the likely returns keep going down. As Shawn points out, it’s even getting expensive to advertise on podcasts. Hmm. Is anyone want to reach a small but highly engaged group of business owners?
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
HUMAN RESOURCES
California’s new minimum wage for fast food workers isn’t just affecting fast food businesses: “The new fast-food wage changes the labor equation for all small businesses that compete for entry-level workers. A higher fast-food wage exerts upward pressure on all those wages, creating an additional stress for businesses already struggling to pay elevated urban rents. Restaurant and retail shops facing expensive commercial rental rates and increased supply-chain costs must now decide whether to raise prices, and by how much. ‘These grassroots businesses are part of the glue that holds communities together, and they’re what give the community an identity,’ said Chris Tilly, a labor economist and professor of urban planning at UCLA. ‘A Starbucks just does not play the same role.’”
“At Paul’s Kitchen in downtown Los Angeles, manager Charlie Ng has reduced the storied diner’s hours to save on labor costs. They’re closed on Tuesdays now, and no longer open for dinner hours. They’re staying afloat thanks to some pandemic-related government aid, but Ng’s not sure what to do after that runs out. Ng raised prices when ingredients got expensive, but he tries to keep the increases under a dollar. Customers have been understanding, Ng said.”
“[Justin Foronda] supports a higher minimum wage and tries to pay his employees generously. But the minimum wage is rising so fast that the increased compensation he planned to offer as a retention strategy quickly becomes the new minimum. ‘It’s like we’re playing Mario Kart, and we’re just always trying to make it to that boost,’ Foronda said.”
“Small-business owners across Los Angeles are facing a more expensive reality in which the pandemic’s price disruptions have become permanent. Foronda said sometimes eggs are $40 a case, and sometimes they’re $125. So what should he charge for an extra egg?” READ MORE
A California security firm, Verkada, has a plan to reduce employee isolation and support small businesses: “It’s dubbed the ‘3-3-3’ program. After 3 p.m., three or more employees can spend up to $30 in total on food and drinks at businesses within walking distance of the company’s downtown San Mateo headquarters. The problem of social isolation and loneliness was elevated to the national spotlight in February when San Mateo County became the first in the nation to declare the issue a public health emergency and this month pledged to invest $1 million in fighting loneliness. And all across the region, small businesses are still grappling with how to adapt to a business climate in which many of their previous patrons continue to work from home.”
“Verkada said it believes the program helps address both issues and is mutually beneficial to the company as it helps keep employees motivated while giving them the opportunity to build camaraderie at work. ‘We’re in the office five days a week, and we do (3-3-3) because we believe that it’s great for people’s careers, and it’s good for the company,’ said Kameron Rezai, Verkada’s chief financial officer.”
“Many of Verkada’s clients are small businesses, so the company naturally wants to help out its neighbors, Rezai said. ‘Many of our customers are small hamburger chains or ice cream shops. It’s the bread and butter of who we sell to,’ he said. A homegrown security technology developer, Verkada was founded in 2016 out of CEO Filip Kaliszan’s San Mateo living room. The company now has 16 offices around the world, including in Tokyo and London, and has expanded the 3-3-3 program to all of them.” READ MORE
A Walmart store manager can now make more than $400,000 a year: “[Nichole] Hart is one of Walmart’s 4,700 U.S. store managers, an increasingly important linchpin in the retailing giant’s strategy. Walmart is changing how its stores are run by leaning on managers to use staff to fulfill online orders and technology to automate some work. Plus there are the classic retail responsibilities of managing hundreds of employees, keeping shelves stocked and customers happy, all while increasing sales and profits. While the demand for hourly retail workers has cooled since the pandemic, finding a store manager that can run a big-box retailer is a challenge.”
“Walmart is offering higher pay, bonuses, and more stock options this year to retain and attract more. Some can now make more than $400,000 a year. ‘They determine success or failure,’ says Kieran Shanahan, chief operating officer for Walmart U.S. As Walmart shifts to automated systems, managing a store is becoming more complex, he says. ‘It’s hard. You are living in two worlds.’”
“Hart has seen that change firsthand. About 20 years ago, then 19 years old and a mother of two, she started part-time at the same Walmart she now runs. Her first job was cooking live lobsters pulled from a tank in the deli. Just out of high school, she needed something stable—a job available to people without a college degree.”
“Last year, she was paid a $119,000 salary and a roughly $120,000 bonus. Hart doesn’t find the job overwhelming because she likes to stay busy and enjoys people. ‘The hardest thing is the uncertainty,’ she says. ‘You don’t know what you are going to walk into.’” READ MORE
BUSINESS MODELS
Ghost kitchens boomed during the pandemic but are disappearing now: “During the pandemic, Brinker International, which owns the Chili’s Grill & Bar and Maggiano’s Little Italy restaurant chains, created two virtual brands: It’s Just Wings and Maggiano’s Italian Classics. Both were embraced by hungry Americans who were tired of cooking at home. But as more diners sought to share mozzarella sticks in person, the company’s restaurants became overwhelmed with orders, making it difficult for its kitchens to juggle the brands. As a result, Brinker shut down Maggiano’s Italian Classics last year and has pared It’s Just Wings, instead putting some of the fan favorites on its restaurant menus.”
“‘Everyone thought if you have the labor and the equipment, it would be easy to run virtual brands, but the reality is, most of the delivery times for virtual brands transact during busy times for the regular restaurant,’ said Kevin Hochman, Brinker’s chief executive. ‘It was too much to have a busy dinner rush with an influx of virtual orders coming in, too.’”
“But an influx of orders during the dinner rush is not the only challenge restaurant chains face. Customers using delivery apps like Uber Eats and DoorDash sometimes wondered where, exactly, their meals were being made or would have issues with the quality of the food. Uber Eats removed 8,000 ‘storefronts’ from its listings last year over complaints of poor quality, inaccurate orders, or duplication, meaning multiple, nearly identical restaurants were operating out of the same location.” READ MORE
MARKETING
Are Costco’s gold bars the new $1.50 hot dog? “The discount club chain has seen its share price jump 46 percent over the past year on rising sales and a recently boosted dividend. Last summer, it introduced bullion to its familiar sprawling mix of huge jars of mayonnaise, bulk toilet paper, and other jumbo versions of grocery and household staples, selling for around $2,000 per ounce. And a good chunk of its shoppers have taken a shine to it: Wells Fargo recently estimated that Costco may be selling $100 million to $200 million in gold bars a month.”
“The actual gold comes in one-ounce bars of PAMP Suisse Lady Fortuna Veriscan, about two inches long and stamped with an image of the Roman goddess of prosperity. While available (at least intermittently) at a select number of physical Costco Warehouse locations, most of the gold bars sell online in batches—limit five per customer—and seem to go quickly.”
“In a way, the Costco precious metals are a glimmering cousin of arguably its most famous offering: the $1.50 hot dog (which it has famously held steady despite inflation). Once coaxed into paying $60 to $120 in annual membership fees, the typical Costco member spends more than $3,000 a year, estimates the analytics firm Numerator.”
“Like the bargain meal, Costco’s gold rush is less about driving profits than it is about drawing shoppers to its stores and site, where there’s plenty more ‘treasure hunting’—as the company calls an ever-changing mix of bargains—to be had. As a publicity tactic for grabbing headlines and attention, it’s worth its weight in . . . well, you know.” READ MORE
THE ECONOMY
What if businesses didn’t have to worry about the cycles of boom and bust? “For much of modern history, even the richest nations have been subject to big perennial upswings and crashes in commercial activity almost as fixed as the four seasons. Periods of economic growth get overstretched by increased risk-taking. Hiring and investment crest and fall into a contraction as consumer confidence wanes and spending craters. Sales fall, bankruptcies and unemployment rise. Then, in the depths of a recession, debts are settled, panic abates, green shoots appear, and banks begin lending more easily again — fueling a recovery that enables a new upswing. But a brigade of academic economists and prominent voices on Wall Street are asking if the unruly business cycle they learned in school, and witnessed in practice, has fundamentally morphed into a tamer beast.”
“According to the National Bureau of Economic Research, the U.S. economy between the 1850s and the early 1980s experienced 30 recessions lasting an average of 18 months, with intervening periods of economic growth averaging only 33 months. Helping drive this pattern, Mr. Kelly and other economists explain, were highly cyclical industries: Manufacturing and agriculture, now only a fraction of overall output, were once mainstays of the U.S. economy.”
“Today, manufacturing accounts for about $2.3 trillion of gross domestic product, employs about 12 million people and indirectly supports other local jobs. But the consumer-driven U.S. economy, mostly made up of services (health care, auto repair, nail salons, customer service, administration and so on), is almost $30 trillion in size. Uptrends and pullbacks in the production of goods have less impact now. The relative stability of total household spending in recent years is a key part of why the United States has avoided a recession.”
“America’s contemporary economy, Mr. Rieder argued in his note to clients, is less vulnerable to the boom-and-bust cycles of old — mainly because its prosperous consumers are service-oriented, less dependent than ever on factories or farms. Consumption spending makes up about 70 percent of the economy.” READ MORE
THE 21 HATS PODCAST
Do You Take This Man to Be Your Business Partner? This week, Liz Picarazzi, Jaci Russo, and Laura Zander talk about what it’s been like building a business in partnership with a spouse, and they all agree on some important things. For one, they all say that, had their husband been just another employee, he probably would have been fired. All three say that in their relationships, they are the gas that drives the business, and their husband is the brake that sometimes keeps them out of trouble and sometimes frustrates their entrepreneurial instincts.
And all three agree that some things are best left undiscussed. For example, says Jaci: “Michael doesn’t even know what we make. He also doesn't know what any of the employees make.” But the three CEOs also agree on this: In the final cost-benefit analysis, they wouldn’t want to build a business any other way.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren