Episode 109 Podcast Transcript

Speaker 1 (00:00):

Improvement doesn’t happen by accident. It happens when you measure and focus on what matters. Remember, what gets measured, gets managed, and what gets managed improves. G’day everyone. Rob Kropp and Dan Stones here from Pravar Group, and welcome back to another episode of The Trade Den. Good to have you back, Dan. How are you?

Speaker 2 (00:25):

Hey, Rob. Hey, everyone. Yeah, doing very well. Thank you. Today, talking about what gets measured gets managed. Huge topic. I love it. Comes from Peter Drucker, one of the greatest management thinkers of all time. And he said, “What gets measured gets managed.” And what gets measured gets managed sure, but what gets managed improves. It’s amazing how this works. An easy way to think about it is in elite sport. Every professional athlete today is surrounded by stats. There’s data, the kilometres they’ve run, their heart rate recovery, sleep quality, power output, sprint times, you name it, they’re measuring it, they’re monitoring it. And there’s a reason for that, and business should be no different. If you want to improve your margin, if you want to improve productivity, efficiency, anything else in a trades business, start measuring it. Not vaguely, not occasionally, but specifically, clearly, consistently, and really get stuck in because this principle absolutely works.

(01:20):

And I think today I want to start off with what Drucker actually meant. Let’s be absolutely crystal clear and not just throw out a quote, but go into a bit of detail.

Speaker 1 (01:28):

Yeah. What he’s saying there is what gets measured gets managed. And I don’t think you have to measure everything. You’ve just got to start somewhere, but it means that you choose the things that matter to start measuring them because what you focus on naturally improves. So if you know that margin, gross margin, for example, in terms of what you’re delivering on is not where it needs to be. And I had this example the other day with a new client, he’s like, “Rob, we’re sitting at around 24% GP ink labour.” And I’m like, “Mate, you’re way off where you need to be around the 30% mark for where your style of business.” I’m like, “Mate, let’s get in there and just start measuring and managing that. And if you just focus on that over the next three to six months time, it will naturally improve as you’ll improve your pricing, you’ll improve your labour, improve materials, margin will improve over a period of time.” So that’s what Peter Drucker is saying is what gets managed, measured, gets managed, and what gets managed gets improved.

(02:29):

It’s not about doing everything. It’s just doing and measuring and managing and improving the things that matter right now.

Speaker 2 (02:35):

Yeah. And without actually doing it already, the inverse is also true. We can sort of prove this. Think for yourself at the moment. If you’re not doing this, if you’re not measuring, you’re probably not managing it. If you’re spending a lot of time bitching about something that’s not right or needs to be improved in your business and not paying attention to it and not measuring it, is it improving by itself? Probably not.

Speaker 1 (02:56):

I like to think of it as, how often do we talk to a business owner? It’s like, how often do you look at your financial reports, your profit loss, your balance sheet, your cashflow? And they’re like, “Oh yeah, I talked to my bookkeeper once a quarter about that or maybe my accountant at tax time once a year.” That’s just like watching a game of NRL and there’s no timer, there’s no scoreboard, there’s no clock. And it’s like, right our boys, run out of the field and start playing and hope for the best. It just does not make sense in a sporting match, but that’s how most business owners run their business and no wonder they’re not getting the results that they desire. It’s just crazy to think that in a sporting term, you wouldn’t even do it, yet so many business owners do it in business, don’t they?

Speaker 2 (03:45):

Yeah. You wouldn’t even get out on the park and play the game if there wasn’t a scoreboard. No one goes out and enjoys just running around for the sake of it. You put a scoreboard up, all of a sudden there’s a passion for it. There’s a bit more intensity to it. You improve over time with it. It’s that all the way through. Imagine trying to play golf for instance and not keeping score. You just out there just whacking a ball around for no real reason. How do you improve? How would you know what good looks like? How does success come about? All of those things you miss. And like you said, amazing in business how we do that. So I think today, really unpacking examples, and we’re not saying this is a prescriptive list of all that you need to manage. And we’re not saying all you need to measure rather, and we’re not saying you need to measure everything.

(04:30):

But as we start talking through examples today, it should open your mind to what you could be measuring, what could be improved as a result of just shining a spotlight on it by having a little bit of a scoreboard. And we’re not talking scoreboards as in big management style dashboards and let’s go out and put software. And we’re talking about stuff that really moves the dial. And I think that’s an important point before we get into these examples.

Speaker 1 (04:54):

It is. It’s measuring a lot matters. And it’s really just hitting the key points like what’s happening with revenue, what’s happening with margin? How are we managing our productivity, our labour, what are we doing with our overheads, and how are we driving our bottom line profits and managing our cashflow along the way? We’re going to deep dive into a couple of these in today’s episode, but really at the highest level, there’s probably about half a dozen key numbers that you’ve got to be able to really measure and manage, improve over a period of time in business. And over time, you build out management report and capability and tracking over time. But you’re right, you don’t need fancy dashboards and all that kind of stuff. You can spend all this time setting all that crap up, but no one looks at it anyway. Just focus on the things that matter, track it, report it, and improve it, and then move on to the next thing and work on something over a period of time in the business.

Speaker 2 (05:48):

Yeah. And as I said, let’s work through the examples, but how do you know what to measure? Think to start with what am I bitching about? So our first example, for instance, we’re going to talk about pipeline, but if you’re bitching about the fact I haven’t got enough work and there never seems to be enough, if only I could get more work in, you’d start by measuring pipeline, right? You’d start to focus on that and put your scoreboard together about how you could measure and see that improve.

Speaker 1 (06:12):

Correct. You’d be looking at what leads are coming in the door. You’d be tracking what quotes are going out the door. You’d be looking at conversion rate of jobs that you convert, and then you’d be looking at your follow-up process to ensure that you’re over time really working on improving that conversion rate over a period of time. So yeah, pipeline’s the headline, but there’s probably a couple of things attached to it to improve your pipeline. And instead of bitching that your pipeline isn’t tracking in the right direction, put some attention on the things that matter that drive the outcome of your pipeline and watch your pipeline naturally improve. So if you just pick one of them, maybe you’re not getting enough leads, track it. Maybe you’re not converting enough. Track it. Maybe you’re just not getting them out in a timely manner. So track the jobs in and out of the door and really track what is converting and what isn’t and have visibility around that.

(07:06):

And that’s when you’ll start watching your pipeline improve.

Speaker 2 (07:09):

Yeah. I like what you said there. They’re simple measures too, right? They’re not complicated. You don’t need big formulas and all this sort of stuff and ratios. And sure, there’s a time and place for some of that stuff. But like you just said, how many jobs in and out the door? It’s two numbers. That’s all you need. And you could watch that and track it over time.

Speaker 1 (07:26):

It reminds me of that example from Adrian Kowal. He’s been a great client of ours and he’s been on the podcast here as a guest. And I remember we were running a group call once and we’re talking around pipeline management. And now Adrian’s got an estimator and he’s like, “Oh guys, my pipeline’s not where it needs to be and it’s the market. The market’s dead in our area. And I’ve got this estimator and he’s busy quotes in and out the door.” And we unpacked that conversation for a little while. And the punchline to this story was is that we got to the point where it’s like, “Adrian, is it really a market issue or is it a management issue?” And Adrian’s like, “No, it’s a market issue, boys.” And it’s like, okay, well, how often are you sitting down with your estimator? What are you looking around quotes in?

(08:15):

What are you tracking around quotes out? How often are you tracking conversion rates with your estimator and conversion rates and everything? He’s like, “Well, if I’m honest, those conversations have kind of slipped off the radar for a little while.” It’s like, “Mate, you got a management problem, not a market problem.” And the moment he dialled in the visibility around those numbers and got consistent with the way that he managed his estimator, his pipeline took off and he hasn’t been busiest ever since. So there’s a great example of a story where someone was blaming the market. It wasn’t the market, it was management and his management wasn’t tight enough around the key numbers that mattered around that estimator. Great example.

Speaker 2 (09:00):

Yeah, absolutely. Huge example. It set him off on a whole different trajectory and a whole different, unlocked a whole nother level of growth and progression in the business. I love it. What about the next one people bitch about all the time? I’m working my ass off, but we’re just not making any money. And then we start getting into a conversation about margin. So let’s look at some of the measures and things we’d be looking at for margin.

Speaker 1 (09:21):

Margin’s a big one. And this is one of your gross margins. And I’m talking gross margin here. So this is what’s left over after the direct cost of your job. So you’ve got the revenue from that job, but then you take away the labour, the materials, the equipment, the incidentals and all those types of things. And this here is, if there’s one lever that you can pull in your business around measuring and managing that will make all the difference in your world is margin because you’ve got to remember on a $2 million business, a 1% margin improvement’s 20 grand, two is 40, three is 60. So if you can improve your margin by a couple of percent, you can add 20, 30, 40, 50, 60 grand to your bottom line like that. And so this is where you can get in and track productivity of your labour.

(10:14):

It’s around looking at your purchasing of your materials to make sure that you purchase it compared to what you quoted it at, or minimising wastage or just tracking labour hours, actual versus quoted labour hours on the job. So it’s your ability as a project manager to really manage the deliveries of those jobs within what you estimated it to be. And if you can work on that, it’ll make a huge difference. So margin makes a big difference in a business, doesn’t it?

Speaker 2 (10:44):

Oh, huge. Absolutely huge. And people forget about that lever. They just think more is better, so we’ve just got to get more sales. But as we’ve said on many episodes, the more you chase dollars, if you’ve got a hole in the bucket, the more the hole just opens up and you just make things worse. So being able to measure the right things and then get the right insights from those measurements and improve them is how this all sort of falls together. So it’s really important. And again, simplicity here, right? If you’re measuring wastage, it’s not a matter of going in and back scrolling through jobs. You can do that if you’ve got the data, the ability and the support. But it could just be as simple about wastage could be, how many invoices did we get from Bunnings? Whoever our supplier is, how many purchase orders were written up this month?

(11:24):

It could be as simple as that to be able to track. Well, obviously that’s ridiculous. We know we’re wasting stuff there. Let’s bring that down. And you’ll see the results flow through to your P&L, which is the scoreboard that runs this for you at a higher level already.

Speaker 1 (11:39):

A great example of this was Dave Wilcox. Now he was on just a recent episode at 107. Dave’s mindset was, “Well, how do I just keep growing my top line and eventually the money will drop to my bottom line?” And we kept saying over a long period of time with Dave, it’s like, “Mate, we’ve got to really work on margin management here.” And it’s like, it’s good you’re driving the top line, but we got to really tighten up internally the way that we deliver jobs and manage the quality of the jobs at the right margin. And the moment that that penny dropped for Dave, he had an improvement from 35% to 50% GP. So he went from 35% in labour to 50% in labour. So 15% on the size of the business that he’s got, huge net profit dropped to the bottom line. And that was a massive turnaround, but that’s because in that 12 months, in that one financial year, his whole focus from a strategic side of things was margin management.

(12:46):

And he dialled in the way that he scoped the jobs and quoted the jobs and handed them over to operations and the way that he then tracked that through his job management system and reported on that and really turned the dials on that. Imagine in his business going from 35% to 50%, it’s huge turnaround and that’s what we mean by what gets measured, gets managed, what gets managed, gets improved. Another great example of a client who’s done a ripping job.

Speaker 2 (13:12):

Yeah, absolutely. Love that one. Last one we’re going to talk about on this episode. And we touched on this recently when we started talking through some of the financial, the triple bottom line stuff, but cashflow. It’s amazing how people use their bank account as a scoreboard for cashflow. It’s like if I got money in the bank or not, it’s like the worst possible measure, by the way, to do that. If you haven’t heard it, go back to the episode on Triple Bottom Line and we go into detail. But I think that’s another big one is measuring cashflow and where money’s going in the business and how it flows through the business is a huge measure that you can get massive gains out of if you look at it and track it properly.

Speaker 1 (13:49):

The bank account is not a great measure, as you said, because if you’re making decisions what’s based on in your bank account, you may have just got paid a whole heap of money, but it’s not taking into consideration that BAS is due in a week’s time and you’ve got all these suppliers due, you’ve got payroll next week, you’ve got superannuation due in a short period of time. It doesn’t take those into consideration. And so especially if you’ve only got one bank account where it’s a big washing machine of money, it’s not compartmentalised where you’ve got cash buckets set up to be able to separate how all that looks. And so it’s your ability to then be able to have a good cashflow forecast. That’s an example of measuring and managing and improving your cashflow. It’s then that coupled with your invoicing processes and your debtor management processes and the reporting and the follow-up around that.

(14:42):

So cashflow and invoicing and debtor management, all that coupled together around the reporting and management of that, that’s what naturally improves your cashflow position over a period of time. So instead of running blind and running your business by gut feel and the emotional thing of, do I have money today or not, it’s the worst measure. Actually having the information based on reporting is what makes you an informed leader in the end of the day.

Speaker 2 (15:10):

Absolutely. Example of that one I think of is Grant Hateley. Grant was a big one for cashflow. I actually remember teaching him that very early days when we first did it. And he went from, and you can go back and listen to his episode as well. We featured him not too long ago, but he went from sort of reckless spending or mindless spend, you got to almost say. It wasn’t a consideration. It just happened. There was money in the bank, cool. Then we spent it until we didn’t have it. And he was having sleepless nights. And in the early days, a lot of business owners have this around payroll. How am I going to make payroll? I don’t know where the money’s going to come from. I don’t even know if I’ll have the money. So this was sleepless nights. It was impacting his mental health, his ability to get through days.

(15:47):

It was consuming him with a cashflow forecast, the right scoreboard. And he learnt to read that scoreboard and he went to understanding with complete clarity, his true cashflow position, he could get on with running the business. And it was amazing how quick the right scoreboard changed his trajectory in terms of being able to, one, look after himself and Beck and not have all those sleepless nights and stress. But two, actually get on with running the business during the day rather than try to make guesses in his head about where the mental calculation of what the bank account was going to do. Huge example. Great.

Speaker 1 (16:18):

Yeah, absolutely. Because if you’re running a multimillion dollar turnover business, you cannot manage that amount of money coming in and out of your business in your headspace. That’s what causes the stress. And so just by having a cashflow forecast in place, for example, it can create urgency to be able to go, “Okay, we’ve got to get that job done so we can get it invoiced and money out there.” It creates urgency around, right, we’ve got to follow up that invoice, get that money in the door here, get that money in the door there. “Oh, hang on. We’ve got a bit of a spot down there. Let’s ring that supplier and say, look, we’re paying, but we’re going to be paying a week late. “So it makes you strategic because it’s all facts and figures and black and white on a bit of paper. The forecasting takes the emotion away from it.

(17:02):

Whereas if you do it in your head, it’s full of emotion because it all depends on how you feel in that given moment. So that’s a great example of the scoreboard or the cash flow. The information makes the decisions for you rather than you making it based on an emotional state that you might in that given time.

Speaker 2 (17:20):

Yeah, absolutely. Now let’s think about the idea about how we go about this. We’ve given you some examples and the examples are related to the financial scoreboards and things like that. It’s just relatable. It’s good business practise, all of those sort of things. Let’s walk through how we do this. Measuring isn’t just enough. You’ve got to do the measuring in the right way. And there’s a set of principles we’re going to walk through now. We’re going to use an example of Declan, a caravan manufacturer who used to be a client in WA. And as we go through this example, you see a real practical on the ground operational example of how a scoreboard could work. And how he went about this without going into hardcore financial metrics, he actually put in his scoreboard in a certain way. So we’re going to do this. So the things we’re going to talk about here, the first principle that it has to be when you put your measure together is it has to be specific.

Speaker 1 (18:11):

This is huge because as we say in coaching all the time, you can’t hit a target that you can’t see. Most business owners go, ” We need to increase sales. We need to make more money. “It’s like, what does increase mean and what does more mean? Come on, man, give me a break. Whereas Declan was great. He’s like, ” Okay, we’ve got our revenue target, but he was able to break that revenue target down to its lowest common denominator. “Now, not all businesses can do this, but majority can to be able to go, ” Well, we need to build four caravans over this next lot of period. “So he was able to, instead of saying,” We need to hit X, Y, Z revenue, “which really meant nothing to his team. It was like, ” All right team, we need to start and finish and produce this many caravans and get them out the door over this timeframe. So by being specific and breaking it down into the lowest common denominator really added substance to it and enabled him to communicate that better to the people around him that mattered.

Speaker 2 (19:14):

Yeah, absolutely. Second principle he then followed was clarity. It was clarity or visibility is what we talk about, making it visible or making it clear. And that’s what Declan did next.

Speaker 1 (19:24):

He did. He didn’t just, no doubt he had his spreadsheets and we knew he did. He kind of internally from a management point of view, he had all these trackers and his forecasts and his spreadsheets, but he didn’t just bury it in a spreadsheet, save it and close it on his desktop. He put it on a whiteboard out in the workshop and he made it visible. It was clearly visible to the team around him. And what that did is it enrolled them on the journey to be able to help them hit the target that everyone needed to be able to see. So it was visible to Declan, it was visible to his team around him and therefore everyone bought into the journey and went, right, we got to deliver for caravans. Let’s go. And that made that number have substance and off they went, they just got cracking and got the work done.

Speaker 2 (20:13):

Yeah. And visibility is really important. A lot of people miss that because what happens usually is I’ve got this buried in a spreadsheet somewhere. The end of the month happens. We didn’t hit our target. I better get out there and give everyone a rev up. Here’s how you missed the target. It’s, what do you want us to do about it? And then you’re back where you started for the start of the next month with, “Hey, we’ve got to make more sales than what we did last month.” And it just repeats that way. So this visibility clarity of the target at all times allows people to adjust and correct as you go, which is really important. The other thing I love that Declan did, and this is our third point, is it’s got to be relatable. There’s nothing worse than when you put a target in front of someone and they’re going, “How does that relate to me?

(20:53):

I don’t even know what that means or I don’t even know how I’m contributing towards that. ” So having it be relatable is a really important factor when you set up your measurements and you start sharing them with the rest of the team.

Speaker 1 (21:04):

Correct. And you want to get away from dollars and margin and you definitely don’t want to talk about NP net profit percentage to your team because you got to break it down to what makes sense for them. And this for Declan was four caravans. Now, if you’re in the aircon game, it might be four ducted systems we’ve got to instal or four kitchens we’ve got to manufacture. Four kitchens we’ve got to instal a number of split systems you’ve got to be able to get done. Or this stage of the build process we’ve got to finish by the end of this month. So the more you can kind of break it down to what makes sense for them, the more that they’re going to buy into that process. And that’s the important part is it’s got to be relatable. It’s no point just having a number because they’ll just think you’re a millionaire when they don’t understand the realities of what it costs to run a business.

(21:57):

But if you can break it down to the lowest common denominator and what relates to them, it’s a game changer because they feel like they can touch it and feel it and relate to it at the time.

Speaker 2 (22:05):

Yeah. And we’ve seen that with so many clients in so many trades. I’m thinking about flooring examples, for instance, where guys go from talking about, “We’ve got a square metre rate, which means this many square metre rates means this many dollars we’ve got to do. ” It’s like, hang on a sec, how many metres do we have to do? Just lock it in and tell me what I need to do for the day. And the minute the guys get it, they want to do a good job. We’ve said this before. No one goes to work going, “I’m going to do a shit job today. I’m going to miss every target that’s in front of me. ” They want to hit targets, but if they’re not clear and they’re not relatable, it’s very hard for someone to do that. The last one we want to cover off, and in some ways this is the most important and the most obvious, but it’s be consistent.

(22:43):

You’ve really got to be consistent. When you start measuring, it’s not measure once, it’s do it consistently.

Speaker 1 (22:50):

It is. And we see this with clients. When we’re working with clients to set up their managed tools, there’s not a million of them. There’s half a dozen of them to be able to manage pipeline and revenue and margin and overheads and their net profit and productivity labour. There’s a handful of really ones that matter. And it’s not just about just setting it up and having the novelty and ticking the box and go, “How good’s that? I’ve set up my pipeline planner kind of thing.” It’s like, “No, mate, you’ve actually now got to run your business as per your pipeline planner and use it as a decision making tool, not just to tick the box tool.” And this is where Declan did a cracking job. For him, it wasn’t just a once and done side of things. That number then sat on that whiteboard and they used it as a conversation point.

(23:38):

They used it in their production meetings. They used it in their toolbox meetings. They spoke to the team around what’s coming and what jobs they’ve got coming up and what jobs are at what stages and what’s getting finished on the shop floor and what’s being sold to what customer and delivered when. So that really then became almost like the pulse and the heartbeat of the business around how they communicated in the common denominator that made sense for that business. And that’s where Declan became really consistent. And this is how he grew consistent results and got better and better and better over a period of time because he consistently measured, managed and improved that number of caravans in and out the workshop floor over a period of time. It doesn’t sound complicated, but the challenging part is being consistent in that approach.

Speaker 2 (24:29):

Yeah, it is. And I remember even then, it wasn’t just his guys. I remember when he was doing that within the group, he’d report back into the group and everyone was sort of on board with it. It’s like, “What’s the score of this? Are we there? How many have we got to go? ” And it was amazing how everyone started to rally around it because it was so relatable, so obvious, so visible. We did it consistently and the results spoke for themselves in the end. It was quite extraordinary what he did.

Speaker 1 (24:50):

The reality is, it’s the combination of these four elements is what turns data into good information where you’re an informed owner of your business. That’s what it is. It’s you’re specific, you’re clear, it’s relatable, you become consistent in this approach. It’s those four elements which enables you to measure it, manage it, and improve it over a period of time. And so there’s a … I love that story at Declan. He did such a cracking job, but it just took time, effort, and energy, and the results spoke for themselves. He hit the four, he went on to hitting the six and then continued to grow from there. And that’s how he just grew and grew and grew over a period of time. I loved it.

Speaker 2 (25:35):

Absolutely. Now it’s your challenge, right? Now it’s your challenge. And we want you this week to pick one metric just to start tracking. And think about that one thing you’d like to improve. As we said at the start, think about the thing you bitch about most. And instead of bitching about it, say, “I’m going to commit to improving this. I’m going to do that by measuring it. ” But pick that first thing out. Set up your tracking. What does success look like? Think about how you’re going to do those four things. How are you going to make it clear? How you’re going to make it visible. Don’t over complicate or over engineer it. Don’t try and be too clever in terms of what you’re measuring to get to the depth of clarity. It’s got to be clear from the visible point of view, clear from a relatable point of view.

(26:14):

That’s what you really want. So we want you to set that up this week and remember the golden rule here, one thing at a time over time. Don’t say we’re going to start measuring eight different things in four different departments. You’ll all get to each and over complicate it. You will trip over at the first hurdle. So just one thing that you want to improve, one thing that you’re going to measure, and then work through those four principles and set it up that way and then roll it out. Because as we said, what gets measured gets managed and what gets managed improves. So we’d love to hear about it. We wish you well with the challenge and this is a real way that you can make a quick improvement in your business if you do this right.

Speaker 1 (26:53):

If you’re ready to stop guessing and start improving through good data driven decision making, then book a free discovery call at strategysession.com.au because improvement doesn’t happen by accident. It happens when you measure and focus on what matters. Remember, what gets measured, gets managed, and what gets managed improves. Hopefully you’ve enjoyed today’s episode and looking forward to coming back to you on another episode of The Trade Den soon. Until then, take care.

Speaker 2 (27:23):

See you next time.