Important Metrics for Small and Mid-Market Companies — Part 4: Operational Efficiency

In an average month, my organization explores around 50 companies for possible investment. We review everything from organizational structure, culture, and financial performance, to sales systems, competitive position, and leadership style. This gives us an unusual vantage point from which to recognize patterns of success, and failure.

Getting data is never the problem. In fact for most executives, information can be overwhelming. Getting accurate data and interpreting it appropriately is an entirely different story.

In The Ceiling of Brute Force, we discussed what operational areas impede a company from continued growth. In a series of posts, we’re going to break down 19 of the most important key performance indicators (KPIs), which demonstrate how effectively the business is being run. Think of KPIs as the canaries in your coal mines. If one starts going south, you know it’s time to take a closer look.

Presented in a five-part series, here’s our take on what you should pay attention to, allowing you to focus your time, effort, and dollars. The five parts are: BasicsCustomersTeam, Operational Efficiency, and Investment. In Part 4, we’re getting technical, describing operational metrics: scaling milestones & contraction triggers, sell-through rate & inventory turns, A/R aging & bad debt, and fixed vs. variable operating expenses.

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Important Metrics for Small and Mid-Market Companies — Part 3: Team

In an average month, my organization explores around 50 companies for possible investment. We review everything from organizational structure, culture, and financial performance, to sales systems, competitive position, and leadership style. This gives us an unusual vantage point from which to recognize patterns of success, and failure.

Getting data is never the problem. In fact for most executives, information can be overwhelming. Getting accurate data and interpreting it appropriately is an entirely different story.

In The Ceiling of Brute Force, we discussed what operational areas impede a company from continued growth. In a series of posts, we’re going to break down 19 of the most important key performance indicators (KPIs), which demonstrate how effectively the business is being run. Think of KPIs as the canaries in your coal mines. If one starts going south, you know it’s time to take a closer look.

Presented in a five-part series, here’s our take on what you should pay attention to, allowing you to focus your time, effort, and dollars. The five parts are: BasicsCustomers, Team, Operational Efficiency, and Investment. In Part 3, we’re presenting key metrics on the group of people that make your company function: leadership depth, employee tenure, and payroll ratio.

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Important Metrics for Small and Mid-Market Companies — Part 2: Customers

In an average month, my organization explores around 50 companies for possible investment. We review everything from organizational structure, culture, and financial performance, to sales systems, competitive position, and leadership style. This gives us an unusual vantage point from which to recognize patterns of success, and failure.

Getting data is never the problem. In fact for most executives, information can be overwhelming. Getting accurate data and interpreting it appropriately is an entirely different story.

In The Ceiling of Brute Force, we discussed what operational areas impede a company from continued growth. In a series of posts, we’re going to break down 19 of the most important key performance indicators (KPIs), which demonstrate how effectively the business is being run. Think of KPIs as the canaries in your coal mines. If one starts going south, you know it’s time to take a closer look.

Presented in a five-part series, here’s our take on what you should pay attention to, allowing you to focus your time, effort, and dollars. The five parts are: Basics, Customers, Team, Operational Efficiency, and Investment. It’s all things customer-oriented in Part 2: customer profitability, average acquisition costs, and concentration.

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Important Metrics for Small and Mid-Market Companies — Part 1: Basics

Getting data is never the problem. In fact for most executives, information can be overwhelming. Getting accurate data and interpreting it appropriately is an entirely different story.

In The Ceiling of Brute Force, we discussed what operational areas impede a company from continued growth. In a series of posts, we’re going to break down 19 of the most important key performance indicators (KPIs), which demonstrate how effectively the business is being run. Think of KPIs as the canaries in your coal mines. If one starts going south, you know it’s time to take a closer look.

Presented in a five-part series, here’s our take on what you should pay attention to, allowing you to focus your time, effort, and dollars. The five parts are: Basics, Customers, Team, Operational Efficiency, and Investment. We’re starting with the essentials in Part 1: market size, cash, and margin.

Read Part 1: Basics on Medium > 

Questions Investors Ask on a Management Call — and Conclusions They Draw

When we are interested in an opportunity, we build two lists of questions: one data-specific list for written response and one with largely open-ended questions for discussion on a management call. We actively avoid processes in which we are not permitted to ask questions before submitting an indication of interest.

A good financial package provides the facts, a great CIM provides the story, but our questions for intermediaries and sellers are not just trying to gather additional details. Here’s what we’re trying to learn, but not explicitly asking, in those question sets:

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The Ceiling of Brute Force: Small Businesses Don’t Stay Small on Purpose

In an average month, my organization explores around 50 companies for possible investment. We review everything from organizational structure, culture, and financial performance, to sales systems, competitive position, and leadership style. This gives us an unusual vantage point from which to recognize patterns of success, and failure.

As a general rule, small businesses don’t stay small on purpose. Companies “top out” for good reason(s) and rarely because of the business model. Beyond a certain point, sheer effort no longer works to overcome critical challenges. This is the ceiling of brute force. Each company hits it at some point, but the size, specific issues, and level of complexity varies dramatically.

A comprehensive study of organizations by Dunn and Bradstreet concluded that 90% of small business failure was directly attributable to a lack of management expertise. In my humble opinion, that number seems low. If failure occurs, it’s virtually always a fault of leadership. The question is “what kind of fault, and is it preventable?”

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The Little Things Impress Me Most

What impresses you? It’s a crucial question, because it says a lot about your goals, values, and purpose. Everyday we compare, evaluate, and judge. We watch others’ decisions, preferences, and outcomes in an effort to optimize our own lives. Yet what we consider to be signal, and noise, is critical to how we adjust our thinking and behavior. Brent shares his thoughts on noise and meaningful effort. 

11 Reflections on M&A in 2015

As 2015 came to a close, we at adventur.es had a chance to take a breath and think about what we observed, and learned in the past year. These reflections were generated from reviewing over 2000 investment opportunities, of which we deep-dived on 397, leading to 17 indications of interest, 5 letters of intent, and three acquisitions. We hope these thoughts prove useful in adjusting strategies and expectations in the new year.