How to Create and Use a Stop Signs Dashboard to Avoid Train Wrecks
Several years ago, I created the Stop Signs Dashboard to help one of my clients keep a pulse on the health of his company. For confidentiality, we will call him Jack CEO. Jack was running his business with very little capital, yet growing very fast. His investors were concerned with the level of spending since Jack did not have that much capital left. Would Jack be able to being in the new sales and revenues in time before the cash ran out? Or, will he end up slamming his company into the impending cash wall? In this situation, running a business is very much like playing Monopoly. You’ve got to make it past all these properties with houses and hotels without spending all your cash, pass “go” and collect $200 to stay in the game. If you run out of cash, game over!
When faced with the dilemma of staying on the path versus slowing down spending, it is not uncommon for the investors to take a more conservative approach and insist on slowing down spending, especially when they are unable to raise more capital. Even though the investors and Jack both wanted the same thing (to grow the company successfully), they had a difference in opinion on how to proceed. His investors believed that sales would come a little slower than expected and that he should slow down and even layoff some of his staff. Jack believed that his current actions would bear the right fruit, they would get past this hump and thrive.
The last thing Jack wanted was to lay off members of his team that took so long to assemble. And they were working really well together, too! So which path is the right path to take? I’ve seen this movie many times before, just with different actors. They would debate and argue based on intuition and emotions, and often the person with the stronger will wins. Neither party is really able to predict the future.
What if there was a third option? What if we could build a dashboard with leading indicators that would provide some measurable facts that allowed Jack to make smaller decisions along the way instead of the big lay off decision immediately? And what if the dashboard would also indicate when Jack had no other alternative but to lay off part of his talented team? So, I helped Jack develop his third option.
This is the Stop Signs Dashboard™.
It is a dashboard that should have no more than three to five KPIs (Key Performance Indicators) to help you answer the following key questions and avoid hitting the life-ending cash wall:
- How many months can we operate the company as is with no changes at our current spending rate?
- What is the probability of sales closing and converting to cash in time to avoid hitting the cash wall?
- What actions do I take and when must I take them by in order to stay alive to fight another day?
Armed with the Stop Signs Dashboard and watching those critical KPIs and forecasting them every week, Jack was able to make key decisions, avoid hitting the cash wall, and grow his company into a successful and thriving business today. Having the dashboard is only the first part of the solution.
The second part of the solution is use it well. Here’s how:
- Begin every week by forecasting how you are doing and status the KPIs on this dashboard.
- Anytime a KPI moves from Green to Yellow or Red, pause and focus on solving problems or moving obstacles out of the way in order to drive the KPI back to Green.
- If a KPI goes to Red... STOP! Stop spending and pull out the emergency instructions that you developed with your team before this crisis happened. Discuss and take action.
At the end of the day, dashboards and KPIs do not solve problems. People do. KPIs only highlight to you that there is an impending train-wreck up ahead. You then have to do the hard work to sit down, discuss and find solutions to your problems.
I suggest limiting the Stop Signs Dashboard™ to 3-5 KPIs. If you have too many KPIs, you have not found the few critical ones that can really help you to focus on the problems at hand. Too many KPIs can also cause analysis paralysis that delays actions. Delayed actions cause the death of companies in such situations. So, keep it to the critical few and focus on taking action. If your KPIs are Green on this dashboard, you know you are doing well and can keep going. If they are Yellow, you need to take action immediately and make some adjustments. If one of the KPIs is Red, you need to preserve your cash. Stop spending, stop hiring, review your business and decide what other changes need to be made.
Here’s an example of a Stop Signs Dashboard using our Rhythm Software:
In the example above, the four KPIs help you to answer the following questions:
- How many months you can continue operating the company at your current spending level?
- Are you on track towards achieving your sales plan and forecast? Are actual sales going well?
- Are your top opportunities doing well? This helps you to predict how much cash will flow into the company.
- How much cash reserves does the company have?
If you take time to forecast each of these KPIs each week, you will know if you are on track. If you predict a yellow, or even a red week, you still have time to fix it and turn things around because you’ve caught the fire before it burst into flames. This is fire prevention instead of fire fighting!
So, what keeps you up at night? What is dangerous to the health of your business? Whatever it may be, monitor it and track it every week using a 13-Week Race® dashboard, and take action before it’s too late.
Photo credit: Flickr User William Warby, CC license