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Identify Patterns, Interrupt Timely & Make Progress Without Falling Into Analysis Paralysis
Yes, business no matter how complex is just about getting fundamentals right.
Every fundamental is backed by a handful of metrics that tell the story about your business. These stories uncover the hidden dynamics that are unfolding in different areas of your business, and if you know what they mean you can make decisions before at the right moments when they matter.
Now, let's dive in.
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The Revenue Story:
Revenue is the growth indicator.
What It Tells: Firstly, revenue tells how well you have made Strategy choices. 1) Customer 2) Market 3) Product. Secondly, it tells how well your Marketing & Sales are performing to capture the opportunity.
Warning Signs: 1) Revenue Quality (Not leading to Profits) 2) Revenue Risk (20% customers generating 80% revenue) 3) High Percentage of Unexplained Turbulent Patterns.
The Profit Story:
Profit is the indicator of your economic strength.
What It Tells: Firstly, profit tells how good is your business model. 1) Cost Structure 2) Product Mix 3) Delivery and fulfillment channels. Secondly, it tells how good are your operations in managing and controlling costs.
Warning Signs: 1) Low Gross Profit Across Portfolio 2) Inefficient Margin Contribution (Few profitable products, big revenue but no profitability)
The Cash Story:
Cash is the indicator of your economic future (since you invest to innovate).
What It Tells: Firstly, cash tells goods are positioned in the market in terms of 1) Defining price 2) Payment terms. Secondly, it tells how cash-rich & sustainable is your industry.
Warning Signs: 1) Cash thirst (reasonable profit but no less cash generation) 2) Long Cash Cycles.
I hope this has helped you make some sense of the story behind metrics and what patterns should raise eyebrows without too much investment in analysis. Revenue, profit, and cash are crucial metrics to understand a company's performance. Revenue indicates how well the company's strategic choices and marketing/sales tactics are working. Profit tells how effective the business model is, and how well it manages and controls costs. Cash forecasts future economic success and shows how well goods are priced and positioned in the market.
Warning signs, such as low gross profit, inefficient margin contribution, and long cash cycles, need to be monitored for each metric to avoid any negative impacts on the business.
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