Jerry Osteryoung: Benchmarks are so important

July 19, 2013 

All successful companies are constantly benchmarking their competition. They have to know what they have to match up with day-in and day-out if their company is going to be successful.

-- James Dunn

One of the things that each and every business needs is a systematic way of evaluating performance. Without quantifiable benchmarks, a firm has no idea if it is swimming ahead of the pack or just treading water.

Unfortunately, too many businesses use only last year or last month as a benchmark. Your own historical performance, how

ever, just does not give sufficient perspective to objectively evaluate how your business is doing.

One entrepreneur I was helping had been growing his business over the last 20 years. In that time, he had been very successful in so many ways, but his revenues had recently stalled out. He knew he needed to grow but was struggling to make that happen.

When I asked how he was doing compared to the industry, he did not know. Next, I asked him if the industry was expanding, and he responded that he thought it was but was not sure.

I explained that being aware of how the industry is performing is necessary for him to truly understand how well his business is doing. For instance, if the industry is declining, his steady revenues are tolerable and actually pretty good by comparison. On the other hand, if revenues are increasing for his industry contemporaries, he is not doing very well at all.

After our discussions, he did some research and found that revenues across the industry were growing at a rate of 10 percent where his rate of growth was completely flat. After seeing that data, it was clear that his performance needed much improvement.

When I ask entrepreneurs why they do not use any benchmarks or comparables, the most common response I hear is that their firm is unique and there are not any other firms or industries out there that they match. Additionally, they say that it does not make sense to compare their local performance against national data because their location is so different.

The fact is you are never going to find a perfect comparison. The data you glean, however, can give you a rough idea of how other firms are performing.

Benchmarking only provides an indication of how you are performing relative to the field. From there, you need to dig much deeper to determine why your firm is underperforming. For example, if revenues in the industry are growing at a rate of 12 percent and your firm is at 2 percent, you know that you will need to do some thorough analysis to find out why your numbers are so far below the industry -- taking your own operating area into account, of course.

Jerry Osteryoung, a consultant to businesses, is the Jim Moran professor of entrepreneurship (emeritus) and professor of finance (emeritus) at Florida State University. He can be reached by e-mail at jerry.osteryoung@gmail.com.

Bradenton Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service