Be a Socratic Business Owner
Always be asking questions to gain new insights about your business
Business owners always need to be looking under the hood of their vehicle and asking questions. What’s the name of each part? How does each part work? How do I diagnose a problem? How do I fix each part when it breaks? Asking and answering questions is the foundation of the Socratic method, a form of argumentative dialogue whose purpose is to stimulate critical thinking. It is named after the Classical Greek philosopher Socrates.
Asking questions about your business is no different than asking questions about your favorite car or truck. You need to be looking under the hood of your business and asking questions to understand how each part of your business works, how to diagnose a problem when it arises and how to fix each part of your business if it breaks.
There are potentially hundreds (maybe thousands?) of questions we could brainstorm for you to ask about your business. Here are three important questions to get you started.
What’s our customer retention rate? You want to be able to rely on revenue figures from period to period so you can prepare accurate forecasts. You can’t do that if your business has a high customer churn rate. It also costs more money to attract a new customer than it is to keep an existing customer. High customer turnover means spending more money on a sales funnel to keep qualified leads coming in.
What’s our employee retention rate? While employee turnover may fluctuate from year-to-year, it should be steady over a period of 5 to 10 years. If it isn’t steady, you need to find out why. If turnover is decreasing, that’s obviously great news – but you should still find out WHY it’s decreasing. Is it because of great managers? A new compensation plan that was implemented? Maybe there was a nationwide recession and people were afraid to change jobs?
On the other hand, if turnover is increasing, you definitely need to get to the bottom of why it’s happening. Is it because of poor managers? Is there limited room for advancement? Do you pay below-market wages and salaries?
Who’s our most profitable customer? Customers come in all different shapes and sizes. Some customers buy high volume, others buy low volume. Some customers are high maintenance that require a lot of tender, loving care from your employees, others are low maintenance that don’t require a lot of hand-holding. At the end of the day, you want customers who contribute the most to your top line revenue with minimal expenditure of financial resources made to service those customers.
Create a mini income statement for each customer to discover which is most profitable. Start with the total revenue generated by that customer. Then list all the resources your company used to service that customer. Don’t be afraid to use an estimate of expenses for each customer if you need to. You’re just trying to get a general sense of which customers contribute the most to your bottom line.