Tracking the health of your startup through Balanced Scorecard

Last month, in one of my mentoring session with a tech startup founder, I asked her the critical and crucial focus key areas on which she would be working for the next one year. She replied, “Sir, the focus key area would be scaling and increasing net profits.” I wasn’t surprised by her answer and expected the same answer from financial area only. Increasing top lines and bottom lines are the ultimate objective of any startup founder. The art is how to reach those numbers. Many startups fail without seeing the day of profits. If we look at the past data and research then about 90% startups fail within their two years of existence. Startup founders must use strategy implementation system such as the Balanced Scorecard to track the health of their startups. It will help them to take corrective actions and ensure survival.

Why do so many startups fail?

There are many reasons behind the closure of startups which includes hesitance to accept new ideas, still ascent Indian market, poor management control systems , failure to scale, weak business model, high cash burn, weak ecosystem support, founder burnout, lack of funding, lack of mentors, market demand etc. Still many of those startups managed to perform well in these tough conditions and rake in big amount of investment from angel investors and VC’s.

While such number of startups closed down, in my opinion one of major reason to their poor business performance could be a lack of managerial control. I personally feel that management control systems strategy could have support startup founders to monitor and control the drivers that promote growth and their success.

However, there is a lack of studies that could support these thoughts about its suitability and applicability for startups. But out of my interactions with startup founders, industry experts and experiential findings, I strongly feel that a strategy implementation system such as the Balanced Scorecard is a suitable practice for startup founders. It also brings some insights about how the performance measurements evolve as the firms mature during various stages of startups.

Having Balanced Scorecard implemented, startup founders will be able to focus and mitigate almost all the reasons behind failures we have discussed above. They will be in the position to track the complete health of their startup instead of focusing only on financials.

Balanced Scorecard

Art Schneiderman, an independent consultant created the first balanced scorecard in 1987, at Analog Devices, a mid-sized semi-conductor company.

Kaplan and Norton further developed this concept in a 1992 Harvard Business Review article (and subsequent articles).

Balanced Scorecard is basically a wonderful strategy implementation tool; which at the same time when with integrated performance management system enhances the effectiveness and efficiencies or any startup.

The system integrates and connects the dots between big picture strategy fundamentals such as mission (your purpose), vision (what you aspire for), core values (what you believe in), strategic focus areas (themes, goals and/or results) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (your desired level of performance), and initiatives (projects that help you reach your targets).

The BSC suggests that you should view the organization from four perspectives, and to develop objectives, targets, measures (KPIs), and initiatives (actions) relative to each of these points of view:

Financial:

The financial perspective looks into financial viability through

• bottom line
• revenue
• market share
• revenue growth
• profit ratios
• cash flow
• return on investments
• operating cost management

Customer:

The customer perspective concerns itself with customer and partners through

• value proposition
• customer service
• retention of customer
• customer satisfaction
• acceptance of new products in new markets
• geographies, education level…..etc

Internal Process:

The internal process perspective strives to

• align people with processes
• leveraging technology
• streamlining processes
• increase productivity
• establishing manufacturing standards
• inventory management
• reduced wastes
• eliminate non value adding activities
• quality improvements

The innovation and learning  perspective :

 The innovation and learning perspective aims at continuous value creation through interventions such as

• employees’ learning & development
• new product development
• product diversification
• building leadership
• mentors
• learning through data analytics i.e. advertisement, marketing, customer, competitors

 Conclusion

The benefits of Balanced Scorecard in established organization are proven. Startups implementing it will have following benefits

• aligns strategy with goals and objectives
• identifying critical success factors
• management control system
• better communication
• helps in pitching angel investors
• planning
• time management
• focus on priority jobs
• decision making
• improved operations
• linkage with vision and strategy
• performance measurement
• defining benchmarks

 

Over to you

Thank you for reading this. Over to you now, do you feel that implementing Balanced Scorecard can make a difference for your startup ? Please feel free to contact and drop your comments in the comment box section, if you would like to get more information on how to initiate it in your startup.

If you are able to link all these perspectives with your action plan, I am sure it will turn miracles for you.

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