Denominator for Growth
September 21, 2009
Looking back on my days at Microsoft, one thing that stood out for me was their uncanny ability to break things down into manageable pieces, apply metrics and execute, execute, execute. It aligns well with the old truism “if you can’t measure it you can’t manage it“. This is something we continuously preach as venture capital investors.
Many of our expansion stage portfolio companies and investment prospects have heard me rant about the importance of establishing a common denominator for measuring performance. Granted, there are many key performance indicators (KPIs) for managing the business, however, what is the single most important denominator in which you will measure your success? Ideally, you should be able to use this denominator to manage the business regardless of territory or location.
For example, the least common denominator for Microsoft is revenue per PC or server. If territory A is producing revenue per PC of $300 and territory B is $200, what is territory A doing differently and how do I leverage this?
To exemplify this point, let me give a real world scenario.
While serving as enterprise customer unit manager at Microsoft for the south central district, one of my colleague’s, Pat Hayes, established a pilot program called “tertiary markets”. This went on to become a widely adopted program worldwide. Pat’s mission was to grow revenue in the small to medium business sector covering the states of Texas, Oklahoma, Arkansas and Louisiana.
Pat began by measuring the PC installed base + new PC shipments into tertiary markets throughout Texas. I believe this information is generally available from IDC or other data sources.
The next step was to determine revenue per PC by product (Word, Excel, PowerPoint, for example). Note that 96% of Microsoft’s business is generated through partners. These partners or resellers are required to report ship-to information by customer by product.
Pat then derived average revenue per PC and compared across tertiary markets. He could then analyze the high performers to determine best practices, while targeting low performers via marketing campaigns or “Big Day” events. This enabled him to dig deeply into every nook and cranny to determine the best ways to increase revenue per PC.
He then formed a team of product specialists who traveled to low performing markets and demonstrated the Office suite and introduced new products. This accomplished several things:
- Increased revenue per PC
- Drove additional services for partners (~$7 for every $1 of product)
- Established venue for recruiting new partners
- Ability for small businesses to “reach out and touch someone“
Sounds easy, right? What’s the common denominator in your business and how do you leverage business intelligence to drive increased revenue and market share?