Quantifying Exceptional Growth: 3 Steps to Measure Momentum in Your Business.
Momentum is possibly the most critical metric to explosive business growth. With the potential to protrude extraordinary business growth year after year, it is the single factor that turns a disruptive business into an industry-beater.
If your company is already finding success in its sector, racking up wins from day to day, you may already have the winds of momentum in your sails. But how do you tell how much momentum you’re enjoying? How do you say when you’re going at a good clip as opposed to an easy trot?
Often, positive trends only last as long as a company’s ability to measure them and manage their performance in that respect. So, even after learning how to identify if you have momentum, you should be able to tell how much of it you’re enjoying.
Companies that don’t know how much momentum they have risk dropping the ball entirely.
This is because measuring essential metrics will be crucial to understanding how you are doing as a company and what areas you need to improve on. If you cannot measure your momentum, then you cannot tell if you’re doing enough to sustain it and sooner or later, you may find yourself hitting a brick wall.
However, while identifying momentum is one thing, measuring it is often another thing entirely. Due to its abstract and largely elusive nature, it is difficult to spot in practice and even harder to quantify.
Can you actually measure momentum in your business? What means exist to do this and are they applicable to all companies? These questions will form the basis of today’s article. Here’s what you should know.
Measuring business momentum is tricky but not impossible
By its nature, the phenomenon of business momentum is hard to catalogue. It describes the level at which a business operates when it hits a sustained run of extraordinary success. The company can access better opportunities at a faster clip than usual, and everything it tries seems to come off.
When a company has momentum, its brand, products and the train of specific efforts the company has taken to differentiate itself and provide a superior product begin to build up speed and provide accrued dividends. The exceptional growth that the company enjoys as a result of these focused steps is the result of momentum.
However, business momentum is hard to quantify. This is because it is, more often than not, experienced solely in the results that it provides. When a company starts to see more sales, earn more revenue, pull in more customers, subscriptions etc. it says it has momentum. As a result, it is common to identify momentum based on its results.
But how do you measure these results, especially considering the disparate realities that companies in different industries face? In one sector, extraordinary growth could be 6% while in another, it might be 60%.
Considering these different realities, it will always be a difficult proposition to attempt to measure a company’s momentum based on its results. However, this does not mean momentum cannot be measured. After all, attempts have been made to do this in the past.
Pushers, plodders and pioneers
INSEAD professor, J.C. Larreche, conducted one of the most coherent and earliest inquiries into the phenomenon of momentum. His book, “The Momentum Effect”, constitutes a vital resource for founders that want to take their business beyond the ordinary.
He hypothesized that if a company was enjoying momentum, its relative marketing spend should be decreasing. It shouldn’t have to spend so much money to make money.
Fuelled by this hypothesis, he and his team studied the performance of 1,000 of the world’s largest companies between 1985 and 2004. Here’s what they found from their study of the consumer goods and services industry.
Based on their marketing-to-sales ratio, companies were put in 3 categories — pushers who spent 3% more, plodders who made no change and pioneers who spent 4% less. By conventional wisdom, pushers should have grown the most since higher advertising spend usually equals higher sales.
However, in an interesting twist, they found that the highest and frankly, jaw-dropping growth, was enjoyed by the pioneers instead.
Compared to the plodders who underperformed and pushers who delivered as expected, pioneers blew the roof off.
They created shareholder value fully 80% higher than the Dow Jones Index and enjoyed revenue growth of 39%, almost double what pushers enjoyed. Their average earnings growth was also 58% better than pushers.
There are three important things to note from the research:
- Although they might not seem to be doing anything obvious, momentum firms engage in measurable activities that activate momentum growth. Importantly, merely spending more to market a product may be a cover for more fundamental flaws such as a poor or improvable product.
- Despite its difficulties, one of the biggest indicators of momentum is growth. Find an effective measure of growth, and you can tell how well you are doing on the momentum scale.
- Marketing-to-sales ratio is one of the metrics that can inform on how much momentum you’re enjoying. But how do you make this work for your business?
How to measure business momentum in 3 steps
Rather than focus solely on the results of momentum, paying attention to what you’re doing to bring about that momentum can help companies understand how they’re doing.
If you can identify momentum in your business, then paying attention to certain specific factors underlying that momentum will indicate your rate of momentum. To fully understand how much momentum you are enjoying, rate your business on these questions on a scale of 1–10, with 1–3 being poor, 4–6 being average and 7–10 being good.
How extraordinary / specific / ambitious are your goals?
Do you have a commitment to achieving a worthy objective? This is crucial because the less worthy your target, the more likely it is that you’ll run out of fuel long before you achieve sustained momentum. Worthy goals include making a commitment to revolutionize the industry. An all-time classic is the commitment to solve the problems of your customers in the most innovative and ridiculously simple way possible. Is this written into your brand strategy?
What is the rate of your motion?
In terms of processes, structures and implementation of goals, how much are you doing? When you consider what you have accomplished so far relative to your goals, are you on schedule? Do you remain on track with delivering a stellar product, even if that means doing a pivot? If your focus is more on pushing an average product with mega marketing spend, your business momentum may not remain for long.
Are you implementing the right processes and plans to achieve your goals? Are you looking towards the next win while working on the current one or do you have a “first things first” mentality? Momentum firms always take the long view. If your momentum is powered solely by short-term objectives, then you may run out soon.
How fast are you growing?
Do you have the proper growth metric? Not picking the appropriate growth metric does two things: it takes your eye off the most critical indicator of your growth and deprives you of essential insights that can inform business decisions.
Revenue growth, for instance, is not always an accurate indicator of business growth.
Google still uses one crucial metric to chart its growth: the number of searches made. But soon enough, that alone will no longer be a useful growth indicator. Netflix uses two straightforward yet extremely crucial indicators: the number of subscribers and movies watched. This ties in perfectly with their goals of becoming the largest entertainment company in the world and refining the entertainment experience per individual.
What is your own growth metric and how far along are you in your goals consequent upon that metric?
When you consider these questions and assign the relevant score to your business, it will provide a good indication of where you are on the momentum meter and what you need to do to improve.
Conclusion
As ever, momentum remains a tricky topic for businesses and entrepreneurs. However, with the above-described questions and thought experiments and formula, it will become infinitely more comfortable to tell what your business is doing right with regards to momentum and where things can be better.