Measuring performance by looking at the P&L is like driving by looking in the rearview mirror. Here's a better way to predict performance."
Arguably the most important element in building a business is setting clear goals and targets. Successful companies set stretch goals and build a solid business model and strategic path to reach those goals, which usually are results-oriented: revenue, growth, and profit. Some companies may even set a valuation target.
But, as important as these goals are in driving the direction and prioritization of the company, they can become problematic when operating in a rapid growth environment. Each of these results is an inherently backward-looking measure. The P&L statement shows results for the past year, quarter, or month but says little about the future. Using the P&L as an indicator of success is like driving by looking in the rearview mirror. Growing companies are dynamic, and the leadership team needs forward looking or real time data to make critical course corrections and set the business on the right track to achieving its goals.
This is especially true if your business has a lengthy sales cycle. In our business, our sales cycle can be as long as 18 to 24 months in some cases. We meet a potential client or investor, engage in initial discussions, convince them that we're relevant, then wait until they feel the timing is right to make an investment in their business. As a result, our P&L results largely reflect decisions we made over the past two years. So we needed to come up with a series of metrics that we could use to predict our P&L over the next two years, so we could invest (or divest) appropriately in growth
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