The Power of One

The JCK Show ~ Las Vegas is s lot like the city itself: bigger than life, a cross between fantasy and reality.But there's something that's always "gnawed" at me about Las Vegas. Over the years, when I ask friends and associates my stock question involving Las Vegas, the answer is always the same. To my query, "How'd you do?" they invariably reply: "I broke even—everything considered."

As a person who works in the financial sector, I've always been a little suspicious of this answer. After all, how did they build and pay for all those casinos if everyone broke even? My conclusion? Somebody's lying—or at least stretching the truth.

A modified reality. Seems to me it's pretty much the same with business performance. As a former banker, I've had the opportunity to go "inside the numbers"—and what I've found was eye opening. Businesses are not always doing as well as the owners lead us to believe. We tend to modify reality because we don't want to look bad.

I vividly remember one particular gentleman, a high-profile member of a particular business group I worked with for six consecutive years. Every year at the convention he bragged that he had "never had to pay any tax." Because of his demeanor and his position on the board, everyone thought: "Wow, he must be doing really well—and have a great accountant!"

After a few years, however, he stopped coming to the convention. Turned out the reason he never paid any taxes was that he'd never made a profit! And eventually, he just "went away." It was clearly a case of "selective communication"—the same kind business owners use to avoid telling the truth.

Another example involves a business network of hundreds of franchisees. When I asked the franchisor about the methodology they used to determine the group benchmarks they had given me for gross margin, inventory turns, variable cost percentage, and the like, they said, "We just know."

It turns out that years ago some of the "good ol' boys" had gotten together, maybe had a few social beverages, lied to each other—and made up the numbers! To this day everyone believes them—and no one knows the real profile of the network. But secretly, many wonder why they seem to be doing so much worse than everyone else. That's easy: Everyone else is lying!

Measure and manage. If you've ever attended one of my live sessions at The JCK Show or elsewhere, you've probably heard me say the following: "If you can't measure it, you can't manage it." Developing reliable "yardsticks" at both the company and industry level is crucial as the industry evolves and matures.

This, of course, is the "driver" behind the JCK Financial Benchmark Survey, which we introduced in last month's issue as a tear-out response form and are repeating in this issue. Our goal is simple: to produce the most reliable and extensive financial profile ever of the retail jewelry industry. But we need you to participate!

A few key points:

• There's no charge to participate—just fill out the insert response form and return it to me.
• The questionnaire is completely confidential: No one except two of my own staff will see your data—not even the staff at JCK.
• All respondents will receive a complimentary copy of the final report.
• Results will include median numbers as well as "top performer" numbers.
• This is optional: For a small fee, we will provide you with a complete individual analysis of your own company.

What's different? One specific characteristic makes the JCK Financial Benchmark Survey such a compelling management tool—ODP.

That stands for "Owners Discretionary Profit"—and it's the key to performance management. ODP is the basis upon which we sort the data to determine median vs. "top performer" profiles. We start with the P&L data you send us. Then, we "add back" the owner's salary and other perks to determine the "discretionary profit." Such a methodology "normalizes" the business in which the owner takes a $500,000 salary, but reports no profit.

In other words, if you can't get it to the bottom line, it doesn't matter whether you take it out as salary, country club memberships, the 560 SL delivery truck, or whatever. We want that company to go in the $500,000 ODP—not the zero ODP.

In this way, we develop a distinct and accurate profile of the "top performers" (top 25%) vs. the median performers (50th percentile). Then, we focus on the "best practices" process to find out what the top performers are doing to become top performers ... and it's more than just luck.

I have seen in other industries what a powerful process this is, and I'm absolutely enthused to be developing the retail jewelry model.

But we can't do it without you, so please take a few minutes to tear out and complete the enclosed response form. I promise that the finished product will help you all to be better business owners and managers.

Participating in the JCK Financial Benchmark Survey is your opportunity to be involved in the "professionalizing" of the industry. Just do it ... because in the end, it will benefit us all.