How this CPA-turned-CEO Uses Data Driven Decision Making to Improve Profitability w/Stephen King
Stephen King is the President & CEO of GrowthForce, a company that specializes in outsourced bookkeeping, accounting and controller services for companies that want to run better, grow faster and make more money. Stephen spent much of his career at Ernst & Young and Amnesty International US, and has started a couple of his own companies.
On this episode of the Strategy & Leadership Podcast, Stephen joins us to discuss how leaders can improve their decision making, his experience with peer groups, his 5-step process for profitability, how culture drives growth, and more.
Having a strategic planning session soon? Make sure you're asking the right questions first:
Here's a breakdown of our conversation:
Advice for leaders trying to improve their financial decision making
"Study the past to predict the future".
Stephen mentions how important balance sheets and income statements are for external users like banks, the IRS and investors, but they aren't designed to produce actionable decisions. In order to make better decisions, his advice is to break your income statement down to the smallest unit (a project, a customer, widgets produced, a billable hour). After that, break down your labour costs into direct and indirect costs (overhead). From there, you should be able to extract your gross profit margin and net profit margin, and will be able to determine how much each customer is contributing to their share of overhead and profits.
His experience with peer groups & mentorship
Stephen speaks very highly of his time with Vistage and other peer groups, and mentions the group as his single highest return on investment. The group helped him grow from an entrepreneur to a CEO, and taught him how to think strategically, and work on the business. Not only was he asked hard questions, but he was able to hear what other CEOs were going through and how they addressed the challenges in their life and work.
His 5 Steps to Profitability Model
Stephen developed a model called the 5 Steps to Profitability with Actionable Numbers and Productive People. First - Why do you exist? Why would someone hire you? The second is culture by design. Based on why you exist, what are the values and behaviours that will make your culture thrive? Next is setting clear goals. Next is reporting the actual progress against the goals, so you people know when they're winning or losing. And finally, the step Stephen considers as the most important - recognizing and rewarding behaviour.
How your culture will help you grow or sink
The American Institute of CPAs came out with a report that stated 68% of the value of a company is it's people - the relationships with customers, suppliers, etc. On top of that, there is a direct correlation between companies' turnover and their profit margins. When you have to keep replacing people, it's not just the recruiting costs you have to cover, but the lost productivity. When you remove a team member from a team, there is a hole left in their place until you take your most valuable person and get them to train someone new (instead of doing billable work). Stephen says the for every $65k employee he loses, it costs him $130k. From here, it's easy to see why a strong culture and low turnover will promote growth, while a toxic culture coupled with high turnover will disable your ability to grow.
How to foster a culture of tracking & the desire to follow data
Stephen mentions that you have to be able to clarify what's in it for each employee when the company does well, and demonstrate a track record of sharing success (the 401k is his favourite because they're so measurable). He also points out that recognition is more important than reward. Our need to belong, self-actualize, and have strong self esteem are all very important for building a culture where people want to win and want the company to win. When these boxes are checked, people are more likely to be engaged in tracking their progress, following data, and growing the company. His one big takeaway for managers would be to catch people doing something right, instead of catching them do something wrong.
A strategic plan is just the start. Learn how we can help with implementation, accountability & coaching: