Is your business in an imperceptible descent?

Business failure isn’t a sudden event. Minnesota business leaders need to focus on accurate performance indicators to ensure long-term success.

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Florida: December 29th, 1972

Eastern Airlines Flight 401 was a routine flight traveling from JFK Airport to Miami. As the pilots engaged the landing gear they noticed that one of the plane’s three indicator lights failed to turn on.

Not knowing whether the light was burned out or whether the landing gear had failed to lock in place, the two pilots and flight engineer focused on solving the problem.

They tried unsuccessfully to reengage the landing gear and then sent the flight engineer down below to see if he could do a visual check from a small window in the plane’s nose.

The three were so focused on fixing the problem that they failed to notice that one of them had nudged the plane’s control column with his knee, which disengaged the autopilot and sent the plane into an “imperceptible descent.”

The pilots had taken their eye off the plane’s dashboard, which had several indicators to show they were losing altitude and were in peril.

At 11:42 p.m. Flight 401 slammed into the everglades at 244 mph, killing 101 people.

How Minnesota business executives can avoid imperceptible descent

The crash of Flight 401 is not simply a tale of a blundering flight crew. The majority of business crises arise due to a similar misplacement of focus at the executive level that causes a company to slip into a disastrous imperceptible descent.

Business speaker Mike Richardson (Author of Wheelspin) recently led a discussion on imperceptible descent at my Vistage CEO Peer Advisory Group meetings, and impressed upon us the importance of keeping our eyes on the horizon and key business indicators

In our next meeting, Vistage speaker Kraig Kramers made a compelling case that the monthly and year-to-date financial reports that most companies rely on do not give an accurate picture of what is truly happening in a business.

Financial reports typically do not control for varying month lengths and how weekends or holidays fall in a given year. This means that there could be 20% more business days from one February to the next, making for an inaccurate comparison.  The solution is to replace the typical monthly financial spreadsheets with trailing twelve month charts which plot the moving 12 month totals or averages for your key indicators.  These eliminate the “noise” caused by random monthly variation and give you a true picture of what is happening in your business (up is good, down is bad).

What business performance measures are important?

Key performance measures for a business will vary by industry. Kraig Kramers recommends starting with five fundamental measures that apply to all businesses:

  • What causes sales (WCS)
  • Sales growth
  • Gross margin
  • Operating expense net of WCS
  • Operating profit

Chart these measures on a single page to get a true picture of whether your business is experiencing an imperceptible decline.

The task may appear daunting initially, but the good news is that business leaders do not have to reinvent the wheel – a spreadsheet version of this chart is available online.

The spreadsheet that Kraig provides also includes several tips to ensure that you get the most value out of it. The members of my Vistage Peer Advisory Group have found these performance measures helpful in recalibrating how they evaluate the performance of their companies.


Brian L. Davis is the leading Vistage Chair in the Twin Cities. Learn more about his Vistage member companies here.

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2 responses to “Is your business in an imperceptible descent?

  1. Good stuff Brian. Thanks!

    We are surviving, putting some good changes in place and slowly progressing but still painful right now. Had to cut $9k/month in marketing spend starting this month and raising prices this week as just a couple of examples. Also restructuring our financing and possibly doing some convertible notes so very busy but good lessons learned and we’ll be stronger when we climb out.

    I have one of my own rolling spreadsheets that I use to watch things and we use a weekly scorecard for the team to use but this one does a better job and the graphs are much easier for the team to identify with. I’ll try it out.

    * * *Clint Howitz* Pack Leader dogIDs 5522 36th Street South Fargo, ND 58104 701.277.4939 Office 701.277.3192 Fax 701.373.5546 Mobile *We believe in giving back to the animals in our lives who give us so much.* *If you do too, be our pal!* Facebook | Twitter | Pinterest | Google+ | Instagram

  2. Hello Brian, my name is John Welsh and your name was given to me by Ray Davey as a great contact to get to know more about Vistage. I think he even sent you an email about me a while back.

    I am scheduled to visit San Diego next week for round one of the training, but really think its important to discuss things with you before I go.

    I know you have a busy schedule, but was wondering if you had 45 minutes for a coffee tomorrow, Thursday or Friday? Please let me know.

    Thanks so much in advance for your time and wisdom!

    Best,

    R. John Welsh, Ph.D. | 612.386.4090 Managing Partner Non est gravis scire omnium responsum-est gravis scire reperir illum.

    It is not important that you know all the answers-it is important that you know how to find them.

    NOTICE: INFORMATION IN THIS MESSAGE, INCLUDING ANY ATTACHMENTS, IS INTENDED ONLY FOR THE PERSONAL AND CONFIDENTIAL USE OF THE RECIPIENT(S) NAMED ABOVE and as such is privileged and confidential. If you are not an intended recipient of this message, or an agent responsible for delivering it to an intended recipient, you are hereby notified that you have received this message in error, and that any review, dissemination, distribution, or copying of this message is strictly prohibited. If you received this message in error, please notify the sender immediately, delete the message, and return any hard copy print-outs. Thank You.

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