The Business Metric That Matters Most

Beware executives: An obsessive focus on growth leads your company down a dark path.

Starbucks was a Wall Street darling for over a decade until 2008 when the cafe chain announced the closing of 600 stores. Last year, Starbucks’ value (market capitalization) was cut by 75% (from $35 Billion to $9 Billion, and now back to $12 Billion).

Short-term growth is Wall Street’s core focus. Financial analysts have their methods of evaluating a company’s present value. As history demonstrates, they are usually wrong.

An obsessive focus on top-line growth and expansion is guided by short-term thinking. Short sightedness leads to long-term financial repercussions—it also damages your brand.

There’s only one core metric business leaders should be obsessed with: Long-term profitability. Is your level of profitability increasing as years go by? (This isn’t a stat you can easily find on Yahoo Finance.)

Long-term profitability will help evaluate:

  • How effectively you’re running your business
  • How much income you’ll be able to distribute to employees, principals, and shareholders
  • How flexible you can be for future innovation
  • And most importantly, how well you’re serving your customers

Does ten years of double digit growth justify having to close 600 stores? Or should those stores never have been opened in the first place? When your company’s value is cut by 75% in a few months, you can’t blame a difficult economy or rising milk prices. The responsibility falls on the leadership team to focus on what’s best for the business and the community over the long haul—not on impressing Wall Street with more store openings.

(Sorry Mr. Schultz, it’s nothing personal. I’m just using Starbucks for illustrative purposes. I think you run a solid business overall and I realize you weren’t in charge for a while.)

Be willing to sacrifice short-term growth for long-term profits. Build a sustainable business for tomorrow and everyone wins—you, your employees, your shareholders and your customers.

Ten Reasons to Focus on Your Best Customers

Your best customers are your Brand Lovers. Understanding the needs of your Brand Lovers and serving them better than anyone else is critical if you want to outmaneuver the competition and grow a long-term sustainable business.

Here are ten reasons why your Brand Lovers are so important:

1. Your Brand Lovers choose you more often than your competitors. To most Mac users, there’s no alternative competitor to choose from.

2. Your Brand Lovers spread the word about your brand and create new customers for you. Basically, your best customers are the source of your word-of-mouth stream.

3. Your Brand Lovers are by nature loyal customers. Customer loyalty is a better determinant of profitability than mass appeal. (Again, just ask Apple.)

4. Focusing on your Brand Lovers and cultivating customer loyalty can help you double your return on assets (ROA).

5. Similarly, serving your best customers can lead to explosive return on investment (ROI). Example: When Apple opened their retail stores they expected to generate $1,000/square foot. They actually generated $4,000/square foot.

Ultimately, your Brand Lovers drive the profitability of your business.

6. In The Loyalty Effect, Frederick Reichheld explains how a 5% increase in customer loyalty can increase a company’s profitability by 40 to 95%.

7. Think about what would happen if you turned just 10% of your occasional customers into Brand Lovers. For large enterprises, this shift represents billions in additional revenue and radically higher profit margins.

Need more reasons?

8. By focusing on your Brand Lovers, your cost of acquiring a new customer decreases.

9. Your marketing effectiveness soars as a result of building a stronger brand presence focused around the needs of your best customers.

10. By focusing on your Brand Lovers you can build a powerful brand that stands for something meaningful to your special customers. This gives you clear differentiation and helps you organically attract more of your most profitable customers.

The bottom line is that serving your best customers is the surest way to grow a profitable business—in any economic climate.